Top 4 Crisis Defender Dividend Stocks (抗压存股)

Posted on May 12, 2022 Written by

Global stock markets experienced mini dotcom bubble with over 30%-50% major correction in technology stocks, especially in US Nasdaq and Hong Kong. Both long term investors and short term traders are worried of high inflation over 8%, interest rate hike (may exceed 3% in 1 year), Russia-Ukraine War (higher commodity prices) which contribute to declining stock prices. A potential black swan may spread the fears in technology stocks to most sectors, resulting in a global financial crisis.

Instead of worrying about uncertain markets, a smart investor and trader may consider strong dividend giant stocks with protection by defensive sector business, a natural way to hedge against high inflation with interest rate hike while collecting growing passive incomes in a steady way.

In recent 13th Ein55 Charity Course on Global Dividend Stocks, we have raised fund of $21,700 for Tzu Chi Singapore to help needy families in Singapore. Under the spirit of charity, Dr Tee decides to share 4 defensive dividend stocks in 4 countries of 3 defensive sectors (banking & finance, utilities, oil & gas) with readers as defenders in current bearish stock markets (read each details in this article to fully understand on how to position in these giant stocks):

1) Singapore Dividend Bank Stock – OCBC Bank (SGX: O39)

2) Malaysia Dividend Bank Stock – Public Bank (Bursa: 1295)

3) Hong Kong Dividend Utility Stock – CK Infrastructure / CKI (HKEx: 1038)

4) US Dividend Oil & Gas Stock – Enterprise Products Partners (NYSE: EPD)

The best time to invest in global dividend giant stocks is always during global stock crisis (eg. Year 2020-2021 during pandemic, 2008—2009 during subprime crisis, etc), not only able to maximize the dividend yield (due to lower entry share price), also could have higher potential of capital gains (when market cycle moves from fear in low optimism to greed in high optimism). Dividend stock investing is not based on stock strategy (Buy & Hold for dividends) alone, may be integrated with cyclic investing (Buy Low Sell High), growth investing (Buy & Hold for capital gains), swing / momentum trading (Buy & Hold for short term / medium term gains), defensive investing and other Ein55 strategies.

However, not all the high dividend yield stocks (potential value trap) are suitable for dividend investing. A growing business in the past may not be sustainable during COVID-19 period and a dividend stock may not able to continue the payment of dividend. Similarly, even a dividend stock may have strong and sustainable business but if share prices is bearish due to emotional stock market or declining sector, it may not be a good choice for investors to Buy Low (prices may get lower in short term), integration with trading or alignment with promising sectors would help for a smooth entry.

Fundamental Analysis alone is not sufficient, a low PB or low PE or high dividend yield stock may be a value trap as this may be the result of lower share price with weakening businesses. Therefore, deeper analysis is required with LOFTP (Level, Optimism, Fundamental, Technical, Personal Analysis) Strategies. 

Let’s learn these 4 giant dividend stocks from 3 promising sectors (banks, utilities, oil & gas) as defenders in 4 countries (Singapore, Malaysia, Hong Kong and US), understanding the business nature, investment clock and unique strategy.

1) Singapore Dividend Bank Stock – OCBC Bank (SGX: O39)

With rising interest rates globally, bank sector would earn more in interest income (mainly through higher net interest margin, NIM). With accelerated pandemic recovery, banks would also make more profits in non-interest incomes (eg. insurance, credit card, investment, fund management).

So, giant bank stocks usually are good choices for dividend stocks as defenders during bearish market but they could change position as a striker with higher capital gains when stock market is bullish.

OCBC has nearly 100 years of business with merging and acquisition of many banks, supported by major shareholder, Lee Family, as well as an important subsidiary (contributing to about 30% earnings of OCBC), Great Eastern (SGX: G07), an insurance giant stock which has over 100 years of proven operations. Both giant stocks have experienced numerous stock market “crisis” over the past decades, survival-of-the-fittest principle is fully demonstrated, not comparable by any new rising star or promising IPO stock with limited history.

OCBC has strong business performance, after 60% dividend cap during FY2020 is lifted, dividend yield is back to 4.5%, highest among the 3 major Singapore Banks (OCBC, DBS, UOB), partly due to more undervalue in share prices.  Over the past 10 years, OCBC has increased dividends payment by 2.5X times, assuming similar performance in the next 10 years, dividend yield could increase to about 10% for long term investors.

OCBC is still at moderate low Ein55 Optimism (<50%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $13/share (about 8% potential upside in medium term) or over $15/share when market emotion may be greedy again. The stock is well balanced, suitable for dividend investing (Buy & Hold for dividend), growth investing (Buy & Hold for capital gains), but not for cyclic investing (near to fair price) nor trading when trend is still sideways.

OCBC Bank is an all-rounded stock but an investor or trader may need diversification over a portfolio of 10-20 giant stocks in 3 sectors of 3 countries, not to buy only 1 giant stock (concentration risk).


2) Malaysia Dividend Bank Stock – Public Bank (Bursa: 1295)

Similar as Singapore, Malaysia bank stocks also benefit from rising interest rates and reopening of economy, especially the international borders are widely opened to tourists.

Public Bank is one of a few remaining private banks (another is Hong Leong Bank, Bursa: 5819) in Malaysia with strong growing businesses. Public Bank is very prudent in expenses, staff cost is one of the lowest among the peers. It also has an insurance giant stock (LPI, Bursa: 8621) as subsidiary.

Relative to OCBC and peers in Singapore, Public Bank is moderate in dividend payment (about 3.3% dividend based on current share prices) but stronger in growth and high cyclic potential due to share prices heavily discounted over the past few years with lagging Malaysia economy.

Public Bank is still at moderate low Ein55 Optimism (<50%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $6/share (about 30% potential upside in medium term). The stock is well balanced, suitable for dividend investing (Buy & Hold for dividend), growth investing (Buy & Hold for capital gains), cyclic investing (Buy Low Sell High) and even trading when price is back to uptrend in short term.

Public Bank is an all-rounded stock but an investor or trader may need diversification over a portfolio of 10-20 giant stocks in 3 sectors of 3 countries, not to buy only 1 giant stock (concentration risk).

3) Hong Kong Dividend Utility Stock – CK Infrastructure / CKI (HKEx: 1038)

Utilities sector has defensive business (eg. power or water supplies with fixed rates for several years), therefore able to generate consistent dividends, even during a bearish stock market.

CKI is under CKH (HKEX: 1), both are Hang Seng Index component stocks with major sponsor, Li Ka-shing, the richest person in Hong Kong.  CKI also owns Power Assets (HKEx: 6) and Hong Kong Electric, as well as global utilities businesses, contributing to dividend yield of 4.7% (based on current share prices), a defensive stock popular among Hong Kong investors, especially with bearish stock market driven by ATM (Alibaba / Tencent / Meituan) and other technology stocks.

CKI is still at low Ein55 Optimism (<25%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $80/share (about 60% potential upside in medium term). The stock is well balanced, suitable for dividend investing (Buy & Hold for dividend), growth investing (Buy & Hold for capital gains), cyclic investing (Buy Low Sell High) and even trading when price is back to uptrend in short term.

CKI is an all-rounded stock but an investor or trader may need diversification over a portfolio of 10-20 giant stocks in 3 sectors of 3 countries, not to buy only 1 giant stock (concentration risk).

4) US Dividend Oil & Gas Stock – Enterprise Products Partners (NYSE: EPD)

Oil & Gas sector usually has cyclic business but commodity prices at higher optimism are supporting the giant stocks in oil & gas with stronger business. EPD is a special oil & gas stock with defensive business in midstream sector on delivery of crude oil and natural gas.  The earnings and cashflows are stable as business based on future contracts, less sensitive to volatile oil & gas prices.

Russia-Ukraine war has pushed the commodity prices to new high while demand for delivery of oil & gas would be more. Even when one day oil price may fall to lower optimism, EPD could still generate passive incomes which dividend payment has been consistent over the past few decades, currently dividend yield is 6.9% (about 4.3% net dividend yield after over 38% withholding tax to US government).

EPD is under MLP business model which can maximize dividend without corporate level tax, paying dividend 4 times each year, behaving like a REIT (both are required to pay 90% incomes as dividends to shareholders).

EPD is still at moderate low Ein55 Optimism (<50%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $30/share (about 30% potential upside in medium term). The stock is well balanced, suitable for dividend investing (Buy & Hold for dividend), growth investing (Buy & Hold for capital gains), cyclic investing (Buy Low Sell High) and even trading when price is back to uptrend in short term.

EPD is an all-rounded stock but an investor or trader may need diversification over a portfolio of 10-20 giant stocks in 3 sectors of 3 countries, not to buy only 1 giant stock (concentration risk).

===================================

There are over 2000 giant stocks in the world based on Dr Tee criteria, choice of 10 Dream Team giant stocks have to align with one’s unique personality, eg. for shorter term trading (eg. momentum or swing trading) or longer term investing (cyclic investing, undervalue investing or growth investing). Readers should not just “copy and paste” any stock (What to Buy, When to Buy/Sell) as successful action taking requires deeper consideration (LOFTP strategies – Level / Optimism / Fundamental / Technical / Personal Analysis) which you could learn further from Dr Tee Free 4-hr Webinar.

Drop by Dr Tee free 4hr webinar (learning at comfort of home with Zoom) to learn how to position in global giant stocks during COVID-19 stock crisis with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Zoom will be started 30 min before event, bonus talk (Q&A on any investment topics from readers) for early birds. There are many topics we will cover in this 4hr webinar, Dr Tee can have more time for Q&A if you could stay later after the webinar, you could ask on any global and local stocks including but not limited to 30 STI component stocks:

Ascendas Reit (SGX: A17U), CapitaLand (SGX: C31), CapitaLand Integrated Commercial Trust (SGX: C38U), City Development (SGX: C09), ComfortDelGro (SGX: C52), Dairy Farm International (SGX: D01), DBS Bank (SGX: D05), Frasers Logistics & Commercial Trust (SGX: BUOU), Genting Singapore (SGX: G13), Hongkong Land (SGX: H78), Jardine Cycle & Carriage (SGX: C07), Jardine Matheson Holdings JMH (SGX: J36), Keppel Corp (SGX: BN4), Keppel DC Reit (SGX: AJBU), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), OCBC Bank (SGX: O39), SATS (SGX: S58), Sembcorp Industries (SGX: U96), Singapore Airlines (SGX: C6L), Singapore Exchange (SGX: S68), Singtel (SGX: Z74), ST Engineering (SGX: S63), Thai Beverage (SGX: Y92), UOB Bank (SGX: U11), UOL (SGX: U14), Venture Corporation (SGX: V03), Wilmar International (SGX: F34), YZJ Shipbldg SGD (SGX: BS6).

Dr Tee will cover over 20 case studies, Singapore giant stocks, eg. CapitaLand Integrated Commercial Trust (SGX: C38U), Singapore Exchange (SGX: S68), Keppel Corp (SGX: BN4), Top Glove (SGX: BVA), Jardine Matheson Holdings JMH (SGX: J36), Vicom (SGX: WJP) and many others, Malaysia giant stocks, Hong Kong giant stocks and US giant stocks, both long term investing and short term trading.

There are limited tickets left for this 4hr free webinar, please ensure 100% you could join when register: www.ein55.com

View quick preview video below, Dr Tee will introduce 10 key stock investment strategies (股票投资十招) to be learned in 4hr free stock webinar:

Register Here (Dr Tee Free 4hr Stock Webinar):  www.ein55.com

Dr Tee Stock Webinar
Filed Under: Commodity Market, Fundamental Analysis, Macroeconomy, Market Optimism, Stock Market Tagged: , , , , ,

Oil & Gas Stocks (Singapore, US, Hong Kong) with 100% Profit (火上加油)

Posted on June 14, 2021 Written by

Crude oil crashed to negative price 1 year ago, how many of you dare to buy oil or related stocks when others were fearful? Everyone knows “Buy Low Sell High” is the secret to make money in investment but in practice, not many people able to pluck the low-hanging fruits.

In this article, you will learn from Dr Tee on Giant Oil & Stocks of 3 Countries (over 100% profits in the past 1 year) for longer term investing and / or short term trading with COVID-19 recovery stock rally. Bonus for readers who could read every word of the entire article, learning unique strategy to position in each giant stocks, including Ein55 Optimism level and Ein55 Intrinsic Value.

1) US Giant Oil & Gas Funds

Energy Sector SPDR Fund (NYSE ARCA: XLE) / US Oil Fund (NYSE ARCA: USO)

– 100% capital gains after oil price surged over 3 times in last 1 year

2) Singapore Giant Oil & Gas Stock: Union Gas Holdings (SGX: 1F2)

– over 100% profit since sharing in 5 months after sharing with Ein55 graduates & public webinars

3) Hong Kong / China Giant Oil & Gas Stock: Kunlun Energy Company (HKEX: 135)

– over 30% special dividend yield and over 20% capital gains since Ex-Dividend on 31 May 2021

Crude oil is a major commodity, therefore a giant by default (similar to property market which is also a form of commodity) as it is not possible for the world to live without energy supply.  Crude oil experienced bearish market due to natural market cycle since Year 2014 when WTI crude oil prices fell from high optimism of over US$100/barrel to low optimism of US$20/barrel, even crashed to negative price (only for 1 day due to abnormal oil futures contract, mostly from USO oil fund) during pandemic in Apr 2020.

For cyclic giant such as crude oil and related Oil & Gas stocks, the entire market was reborn after the worst time of negative oil price.  OPEC and non-OPEC oil producer countries learn to collaborate to stabilize the oil price during this crisis of century. Since then, oil price and related stocks start to rebound from low Ein55 Optimism but mainly limited to long term value investors. During recovery of pandemic over the past 1 year with more energy consumption (industries, transportation, household, etc), oil price and related stocks have gone up steadily, even approaching fair prices with mid Ein55 Optimism. With support of more short term traders who join the game recently (火上加油), oil and gas stocks are enjoying strong uptrend momentum in prices.

A giant stock may not need to be big in size, even a small company could be a giant stock. There are hundreds of Oil & Gas stocks globally but some could be junk stocks, Buy Low may become lower in share prices with declining businesses. Let’s study Global Giant Oil & Gas Stocks (following Dr Tee criteria), some are recovering from lower optimism in 3 global stock exchanges interested by readers:

1) US Giant Oil & Gas Funds

Energy Sector SPDR Fund (NYSE ARCA: XLE) / US Oil Fund (NYSE ARCA: USO)

There is no direct way of investing in crude oil market, some investors may consider either investing through oil futures fund, eg. United States Oil ETF (NYSE ACRA: USO) or Energy Sector SPDR Fund (NYSE ARCA: XLE).

USO oil fund applies rollover of WTI oil futures contracts to invest in oil indirectly.  Due to Contango in most of the time over the past few years, USO has underperformed actual oil price due to the additional loss (reducing overall capital gains) when rollover to future contracts with higher prices. However, current oil futures is under Backwardation, rollover of monthly futures contracts with lower prices would give extra capital gains, therefore higher probability of winning for trading crude oil with USO.

During pandemic in Q2 2020, WTI fell to $20/barrel, an investor may apply average down strategy (see earlier educational article by Dr Tee during the worst time of pandemic: https://www.ein55.com/2020/03/10-bullets-of-crude-oil-uso-etf-investing/), even if following oil prices to $0 (excluding negative price), average entry price is only $10/barrel (average of $20 + $15 + $10 + $5 + $0), now is already over $70/barrel, over 7 times.

Even if an investor invested in WTI oil price at the highest price of low optimism level, $20/barrel, the corresponding USO fund price was about $33/unit (after 8 to 1 stock consolidation), current price is about $48/unit (with WTI price of about $70/barrel), nearly 50% capital gains (not comparable with actual 3X oil price gains from $20/barrel to $70/barrel, mainly due to USO huge loss during negative oil price and Contango period). 

If reading most blogs or analysts reports during pandemic in Q2/2020 after negative oil price, most would write with hindsight that USO was in trouble, may even go bankrupt. Interest in Oil & Gas stocks was very low as well with so many bad news on crude oil market in the past.  In fact, this was a perfect time for oil & gas giant stock investing, especially for a few with strong business, supported by dividend yield over 10% (only known to Ein55 graduates), possible for contrarian investing with average down strategy to Buy Low, collecting quarterly dividend while waiting for the light at the end of tunnel for stock recovery to Sell High one day (currently is only a fair price for crude oil and related giant stocks).

After 1 year later, for investors who could take action with calculated risk on USO (despite this is not perfect for oil investing) or Oil & Gas giant stocks, they are rewarded now. For those who are still thinking or analyzing today (when others are not fearful anymore on oil market), the upside is limited, unless following short term momentum trading.

An alternative to oil futures fund or giant stock investing is to invest in a portfolio of large cap stocks (may not be giant stocks), diversifying the unsystematic business risks.  SPDR fund for Energy Sector Index (XLE) consists of big oil & gas companies such as Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), Phillips 66 (NYSE: PSX), etc. These oil & gas stocks are too big to fail (although may not be true all the time but unlikely for all to go bankrupt together), having more reserves to last through the winter time with low Ein55 Optimism oil prices. XLE fund portfolio is supported by integrated oil businesses (upstream oil exploration, midstream oil delivery and storage, downstream oil refinery and processing).

When WTI oil price was $20/barrel, assuming an investor invested in XLE (was about $28/unit), potential capital gains so far is 100%, 2X with XLE at about $55/unit.  XLE could be a better option than USO for longer term investing as it is supported indirectly by big Oil & Gas companies (may not be giant stocks, following Dr Tee criteria) with interests affected by oil prices.  USO is fine for shorter term trading unless during Backwardation period with additional capital gains.

Current Brent or WTI crude oil price of $70+/barrel is still below the Ein55 Intrinsic Value of about $80+/barrel. When there is market greed (common for cyclic commodity market), there is further potential to go beyond $100+/barrel, especially with weaker US Dollar and strong global economy during pandemic recovery after global vaccination.  If so, a smart investor would know when to exit, taking profits at high Ein55 Optimism, waiting for the next market cycle to profit from crude oil and related stocks again.

For conservative investors, it is fine to exit earlier with fair price (after Buy Low last time), converting Oil & Gas stocks to cash (as future investment opportunity fund) or Change Horse to other more defensive dividend giant stocks in the phase 2 (greedy market cycle) of stock market. Cash is King when used at the right time (usually during bearish market with low Ein55 Optimism such as Year 2020 pandemic), an investor has to know when to convert between stocks and cash.

2) Singapore Giant Oil & Gas Stock: Union Gas Holdings (SGX: 1F2)

There are only about 40 Oil & Gas giant stocks globally, excluding marginal giant stocks with familiar names such as Exxon Mobil (NYSE: XOM) and Keppel Corp (SGX: BN4).  In fact, many Oil & Gas giant stocks are small and medium cap stocks, businesses have been growing steadily even with bearish WTI crude oil prices over the past 6 years, falling from $100/barrel to $20/barrel to negative prices.  Value is what you get (barrel of crude oil) and price is what you pay, therefore abnormal negative price (seller has to pay to buyer) could not last over 1 day. It can be risky to invest in non-giant oil & gas stocks, especially in Singapore, Buy Low may get lower or even potentially going bankrupt in business, losing everything.

Union Gas is a young Oil & Gas Giant stock in Singapore (4 years after IPO) but having over 40 years of business in LPG (Liquefied Petroleum Gas), business performance has been excellent before and after IPO till now, potential to expand from Singapore to other Southeast Asian countries. Major shareholder (Teo family) has over 70% ownership, paying steady dividend to themselves and also to other shareholders. However, Union Gas share price was stagnant since IPO until last 1 year of pandemic (crisis as opportunity due to higher demand for LPG when people staying longer at home), starting to break above low optimism level of $0.30/share, going up steadily.

When Dr Tee assigned this homework to Ein55 Graduates in Jan 2021, main strategy was positioning for trading with entry share price at $0.53/share or above after each intermediate price breakout.  The stock has gone up a few rounds over the past 5 months, trend-following trading may be applied, especially for giant stock at higher optimism with support by growing business in a promising sector with strong global economy. Based on current price of $1.10 on 14 June 2021 (another 10% rally today), it has doubled its share price with 100% profits.

Union Gas is both a growth stock for long term investing and momentum stock for short term trading.  Dr Tee has used the same stock as case study in free 4hr monthly webinars (www.ein55.com) over the past few months, even a trader may enter halfway at $0.80+, potential gains so far is already over 30%.  For shorter term trading of giant stocks, it is crucial to include S.E.T. (Stop Loss / Entry / Target Prices) in trading plan.

Union Gas is one of over 200 stocks in Singapore Catalist Market, mostly are penny stocks (many have weak business fundamentals), only 5 stocks have over $1/share price.  However, some strong price penny stocks in the past may not be sustainable in future. For example, both UG Healthcare Corporation (SGX: 8K7) and Medtecs International Corporation (SGX: 546) from Catalist market were over $1/share, now back to penny stock (below $1/share) after the market greed has subsided for pandemic beneficiary stocks. Those speculators who chase after the high prices would suffer huge loss when the momentum is stopped one day.

In the last rally of global stock market, usually penny stocks including many junk stocks would go to higher optimism level, speculators may buy up (especially when stock prices rising over 2-10 times) without consideration of businesses, ignorant of price vs value. Sadly to say, this group of speculators (mainly applying tips strategy in action taking) may make some pocket money with over small gains of 10-20% but eventually may need to pay back over big losses of 50-90% to Mr Market when show hands at wrong time with more capitals in future trades of junk stocks with consideration of prices alone (happened several times before, including penny stock crisis many years ago with Blumont (SGX: A33), LionGold (SGX: A78), etc.

3) Hong Kong / China Giant Oil & Gas Stock: Kunlun Energy Company (HKEX: 135)

Kunlun Energy was a Temasek stock who was lucky to sell the stocks many years ago while the stock prices falling from peak of over $16/share in Year 2013 to $4/share during pandemic 2020. In fact, Kunlun Energy has been a little giant stock under giant parent company, PetroChina (HKEX: 857), No 2 largest Oil & Gas stock in the world. Kunlun is a small cap company with integrated LNG (Liquefied Natural Gas) businesses.

Kunlun Energy has strong business fundamental but share prices have been affected by bearish crude oil and natural gas prices. Natural gas usually is a byproduct of crude oil drilling, therefore both Oil & Gas stocks are strongly correlated in both businesses and share prices within similar sector, despite the applications are different. Even the future world may not need crude oil one day, becoming 100% green energy, still needs natural gas to produce electricity.

So, popularity of electric vehicles would not eliminate traditional energy sources of crude oil and natural gas. Buying technology giant stocks such as Tesla (NASDAQ: TSLA) is mainly investing in future (pretty picture with higher uncertainty), while buying Oil & Gas giant stocks, are based on proven current business (low-hanging fruits).  An investor may make decision with known facts (which sometimes may last for decades, no need to predict into future which may not come within one’s lifetime.

Over the last 1 year of pandemic, Kunlun Energy recovers in share prices from $4/share to over $9/share with over 100% capital gains. Over the past few months, Dr Tee has shared Kunlun Energy with both Ein55 Graduates and monthly free 4hr public webinars (www.ein55.com), those who take actions recently could profit in both one-time special dividend yield of 32% (mainly due to disposal of an asset) and over 20% capital gains since Ex-Dividend on 31 May 2021 till now.

Kunlun Energy is still a momentum stock for trading, certain trading platform may not adjust for 32% dividend yield on 31 May 2021, then investor has to take note of the 30% price ($9 to $6) differences. It may also be considered for longer term investing (current price is still near to low Ein55 optimism level) with Ein55 Intrinsic Value nearly $18. However, this stock is highly cyclical, may not be suitable for low risk tolerance investor (even Temasek sold it in the last bearish cycle), despite business fundamental is excellent with strong sponsor (PetroChina), share price could fluctuate more than indices.

Volatility could be friend for traders while low optimism (price lower than value) could be friend for investors. So, an investor has to confirm PA (Personal Analysis), aligning the investing strategies with own unique personality (eg. short term trading or long term investing). PA is an anchor point to avoid drifting of position due to emotional stock market. “Copy and Paste” of other people’s best stocks or successes may not work without internalization.

===================================

Due to sector rotation with weakening of USD, commodity market is recovering steadily from low optimism in last few years, now approaching mid optimism of fair value, attracting potential short term traders to follow the uptrend prices of commodity stocks (oil & gas, agricultural, precious metals, etc).

Value investor has option to enter these lower Ein55 Optimism stocks at much lower prices (Buy Low Sell High) with contrarian investing (supporting by high dividend yield). Short term traders would enter at much higher prices (Buy high sell higher), following trends.

Either long term investing or short term trading could make money in stocks. A common way could not make money is simply do nothing, waiting for inflation to depreciate the cash by -2% yearly which is sure loss over long term. Cash is King only when used at the right time, not keeping forever.

===================================

There are over 2000 giant stocks in the world based on Dr Tee criteria, choice of 10 Dream Team giant stocks have to align with one’s unique personality, eg. for shorter term trading (eg. momentum or swing trading) or longer term investing (cyclic investing, undervalue investing or growth investing). Readers should not just “copy and paste” any stock (What to Buy, When to Buy/Sell) as successful action taking requires deeper consideration (LOFTP strategies – Level / Optimism / Fundamental / Technical / Personal Analysis) which you could learn further from Dr Tee Free 4-hr Webinar.

Drop by Dr Tee free 4hr webinar (learning at comfort of home with Zoom) to learn how to position in global giant stocks during COVID-19 stock crisis with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Zoom will be started 30 min before event, bonus talk (Q&A on any investment topics from readers) for early birds. There are many topics we will cover in this 4hr webinar, Dr Tee can have more time for Q&A if you could stay later after the webinar, you could ask on any global and local stocks including but not limited to 30 STI component stocks:

Ascendas Reit (SGX: A17U), CapitaLand (SGX: C31), CapitaLand Integrated Commercial Trust (SGX: C38U), City Development (SGX: C09), ComfortDelGro (SGX: C52), Dairy Farm International (SGX: D01), DBS Bank (SGX: D05), Frasers Logistics & Commercial Trust (SGX: BUOU), Genting Singapore (SGX: G13), Hongkong Land (SGX: H78), Jardine Cycle & Carriage (SGX: C07), Jardine Matheson Holdings JMH (SGX: J36), Keppel Corp (SGX: BN4), Keppel DC Reit (SGX: AJBU), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), OCBC Bank (SGX: O39), SATS (SGX: S58), Sembcorp Industries (SGX: U96), Singapore Airlines (SGX: C6L), Singapore Exchange (SGX: S68), Singtel (SGX: Z74), ST Engineering (SGX: S63), Thai Beverage (SGX: Y92), UOB Bank (SGX: U11), UOL (SGX: U14), Venture Corporation (SGX: V03), Wilmar International (SGX: F34), YZJ Shipbldg SGD (SGX: BS6).

Dr Tee will cover over 20 case studies, Singapore giant stocks, eg. CapitaLand Integrated Commercial Trust (SGX: C38U), Singapore Exchange (SGX: S68), Keppel Corp (SGX: BN4), Top Glove (SGX: BVA), Jardine Matheson Holdings JMH (SGX: J36), Vicom (SGX: WJP) and many others, Malaysia giant stocks, Hong Kong giant stocks and US giant stocks, both long term investing and short term trading.

There are limited tickets left for this 4hr free webinar, please ensure 100% you could join when register: www.ein55.com

View quick preview video below, Dr Tee will introduce 10 key stock investment strategies (股票投资十招) to be learned in 4hr free stock webinar:

Register Here (Dr Tee Free 4hr Stock Webinar):  www.ein55.com

This image has an empty alt attribute; its file name is Ein55-Website-Post-Event-Register-Bursa.jpg
Filed Under: Commodity Market, Macroeconomy, Market Cycle Investing, Stock Market Tagged: , , , , ,

4 Forces on Crude Oil Funds (四面楚歌)

Posted on April 25, 2020 Written by
crude oil funds

Crude oil is a commodity giant, similar to gold, physical price should not drop to $0.  However, it is possible for derivatives of crude oil (eg. futures contracts) to drop below zero under special condition, eg. US oil price for WTI was negative $37/barrel for May 2020 futures contract during the most fearful time in Coronavirus pandemic with the lowest energy demand due to lockdown in US and global countries.

For gold commodity, investor could buy physical gold bar (if price drops below zero) and hide under pillow or as display at home. For crude oil commodity, investors could not keep the explosive materials at home, therefore need to have storage place which would incur high cost during the pandemic period as oil storage level is near to its maximum level, may be full by mid of May 2020.  Therefore, investors who buy oil, even at positive prices, may not able to store the oil unless demand is more than supply, only then there is new room for storage.

Nevertheless, oil commodity is still a giant for longer term investing. However, there is no ideal way to invest directly in oil, each option has its own pros and cons. Typical ways are through oil futures trading, oil ETF (eg. USO, UCO, BNO, etc), energy ETF (eg. XLE, VDE, etc) or major oil & gas stocks (eg. Exxon Mobil – NYSE: XOM, Chevron – NYSE: CVX, etc).

Among all options, USO oil ETF (the largest crude oil ETF fund in the world) is a compromised way for investing in short term to mid term to follow oil price but investors may need to pay for monthly holding cost due to losses in contango (reversed is holding gain during backwardation, search for past articles by Dr Tee for details). Oil & gas stocks are more suitable for long term investing (benefiting from oil price recovery indirectly through business) but investors has risk of weaker oil & gas companies may go bankrupt during oil crisis with prolonged low oil price, therefore safer to focus in giant oil & gas stocks with strong business fundamental, continue to be profitable even during last 5 years of oil crisis.

USO (WTI oil ETF) and oil commodity used to have good correlation within about 3 years (longer than that, contango will show significant difference, reducing the capital gains). The past few months of high contango (especially for May 2020 futures contract) has resulted in USO value declining significantly. If oil futures continue to drop to negative prices for June 2020 and a few more months, not only USO may have risk of going bankrupt (NAV approaching $0), even many global oil & gas companies may disappear (Hin Leong Trading of Singapore is just an example of victim).

The correlation between USO and WTI oil is used to be this way:

Oil  (WTI) / USO (ratio is about $1/barrel oil = $0.21 USO)
=============
$20 / $4.20

So, when oil price drops proportionally in a gradual way within months or years (not within 1 day), USO (without high contango) may follow closely in this manner:

Oil  (WTI) / USO (ratio is about $1/barrel oil = $0.21 USO)
=============
$20 / $4.20
$15 / $3.15
$10 / $2.10
$5 / $1.05
$1 / $0.21

However, oil market becomes speculative during Coronavirus pandemic, negative oil price (happened only for 1 day) becomes the victim. USO suffered great loss in that day of negative price. USO has about 20-25% risk exposures for May 2020 futures contracts, probably could still sell at low prices above $0, therefore overall losses are about 25% due to rollover to June 2020 futures contract with higher prices. USO is in a better shape than other oil fund, eg. Bank of China oil fund (Yuanyou Bao – 原油宝) which selling May 2020 futures contract at closing market price of negative $37/barrel), suffering permanent damage, risk is much higher (this fund is stopped for new investors). Despite oil prices fell to negative region, actual transaction are fewer, prices for nearby month futures contract (Jun 2020) quickly recover, now back to a more normal price of $17/barrel.

USO oil ETF is the largest oil ETF, could quickly get new investors with new funds whenever there is a new in oil prices. Even so, USO suffers major correction over the past 1 month, the new correlation (with USO contango losses) as of now is

Oil  (WTI) / USO (ratio is about $1/barrel oil = $0.15 USO), new ratio based on 24 Apr 2020

=============

$17.30 / $2.57

So, for every $1/barrel oil price, it means USO has depreciated from equivalent $0.21 (before negative oil price) to $0.15 (after negative oil price), about 25% loss due to contango during that day with negative oil price (rollover from May to Jun 2020 futures contract with historical high price gap). If June 2020 happens again for negative oil price (may or may not happen again, only knows about a few weeks later), USO would suffer more losses again.

Whether USO (and other oil ETFs) may go bankrupt (NAV approaching zero) in short term or could survive and recover together with oil commodity giant in longer term, depending on these 4 market forces:

1) Coronavirus (Demand vs Supply)

How long would Coronavirus last and when US would restart economy are keys. This determines when demand > supply for oil. Now oil supply < demand during pandemic. Based on the current Coronavirus trends, there is earlier sign that US has reached intermediate peak of new daily cases but downtrend is not so clear. With 50 states of US take turn to restart the economy, there is high risk of second peak with more infection (this is reflected in Europe countries as well with restart of economy too early).

If there is no major change in policy, Coronavirus could fade away in June for US but this implies at least 2 more months of low demand for oil price. So, there is at least 2 months of winter time for low demand for oil in US and even the world (similar trends as US).

2) Oil Storage Limit (Demand = Supply)

In the near term (eg. June – July 2020 futures contracts), it is possible for negative oil prices to happen again, especially oil storage in US will reach maximum limit by mid of May 2020, market sentiments with great fear (四面楚歌) may cause abnormal negative oil prices again. 

By then, new oil produced has no more storage. So, demand = supply for oil when there is no more new storage. It means most oil & gas companies would lose more money (no oil = no income), there is high expenses to shutdown the oil well.  When more oil & gas companies go bankrupt or stopping production, naturally supply will be less (even demand is still low), oil price could be supported but it would take months for some weaker companies with little cash reserves to burn out first.  When company goes bankrupt, it is bad news for energy sector ETF (eg. XLE) as it is business fundamental dependent but it could be good news for oil market (survival of the fittest).

During bearish market, for farmers, historically there were cases of some pour away milk (or destroy vegetables), instead of selling at low prices or given free. This is a way to reduce supply to support the “commodity” price. The idea is the same for oil but it could be a challenge to throw away oil as it requires proper way to dispose the explosive materials, any spill would be a high cost to clean.

3) Political Economy (Invisible Hands)

US government may intervene when more US shale oil companies go bankrupt with over 6 months without much production (no place to store oil if producing anymore) if demand is low during pandemic. Collapse of oil & gas industry (if not saved by global countries), may start with US shales oil company with production cost of $50/barrel, burning money each month when oil price is below $20/barrel. After that, it may extend globally to OPEC and non-OPEC (eg. Russia with production cost of $20/barrel), eventually even Saudi with the lowest production cost ($5/barrel) may not able to survive.

Historically, oil & gas companies are strong supporters of local government, contributing to local economy, creating jobs. Therefore, there is high possibility that global stimulus plans (including “unlimited QE” of US) would save this key industry for collapsing in short term, so that it could recover again in mid to long term with natural demand > supply when Coronavirus crisis is over.

In fact, there is no need for demand > supply for oil price to goes up. As long as oil storage reaches a limit, no new drop of oil could be produced before it is being used, so oil price would be stable. This is similar to 0% car growth rate in Singapore, for each car deregistered, only then a new car COE (Certificate of Entitlement) may be issued, therefore the car price would not drop to zero. However, under extreme fearful condition, it is still possible for car COE to drop to $1 but car price would never drop to zero unless there is a derivate for car such as “futures contracts of Singapore cars”, only then it is possible to have negative prices, implying car buyer would get paid when buying a car.

If oil market is speculative (eg. negative oil price by right should not happen), when oil is at very low price, eg $10 or $5 or $1/barrel, then shorting won’t help much as even USO may go bankrupt, then not much “meat” of profits left. If so, the “invisible hands” (big boys) may start to turn to long oil price to profits again from oil, but using reserved direction.  So, who are these invisible hands? It could be big investment funds (non-oil related), major oil producers themselves (covering the losses in oil prices with investing in giant oil & gas stocks at very low prices). In the next 6-12 months, we may know who are the big gainers in oil market, then invisible hands would be clearer. Usually they could affect the oil prices, therefore there could be major news in next few months if they decide to turn the oil market around again.

4) Size of Oil Funds (Strength of Fund)

New global investment would keep on coming to oil ETF funds (including USO, the largest and most popular fund, despite it has contango issue with high holding cost), especially whenever oil prices coming to new low. The reason is there is no other better way to invest in crude oil, unlike some people could buy gold or silver and keep at home for price appreciation one day.

If USO losses in contango is supported by new funds (entering at lower unit price), the fund still has positive NAV, could still continue follow the oil prices for possible recovery. It means this is a mind game between high rollover cost (monthly holding cost) vs tremendous high potential of oil prices (when demand > supply with no market threat one day). If USO could last until oil prices reverse the mega trend (from the worst case, could be negative $37 or even lower), then the high rollover cost of contango is a good issue to have because capital gains from higher oil price could offset this holding cost. However, an USO investor may not expect 100% capital gains when oil prices recovers from $15 to $30/barrel as there was cost incurred during the holding period.

However, when fewer new funds come in, USO continues to lose in contango for 6-12 months with negative oil prices or large monthly prices gaps, then possible even for USO to go bankrupt but this will be a very severe market condition as it means many oil & gas companies may also bankrupt at the same time (even XLE would have serious correction, many oil & gas stocks would disappear).  Before that, smaller oil funds which are less popular would go bankrupt first if could not last through the winter of high contango with low oil prices.

USO plans for 1-for-8 reverse share split (stock consolidation to 8x higher price by reducing the number of shares), price gap from $0 (psychological limit) would be further, giving more rooms for contango to erode the prices with monthly holding cost. In addition, USO also could rollover to 2 months later, not just to next month of futures contracts which could avoid high right of negative oil prices. However, if so, correlation of USO and oil commodity would be weaker, may not benefit fully when oil prices recover in very short term (eg. certain unexpected good news from major forces mentioned).

In short, size does matter for oil ETF. USO could not be 100% protected as it is based on derivatives of oil futures contracts, therefore it is not the same as oil commodity which is a giant. USO is a conditional giant when the rising oil prices could offset the contango cost. If contango cost is more and faster than the rising oil prices, then any oil funds (including USO and many other oil funds) or even oil producer countries (not just companies) have to go bankrupt.

===============================

In short, whether USO and other global oil ETF funds or even many oil & gas companies may go bankrupt depends mainly on 4 factors above, a power struggling among big funds, invisible hands, Coronavirus and oil storage limit. If USO could still survive and reverse the trend, due to recent contango losses, the capital gains (eg. when oil price is over $30/barrel again) would be less. For an investor entering USO around $4 with oil price around $20/barrel, after 25% contango loss (could be more), may need to wait for oil price to recover to about $30/barrel to breakeven.

It will be a mind game among the earlier 4 market forces to determine up and down and mega direction of oil prices. Oil commodity is still a giant but it has become a tool for speculation, behaving in an abnormal way. USO oil ETF is based on oil commodity derivative, not a giant during contango period with low oil prices, especially during negative oil price which is very abnormal, mainly due to complex interaction of 4 market forces.

So, investors of oil funds must understand own personality, how much risk tolerances (any diversification or position sizing or cut loss measure) could take as crude oil is a high volatile and speculative market due to unpredictable market forces, especially during this period. Hope the sharing on oil market has helped readers. Please make your own decision for investing.

There is no need for investors to take risk to invest in crisis commodity or crisis stocks. There are many giant global giant stocks which could continue to grow in business and remain profitable during Coronavirus pandemic. Dr Tee spends about half a day to prepare this article as some readers may be worrying about the crude oil market, including chance of survival of oil ETF funds. When I finish the article, it is about 8pm, very touched to hear the cheering sounds all over the neighbourhood, motivating one another during this pandemic crisis. Even we may not know when the health or financial crisis may be over but we have faith that it will be over one time, so we need to ensure we are safe during this period of uncertainty, staying healthy by exercise more and enriching mind with valuable investment knowledge.

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 member.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

Filed Under: Commodity Market, Market Outlook, Stock Market Tagged: , , , , , , ,

10 Key Notes Before Investing in Oil (十年寒窗)

Posted on April 22, 2020 Written by
oil investing commodity stocks negative price

With oil price drops to negative recently (as if Singapore car COE drops to $1), some investors may be interested in investing in oil to buy at extremely low for tremendous potential capital gains. Before any action, readers may read through these 10 key notes carefully to identify the suitable way of investing in oil aligning to own unique personality.

1) Oil Commodity

Crude oil (WTI or Brent) is a pure commodity trading, based on buy low sell high to make money.  Unlike stock, there is no business supporting the commodity prices. The hidden fundamental is with demand vs supply of economic cycles and black swans (eg. oversupply with price war of oil producers countries and low demand during Coronavirus pandemic).

2) Oil Investing

There is no simple way to invest or trade oil commodity directly, usually could be done in 3 ways, each has own limitation:

– buy physical oil (not practical as need to store the oil which incurs additional cost)

– trade oil futures (more suitable for seasoned traders for short term trading, could be speculative)

– investing oil ETF (more suitable for short-term to mid-term investors without leveraging)

3) Oil ETF

For oil ETF, investment is through oil futures contracts, rollover in each month to track either WTI (US oil) or Brent (world oil outside US).  The alignment of oil ETF and oil price is acceptable within a few years (short term to mid term).  For longer term oil investing, oil ETF usually would underperform actual oil market due to rollover cost (holding cost) during contango which happened about 60-70% over the past 1 decade.

For oil ETF, there are 2 stages to take note: Contango (negative rollover yield) vs Backwardation (positive rollover yield).

4) Contango for Oil ETF (Rollover Cost – loss in holding)

This is when oil futures contacts prices of later months are higher than nearby month. It happens usually in lower level of oil prices (lower optimism) with outlook of higher prices in future. There is rollover cost each month for swapping the futures contacts, could be a few % higher prices each month. Contango effect is getting more serious over the past few months during Coronavirus period, over 10% from month to month.

Investors could make money when the potential capital gains from volatile oil prices (eg. 20-50% within 1 year) is much higher than Contango rollover cost. In longer term, if oil price remains at lower prices with Contango stage, the high rollover cost would offset the capital gains from appreciation of oil price. So, an investor has to weight between these 2 conflicting factors, potential high capital gains at lower optimism vs rollover cost (holding cost).

A compromised way is to buy only when there is clear reversal of low optimism oil price (eg. applying technical analysis) when price is more bullish (with uptrend). This way, potential capital gains could offset the rollover cost of Contango. Alternatively, avoid investing during period of high Contango (much higher prices for futures contracts in later months), although usually the oil price is usually having more discount during this time. Of course, investors have the choice to wait for Backwardation period to get positive gain from rollover for holding the oil ETF.

5) Backwardation for Oil ETF (Rollover Yield – gain in holding)

This is when oil futures contacts prices of later months are lower than nearby month. It happens usually in higher level of oil prices (higher optimism) with outlook of lower prices in future. There is rollover gain each month for swapping the futures contacts, could be a few % lower prices each new month (saving cost when rollover to cheaper contracts). Examples of Backwardation were in years 2012-2013, 2019, about 1/3 of the time.

Investors could make money when capital gains in oil prices is moderate (eg. less than 10-20% within 1 year) but combined additional positive gain in rollover yield (as if passive income as dividend stock), will be reasonable. Backwardation may not stay for long term, even if it does, the potential capital loss (oil price at higher level, more potential to fall in long term) is higher if hold long term. So, an investor has to weight between these 2 conflicting factors, capital gain / loss and rollover yield.

A compromised way for Backwardation is to buy only when oil price is still uptrend (despite higher level). This way, potential capital gains from trading (despite lower potential at higher price level) is reasonable as there is some rollover yield (at least no rollover cost as in Contango).

6) Negative Oil Price

Technically, it is possible for oil investors to apply multiple entries during low optimism (balance potential high capital gains with high rollover cost during Contango), eg

$20, $15, $10, $5, $1 per barrel. This way, there is no need to predict the bottom of oil price.

This is true with assumption that oil would not drop to $0 which is true for physical oil (similar to petrol in gas station, could be lower price but never could be $0).  However, due to human greed (political economy with price wars in oil producer company) and fear (Coronavirus with over 50% people in the world staying at home during lockdown with low energy consumption), together with nearly full storage of oil capacity, oil price dropped to negative $40/barrel. This is as if a buyer could get a barrel of oil, not only free, but additional $40 reward for buying.

This is against human nature but negative oil price actually happened on 20 Apr 2020 as Apr-May 2020 are likely the peak of Coronavrus pandemic in the world (especially US with which US oil consumption would be the lowest during this period). The negative oil price may happen again for June 2020 oil futures contract if there is no significant improvement in oil market sentiment.

Negative oil price is as if a complex number (i) in mathematics which is not real but could have its effect.  So, for very conservative oil investors, instead of $0, need to consider negative $40 as new bottom in multiple entries:

$20, $0, negative $20, negative $40 per barrel.

In addition, the investors at such crisis time also need to suffer the potential high Contango (over 10-30% monthly rollover cost). Therefore, oil investing is more speculative than it should (if one could go to gas station to buy 1 barrel of oil at $1, selling back at $10 after 1 year later). In the physical world, buying oil requires transportation, storage and other costs, not as simple as buying 1 ounce of gold (another commodity but different condition as crude oil) which can be kept safely at home for long term investing.

7) USO ETF (WTI)

USO ETF is a way to invest WTI (US Oil) which one has to consider al the points 4-6 above with Contango, Backwardation and even negative oil price. Since an investor could not buy oil directly, the multiple entries have to be based on USO prices, eg:

Assuming the USO price is $/unit, multiple entries could be around:

$4, $3, $2, $1, $0.10 per unit of USO

Which is corresponding to oil prices of

$20, $15, $10, $5, $1 per barrel

Since oil price could fall into negative, therefore prices targets based on USO is more exact than based on oil price (especially when it falls momentarily to negative, no reference in USO price). With time, USO would approach similar scale as above (eg. USO $2 when oil price is around $10/barrel, USO $4 when oil price is around $20/barrel) with exception of sudden drop to negative price (which would recover the next few days).

For investors who could take higher risk of high contango during Coronavirus crisis need to take note that negative oil price may not mean super low price for USO ETF as the physical world could not take negative fund which means bankruptcy. An investor may wait until oil price to stabilize first (over Coronavirus period), even if oil price could be higher, safer for positioning. 

Of course, one has the option to totally ignore oil investing through future contracts or oil ETF (see other options in later points). Oil could drop to negative number or near to $0 but oil ETF could not stay at near $0 for too long as there is rollover cost. To minimize high volatility in nearby month futures contract, USO ETF may need to rollover to 2 months later, not just on nearby month, to minimize the risk of negative price. However, it means USO and oil price will not be so closely correlated during those blind spots of time.

8) Potential of Oil Market

Similar to global stock market, oil market also depends on black swan, Coronavirus, whether it could end on time by summer, in US and also for the whole world. If so, people could step out from the home, could travel (cars, trains, cruise, flights, etc), could work (manufacturing plants) and many other activities that need more energy. Based on the Coronavirus analysis so far, there is a high possibility that the pandemic may end or fade away by summer. However,

Oil produces may not let the oil market (the largest commodity market in the world) to fall to low for a long period of time as it means these countries would suffer losses at national level.

US – largest oil producer (production cost is about $50/barrel), mainly shale oil companies would go bankrupt if oil is below $20/barrel, not to mention at negative price or near to $0. Trump may use the low oil price to top up the national oil reserves and support US oil price at the same time but it subjects to congress approval. If shale oil companies go bankrupt, US economy would be serious affected.

Saudi (with OPEC) – second largest oil producer (production cost is about $5/barrel), despite it is the only country which could last the longest with lower price, high national expenses with high dependency on oil revenue, the oil price could not stay at low level below $20 for a few years. Currently lower oil price is partially supported by high US dollar strength (higher revenue when converted to local currency) but when USD is weaker, it would become double blows to Saudi and also entire OPEC.

Russia (with OPEC+) – third largest oil producer (production cost is about $20/barrel), it is already a loss for current oil price, when Russia economy remains weak, this will be a high pressure. This is also true for all other oil producers countries.

These top 3 oil producers countries control about half of the world oil production and having influence over other smaller oil producers countries. The production cut starting in May 2020 is below market expectation, therefore more cut may be required to fight against the immediate risk of storage capacity issue (which will be full in May 2020 for most places in the world, no place to keep for new oil produced).

Price is moved by demand vs supply. Oil producers countries could control the supply but another 50% is dependent on demand which mainly depends on Coronavirus. Therefore, commodity has a natural market cycle of low and high, only uncertainty is duration and timing of low and high is a variable.

So, oil commodity investing may not be suitable for those without holding power, not to mention there is no suitable investing tool as oil ETF would incur high rollover cost during Contango period. A safer compromise is not to buy oil at the lowest point with the most uncertain period with the highest rollover cost. Instead, wait for some light at the end of tunnel with higher oil price, lower rollover cost, higher uptrend price which is an insurance premium for extra safety.

9) XLE (Energy ETF)

An alternative to oil commodity investing is to investing in a portfolio of oil & gas stocks through XLE (SPDR Energy ETF) or similar energy ETF with energy related stocks.  Many of the composition stocks are oil & gas companies (integrated, upstream, midstream, downstream) which has certain correlation to oil prices. The up and down in oil prices would affect the businesses of these XLE sector companies, therefore an investor could benefit indirectly the low oil price when investing these oil & gas companies through XLE.

XLE ETF provides diversification, suitable for lower capital investor for crisis sector investing. Even it is possible for a few companies may eventually go bankrupt (eg. if oil price below $10/barrel for a few years), energy fund is based on business, unlike USO ETF which has high rollover cost, XLE is more suitable for holding longer term. When oil price is at higher optimism level or just moderate optimism one day (assuming Coronavirus disappear), XLE would also benefit with capital gains in share prices, which are reflected in sector ETF. However, it is more suitable for longer term investors when investing at low optimism level (十年寒窗).

The bonus for XLE investor is to collect 3-10% dividend yield (which may not be stable, depending on the entry prices), as if Backwardation period USO oil ETF with positive rollover yield. Contango is as if negative dividend yield, more holding cost with longer term investing.

XLE investing requires alignment with optimism (entry at low optimism, exit at high optimism, collecting 5-10% dividend yield during waiting period). Management cost is relatively lower than USO but it won’t benefit from sudden surge in oil prices for short term, instead, profiting through the businesses with stocks in oil sector which benefits from higher oil price over mid to long term.

10) Oil & Gas Giant Stocks

For smart oil investor, one may not just invest in oil through ETF (rollover cost) or XLE (stable but requires holding power). One could become own fund manager to invest in oil & gas giant stocks (44 global giants based on Dr Tee giant criteria). Even when oil prices have been at lower optimism over the past 5 years of crisis, these giant stocks are strong in business fundamental, still can make money each year with consistent growth.

Some of these companies, for example, are in midstream segment of oil storage or delivery business, not affected much by oil prices. When oil is full storage capacity due to low demand, these companies could charge a higher price. They are also good candidates for longer term investing, investing at lower optimism, collecting dividend (over 5-10% yield) as passive income while holding during winter time, eventually better with growth investing with higher optimism when oil and share prices appreciate one day. At higher optimism, an investor has a choice to either sell for profits or even hold for longer term investing (if the stock is defensive in nature).

Crisis investing is not easy as it is not simply Buy Low or “Be Greedy when Others are Fearful”. It requires understanding the risks and opportunities of each option, then an investor may choose the right tool (eg. oil ETF, XLE energy ETF or oil & gas giant stock) with strategy aligned with own personality, either for short term trading or long term investing.

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

Filed Under: Commodity Market, Market Optimism, Market Outlook, Stock Market Tagged: , , , ,

Myth of Negative Oil Price (扑朔迷离)

Posted on April 21, 2020 Written by
negative oil price

US oil (WTI) May 2020 futures contract price crashed yesterday (20 Apr 2020 is the last day before May 2020 US oil future contract expires) to negative $37. Global investors may be confused, why it is possible for oil price to drop to negative, does it mean oil investment fund will go bankrupt? Global consumers may be excited, does it mean petrol from gas station is free from now? Here are the details to uncover this myth.

An oil futures contract is an agreement to buy or sell a certain number of barrels set amount of oil at a predetermined price, on a predetermined date.  There are 2 main oil futures contracts: WTI (mainly US oil prices) and Brent (overseas oil prices, outside US). Oil investors would choose futures contracts over spot contracts which requires delivery / storage of physical crude oil in barrels which is not practical. 

An alternative is investing through oil ETFs (eg. USO, UCO, DBO, BON, etc) without actually owning a futures contract by investor (maximum risk is limited to investment on ETF), aiming to follow the oil price movement for capital gains. However, these oil ETFs are not suitable for holding long term (eg. more than 3 years) as there is high rollover cost for futures contracts, a strategy by oil ETF fund manager to keep the oil investment without need to physically store the oil. When futures contracts prices for later months are higher than nearby month, it is called “Contango”, would incur additional cost, when adding up over long term, could be significant to reduce the potential capital gains in actual oil price appreciation. Reversed process is called “Backwardation” which oil ETF would have positive rollover yield due to lower futures contract prices for later months.

In general, when oil price is volatile in short term (eg. up and down 20%-50%), these rollover cost or return may not be obvious. However, in May 2020 futures contract, there is a serious contango with low demand for oil price (due to global lockdown for Coronavirus, especially in US which affects WTI oil price) with over-supply of oil (global oil producers’ action to limit the production is not fast nor strong enough). Due to nearly full storage of oil in US, a buyer would have problem with high storage cost if buying in May. With tremendous sell by oil ETF for May 2020 futures contracts (rollover to buy later months futures contracts), oil price drops below $0 to negative $37, technically sellers are paying to buyers to collect the oil which is abnormal, never happened before.

This abnormality of negative oil price is a historical event, a combination both black swans of Coronavirus (low oil demand) and crude oil price war (high oil supply), breaking down near the worst time of US with severe Coronavirus condition in Apr 2020.  The nearby or front month futures contract now is Jun 2020, WTI oil price is back to a more normal of $21/barrel (usually within $5 difference with Brent oil price which is around $25). So, global consumers may be disappointed as gas station won’t give free petrol unless this negative price is over a longer period of time.

The same negative oil price may or may not happen before expiry date of June 2020 futures contract as oil investors have 1 more month to observe the changes in oil price demand and supply, especially the Coronavirus condition which affects the US economy when it be restarted. The production cut of global oil produces from May 2020 although limited, may help to a certain extent.

negative oil price

The global Coronavirus condition is improving with 5 days consistent downtrend in number of new daily cases. US has also shown a gradual downtrend in new daily Coronavirus cases over last 1 week which is an weak positive signal, if better results are seen by end of Apr 2020, more states in US would restart the economy. Most Americans drive, so when lockdown is stopped, US oil price (WTI) would recover naturally with more energy consumption. Trump may also consider to buy more unwanted US oil at low or negative prices to top up the national oil reserves. Europe countries have significantly lower number of new daily Coronavirus cases, lockdown may gradually be loosened, combined with more manufacturing activities in China, global demand for oil price would gradually pickup by summer. Singapore has a surge in number of Coronavirus cases over the past 1 week but mainly this is within foreign labour dormitories, risk of community infection is in fact lower with stricter partial lockdown.

Global consumers likely could continue to enjoy cheaper petrol prices but not free oil as the negative oil price is a rare product of 2 black swans of Coronavirus crisis and oil price war crisis. If oil prices are below $20/barrel over a longer period of time (eg. a few years), weaker oil producers countries would start to go bankrupt (see past example of Venezuela, even oil price was above $50 a few years ago), following by US shale oil producers (production cost is around $50/barrel), then Russia (production cost is around $20/barrel), finally only Saudi (despite production cost is $5/barrel, there is high national expenses, need much higher oil price to sustain the normal lifestyles).

So, what are the options for global oil investors? Oil ETF such as USO has reasonable correlation to WTI, eg. when oil price surged from $20 to $28 a few weeks ago, USO also went up by similar magnitude of 40% in short term. With yesterday negative oil price, USO is only partially affected as most contracts are already rollover to later months, USO is corrected by around 10%.  USO has some flexibility to rollover future contracts to 2 months later, instead of to nearby month (more volatile, negative oil price may have chance to happen again by 20 May 2020 before June 2020 futures contracts expire) but this would affect the tracking of WTI short term oil price (in exchange for smoother price movement). USO is not suitable for holding long time due to Contango effect, so for oil investors who see significant appreciation (eg. 20-50%) in future oil price in short to mid term (less than 1 year), may consider to take progressive profits as rollover cost is inherent to oil ETFs (similar to holding cost), hard to find other better way to invest in oil prices.

Oil investors may also consider indirect way of investing through energy ETF (eg. XLE, SPDR energy sector ETF) which invests in oil & gas stocks with reasonable correlation to oil prices but won’t be easily affected by such abnormality of negative oil price (XLE was only down by 3% yesterday with negative oil price).

A better oil investment option could be to focus in global oil & gas giant stocks (44 of them based on Dr Tee giant criteria), many are midstream oil 7 gas stocks, eg. storage or delivery of oil which is a more defensive business segment. Storage of oil is a consistent profitable business, some companies are strong in business despite oil & gas crisis over the past 5 years. Oil delivery business could be temporary affected due to lower demand of oil. These midstream oil & gas stocks could even pay consistent dividend, suitable for holding during low optimism of stock prices, waiting for recovery of oil price for potential capital gains indirectly.

Of course, one may do futures trading directly without oil ETF or oil & gas stocks. However, futures trading is speculative in nature for shorter term, may not be suitable for retail traders. Even Singapore oil trading company, Hin Leong, could go bankrupt after losing US$800M in oil futures trading. As a result, 3 major banks (DBS, OCBC, UOB) in Singapore would need to set aside provisions for this non-performing loan (NPL) but risks to these banks are lower than 5 years ago when more weak oil & gas companies were in trouble (eg. Swiber, Marco Polo Marine, etc).

Sharing above is for educational purpose. Readers have to make own decision after independent thinking, especially on risk tolerance level, always having the option not to consider any investment in crisis sectors with business seriously affected.

There are other sectors which business are relatively strong, eg. technology (especially internet related), consumer staples, healthcare, property, etc, many global giant stocks (over 1500) could be considered. Due to the uncertainty in Coronavirus condition (despite downtrends in last 5 days for world condition), stock investors may need to plan for capital allocation (investment in batches) with a portfolio of giant stocks supported by strong fundamental business, so that one could invest with a peace of mind, no need to worry of abnormality such as negative oil price.

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

Filed Under: Commodity Market, Stock Market, Trading Tagged: , , , , , , , , ,

Temasek Acquires Crisis Stock Keppel Corp (趁虚而入)

Posted on April 3, 2020 Written by
Temasek acquires Keppel Corp BN4 stock

Temasek has offered partial acquisition to Keppel Corp (SGX: BN4) shareholders at the price of $7.35/share up to 51% ownership over 1 year period (with some conditions applied). Since this is not a full acquisition, some investors may be confused of what is fair price for Keppel Corp. Let’s study this acquisition offer in details.

Temasek owns 20.45% of Keppel Corp, intending to purchase shares owned by remaining shareholders (100 – 20.45% = 79.55%) to top up to 51% (still need 51% – 20.45% = 30.55%). So, it is partial acquisition of 30.55/79.55 = 38.4%. It means for every 1000 shares, 384 unit will be acquired.

The offer price of Temasek at $7.35 is about 20% premium over the average price before acquisition, aligned with several other acquisitions in Singapore. However, it only has 38.4% power, not the same as 100% power as other full acquisition (eg. Breadtalk current acquisition offer of $0.77, price would surge near to this price overnight after the announcement). Assuming the Keppel Corp share price is $5/share (on certain day), the theoretical share price after 38.4% partial acquisition = $5 + (7.35 – $5) x 0.384 = $5.90/share. Reader may replace this equation of $5 share price with any latest share price of Keppel Corp before acquisition.

Over the past 1 month of global stock crisis, Singapore stocks fall by about 30% in average but Keppel Corp only falls about 20%, aligning with 38.4% potential acquisition by Temasek which is about 1/3, therefore the stock corrections is also reduced by about 1/3 from 30% to 20%.

It means the global stock crisis still has about 60% impact on Keppel Corp prices. Therefore, an investor has to make decision mainly based on global stock crisis and current stock market condition with Keppel Corp value, not to assume price would recover to $7.35/share price eventually.

==========================

Keppel Corp is a diversified corporation with 4 businesses: offshore &marine, property, infrastructure and investment. The 2 main pillars are Property (Keppel Land, contributing to about 50% company profits) and Oil & Gas (Keppel O&M, main source of losses over the past few years). Over the past 5 years after the oil price fell from $100 to $27/barrel, Keppel Corp suffers directly as main clients reduce the capital expenditure (eg. oil rigs), therefore Oil & Gas becomes a losing segment. 

Since 2015 crude oil crisis, Keppel Corp has temporary lost the giant stock title, currently a marginal giant (likely will become giant stock again after oil & gas sector recovery). Luckily Keppel Corp still has 50% earnings from Property (eg. Keppel Land and Keppel Reit), even Oil & Gas is a loss for several years (recovering to small profits in last 1 year), the entire company as a whole could still make a profit. Compared with competitor or sibling, Sembcorp Marine (SGX: S51, also owned by Temasek through Sembcorp Industries) which has full risk exposure to oil & gas crisis, losing money for several years, resulting in share prices falling from $5 to $0.70 (last 17 years low).

Some may think it is “cheaper” to invest in Sembcorp Marine stock (85% correction) compared to Keppel Corp stock ($13 falling to $5/share during oil & gas crisis, about 60% correction). This comparison is only valid if both companies are giant stocks (which are not) because “crisis is not opportunity” if business fundamental is weak, eg for the case of Sembcorp Marine. For Keppel Corp, it is still a 50% giant stock due to strong property business. Therefore, investor of Keppel Corp is actually investing in value of Keppel Corp property (main value) while taking advantage of falling share price (due to Oil & Gas crisis). It was a good move in year 2015 (beginning of oil & gas crisis) for Keppel Corp to offer full acquisition of Keppel Land which 100% profits of property business goes to Keppel Corp, offset the losses in Oil & Gas segment in Keppel O&M.

Assuming Temasek could successfully own 51% of Keppel Corp by end of 2020, it is a full control of company. This may allow possibilities of strategic merging of Temasek subsidiaries companies (eg. Keppel O&M and Sembcorp Marine) or restructuring of Temasek companies, eg. Keppel Corp and Sembcorp Industries (Temasek nearly has 50% control), etc, to maximize the asset values.

===================

During crude oil crisis with Keppel Corp at low optimism prices, Temasek leverages on crisis to have majority control of Keppel Corp at reasonable low price of $7.35/share. This also provides an option for Keppel Corp investors to sell for 20% profit. However, the global stock crisis has disturbed the plans as prices of Keppel Corp are falling even lower than before acquisition news. 

Analysis on Keppel Corp is beyond stock and Temasek, also requires understanding of property market and crude oil commodity market. So, it is a stock with complicated interactions of market signals, reflecting in final share prices. 

Temasek acquires Keppel Corp BN4

Here is a special Ein55 style, 50% Discount Method for investing in Keppel Corp during crisis (with or without Temasek acquisition) with multiple entries to fight against unknown market crisis ahead. Assuming $10 is a common high level prices (occurred during when economy and crude oil market are bullish), an investor may apply 50% discount in prices each time before each multiple low due several unforeseen market crisis.

$10 = High Level Price (potential future selling price level)

$5 = Crude Oil & Stock Crisis (3 times in 2009, 2016, 2020) after 50% discount x $10

$2.50 = Global Financial Crisis (17 years low) after another 50% discount x $5

$1.25 = Great Depression (20 years low) after another 50% discount x $2.50

This is a non-linear version of multiple entries for very conservative investor who hopes to buy low but afraid of prices could get lower. Assuming all the crisis come (hopefully not), this is average price after 3 entries (like Keppel Corp with property pillar could still survive):

($5 + $2.50 + $1.25) / 3 = $2.92

This is lower than using linear average down method at low optimism (assuming 3 entries with $1 lower each time):

($5 + $4 + $3) / 3 = $4

Each method (linear or non-linear 50% discount) has its benefits. Linear method is more likely to achieve in practical market, for those who wish to reduce downside risk through averaging (eg. 3 times x 33% capital). Non-linear method is for very conservative investor, demanding 50% discount each time before willing to take out precious cash from the pocket for investment. During the long holding period (could be 1-3 years, depending on severity of crisis), Keppel Corp investor may be given an average of 4-5% dividend yield (past 10+ years record), assuming the dividend is also cut by 50% due to crisis, one could still get about 2% dividend yield which is higher than fixed deposit in banks with 1% interest rate. After the crisis is over, assuming the average entry price is only $5 (only 1 crisis experienced), an investor may not need to sell at $10 average high prices for 100%, could even sell near to Temasek fair acquisition price of $7.35 which is over 40% higher than $5 price.

=======================================

Charlie Munger (partner of Warren Buffett) said the big money is not in the buying and selling, but in the waiting. Global stock crisis may happen only every 5 to 10 years. Similar to a lion ambushed, waiting patiently for target, when opportunity comes near, only then strike for higher chance of winning. It is the same for current global stock crisis, for investors “ambushed” for many years, it could be the right time to plan for a strategy to take action in stocks.

Frankly speaking, there are over 100 global giant property stocks and 44 global oil & gas giant stocks (based on Dr Tee criteria), which are much stronger than Keppel Corp. Some of these giant stocks are also falling in prices 20% – 50% recently, “Crisis is Opportunity” investing in these growing business (value) with significant discount in prices.

There are at least 26 Temasek / GLC stocks in Singapore including Keppel Corp, controlling shareholder with 15% or more ownership directly or indirectly (investor needs to focus only on giant Temasek stocks):
Singtel (SGX: Z74), DBS Bank (SGX: D05), ST Engineering (SGX: S63), Singapore Airlines (SGX: C6L), SIA Engineering (SGX: S59), Singapore Exchange (SGX: S68), SATS (SGX: S58), Sembcorp Industries (SGX: U96), Sembcorp Marine (SGX: S51), Olam (SGX: O32), CapitaLand (SGX: C31), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Ascendas Reit (SGX: A17U), Ascott Hospitality Trust (SGX: HMN), Ascendas Hospitality Trust (SGX: Q1P), CapitaLand Retail China Trust (SGX: AU8U), Ascendas-iTrust (SGX: CY6U), Keppel Corp (SGX: BN4), Keppel Reit (SGX: K71U), Keppel DC Reit (SGX: AJBU), Keppel Infrastructure Trust (SGX: A7RU), Mapletree Logistics Trust (SGX: M44U), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree NAC Trust (SGX: RW0U).

Temasek stocks portfolio also affect about 15% of STI index stocks, which has strong impact on Singapore stock market. Here are 30 STI component stocks:
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), HongkongLand (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Market Outlook, Property Market, Stock Market, Technical Analysis, Value Investing Tagged: , , , , , , , , , , ,

10 Bullets of Crude Oil USO ETF Investing (十重天机)

Posted on March 31, 2020 Written by
Crude Oil ETF Investing USO

If you stayed till 2am Singapore time last night, you would have chance to trigger the first silver bullet, entry to buy WTI crude oil below US$20/barrel (only lasted for less than 1hr, heavy correction of 9% in 1 day) through USO oil ETF. This is last 18 years low for crude oil, mainly due to combination of crude oil price war and low demand of crude oil during Coronavirus pandemic, a rare crisis with 2 black swans.

I have shared this rare opportunity of crude oil crisis with low optimism, the first target US$20/barrel in earlier post a few days ago. At this price, crude oil is much cheaper than mineral water of the same volume (about US$50/barrel or US$0.30 / liter if you are more used to this unit of 1 liter bottled water price). Does it make sense?

If you miss the opportunity last night, not to worry, there could be 10 levels of opportunities (十重天机) ahead. Let’s learn together from Dr Tee on how to trigger 10 silver bullets for crude oil investment.

Over the past 3 decades (with multiple global financial crisis in between), crude oil (WTI) price was ranging from the lowest of about $10/barrel to $140/barrel. For simplicity, we may take $1 – $100 as possible range of crude oil price for next 10 years.

$100 = High Price (Bullish Economy / high optimism stock)

$50 = Fair Price (Average Economy / mid optimism stock)

$25 = Low Price (Bearish Economy / global stock crisis with low optimism)

WTI Crude Oil Historical Prices

Below $25/barrel with very low optimism, an investor could position in 10 opportunities for investing with 5 levels of crisis (from severe to disaster, prices may not really follows the crisis, just an illustration of how crisis causes more downside of crude oil).

Initially, prices would move in downtrend (more suitable for long term value investing with contrarian approach or even short term trader for shorting when breaking below the support), 5 possible levels of crisis (Level 1 is confirmed):

$20 = L1a = Price War Crisis (record on 31 Mar 2020)

$15 = L2a = Coronavirus Crisis (low demand 6-12 months)

$10 = L3a = Global Financial Crisis (1-2 years bearish economy)

$5 = L4a = Great Depression (Coronavirus last over 1 year without vaccine, most human in the world stay at home)

$1 (or even lower price, $X) = L5a = Nearly end of the world (no need to have crude oil or a smart scientist found a way to get free or cheaper energy source)

After reaching the bottom (no one knows, only history could tell, $X-$20, may not go through all the 5 levels), then it will recover again in a reversed way (uptrend prices):

$1 = L5b = recovering from “human crisis”

$5 = L4b = recovering from Great Depression

$10 = L3b = recovering from Global Financial Crisis

$15 = L2b = recovering from Coronavirus Crisis

$20 = L1b = recovering from price war

Subsequently, crude oil may move higher to normal range of prices, between $20 – $100+/barrel, averaging around $50/barrel. For those who are patient with strong holding power of over 3 years, there is a good chance of capital gains in future if one believes the 5 levels of crisis above are possible but low chance. Even if price war continues, at $20/barrel, Russia would start to lose money as its production cost is $20/barrel. Saudi could last longer as production cost is only $5/barrel but high national expenses won’t allow oil price to remain at low level for too long and other OPEC / non-OPEC countries may go bankrupt at this price. US, China and big funds in the world may also use the opportunity of low oil price (below $20/barrel) to buy for storage as strategic energy weapon, or simply sell higher price in future.

Some traders may take action to short when $20 support is clearly broken down. Some investors (contrarian type) may take action to gradually buy at historical 18 years low price (perhaps next target will be $15, $10, $5, $1, etc).

Question is will crude oil drops to $0 and will human forever stay at home more than 1 year with Coronavirus?

If not, it means crude oil is a commodity giant, every crisis at low optimism is an opportunity. There are 3 different strategies, counter-trend and/or follow-trend. Assuming, all 5 levels of crisis (although unlike, actual case could be between L1-L5), then one may apply multiple entries, eg (10 times x 10% capital), (5 times x 20%), (2 times x 50%) or simply 1 x 100% (1 bullet, could be due to limited capital).

1) Counter-trend (eg. 5 x 20% in downtrend L1a-L5a)

1.1) Fixed quantity method (eg. 100 units for each price)

Average price

= ($20 + $15 + $10 + $5 + $1) / 5

= $10.20

It means there is no need to guess the levels of crisis, simple average down could get about $10/barrel easily. This is 50% discount compared with someone with 1 entry at $20 with 100% capital.

1.2) Fixed capital method (eg. $100 per entry)

Total units = ($100/$20) + ($100/$15) + ($100/$10) + ($100 / $5) + ($100 / $1) = 142

Average price = ($100 x 5) / 142 = $3.50

This average method allows more units purchased at lower prices, therefore achieving a even lower average entry price.

2) Follow-trend (eg. 5 x 20% in uptrend L1b-L5b)

Average price will be same as counter-trend, depending on which levels are experienced.

3) Counter-trend + Follow trend (eg. 10 x 10% in downtrend L1a-L5a + uptrend L5b-L1b).

Results will be same as above but with more entries (more diversification), depending on which levels are experienced.

Assume, only L1a-L3a ($20 – $10) with 3 levels of crisis, one could still get $13 as average price with fixed capital method over 3 entries. This method is different from dollar cost averaging which buys all the time (low and high prices). This method requires low optimism to trigger multiple entries, high optimism to trigger multiple exits (future topic when market is bullish again to sell one day).

Learn further from Dr Tee for both trading (eg. shorting crude oil in bearish market to make money) and investing (eg. buying crude oil in bearish market with value investing). Contrarian investing has risk of buy low get lower, therefore needs to be supported by giant investment (eg. crude oil, gold, property and over 1500 global giant stocks with strong business fundamental). An investor may also integrate trading into investing, only enter during uptrend phase but there is a risk of missing out (eg. price may touch $20 and rebound forever). So, align the strategy with own personality, either trading or shorting, there are many ways to profit from current crude oil crisis and global stock crisis.

Ideally, buying giant dividend stocks (about 100+ in the world) at low optimism prices with high dividend yield is even better than crude oil investing because one could collect over 5% dividend return in next few years (better than fixed deposit in bank with 1+% interest rate) while waiting for winter time is over, applying similar methods of entries but first silver bullet to trigger (first entry) will depend on unique optimism level of each stock, this is 1 of 55 investing styles developed by Dr Tee.

What is the chances of winning in crude oil for entries below $20/barrel if one has holding power of over 3 years (typical global financial crisis is 1-2 years)?

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 member.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Commodity Market, Market Optimism, Market Outlook Tagged: , , , , ,

How to Capture Falling Knife Safely for Stocks in Crisis?

Posted on August 3, 2016 Written by

Ein55 Newsletter No 035 - image - Falling Knife image

Every crisis is an opportunity.  We have learned to be greedy when others are fearful.  However, not everyone is mentally prepared to buy low and sell high following one’s personality.  When a business is in crisis, the stock price is like a falling knife, one could get hurt when enters too early, buy low and may get lower, emotionally affected with the endless falling prices.

For example, over the last 2 years of crude oil crisis, stock prices of global oil & gas stocks are significantly corrected. Singapore oil & gas stock index is at 9% optimism (see chart below), a very attractive price level over the last 10 years, upside is much higher than downside from a long term perspective.  However, whenever there is a technical rebound due to good news (eg. recovery of crude oil price), there could be another negative news who correct it down further (eg. Swiber plans to wind up the business recently).

Ein55 Newsletter No 035 - image - Falling Knife

 

Here are a few important considerations for us to safely capture the falling knife of a stock in crisis:

1) Fundamental Analysis

Some weaker stocks may not survive through the crisis. It is critical to always consider giant stocks with strong fundamentals.  Based on the survival of the fittest, after the winter is over, these strong stocks will grow stronger, especially there are less competitors with higher demand then.  For more conservative investors, one could wait patiently for signs of reversal in the business performance.

 

2) Technical Analysis

While long term view of a stock could be at attractive low price, the intermediate price trend usually is bearish for a stock or sector in crisis, eg. commodity, shipping, casino, etc.  It is important to follow the trend before entry, waiting for the falling knife to drop the floor first, before pick it up safely.  Confirmation of uptrend is required, aligning Level 1 (individual stock), Level 2 (sector / industry), Level 3 (country / region) and Level 4 (whole world).

 

3) Personal Analysis

One should know own’s personality before deciding whether short term trading or long term investing is a more suitable approach.  It is hard to force a trader to buy low and wait for several years to have tremendous capital gains.  At the same time, a true investor could grab an opportunity even with counter trend in prices, ignoring the daily market news, using strong holding power to reverse the trend eventually, buy low sell high.

 

Filed Under: Commodity Market, Fundamental Analysis, Market Cycle Investing, Personal Analysis, Technical Analysis Tagged: ,

Oil & Gas Stocks – Time to Buy or Sell?

Posted on April 28, 2016 Written by

Ein55 Newsletter No 025 - image - oil & gas

Global oil & gas related stocks have experienced significant corrections over the past 1 year, many stocks including blue chips are at attractive low prices.  Although investors know that crisis is an opportunity, the share price could become lower with time, therefore few people dare to grab the opportunity.

Is it time to buy or sell Oil & Gas stocks? The answer is to align the strategy with personality (short term trader vs long term investor):

1) Long Term Investor

For a long term investor with at least 3 years of holding power, oil & gas crisis presents a rare opportunity for entry to buy low.  As shown in the Optimism Chart below for Oil & Gas Stocks Index, long-term optimism is 22%, an attractive low price, having RRR (Reward to Risk Ratio) of 3 times.  However, no one will know the true bottom, therefore the best strategy is to buy low enough (below 25%), not to depend on luck to wait for the lowest point.  The investors enter with long-term low optimism require 3 additional weapons to be successful:

  • Know what to buy for giant oil & gas stocks. Some weak stocks may not survive through this storm, losing business with high debt could break the camel’s back. Giants with strong fundamentals will last and revive as final winners.
  • Holding power of at least 3 years to wait for the recovery of oil & gas
  • Ability to control the fearful emotion during crisis, certain stocks may fall in price further due to market sentiment.

Ein55 Newsletter No 025 - image - Oil & Gas - LT

2) Short Term Trader

For a short term trader, the holding power is shorter (a few weeks to a few months), therefore the strategy is totally different from long term investor.  A trader has to align with the short term market sentiment which is still bearish over the past 6 months.  With the recent recovery of oil & gas prices, the short-term optimism is high at 77% (see chart below).  For a short term trader, the upside is limited, downside is 2 times, having RRR (Reward to Risk Ratio) of 2 times if shorting strategy is applied.  Of course, a short term trader could also wait for stronger breakout above 100% Optimism, if still want to long the market for a short period.

The traders who long/short the oil & gas stocks require the following strength:

  • Know what to buy for trading, either for long or short, choices are different from investing.
  • The ability to cut loss when direction is wrong based on risk tolerance level, knowing when to take profit, not to be too greedy. Winning or losing is a probability game in trading. Retail traders may have hard time to manage own emotions as the trades are their own capital, they could be forced to hold the stocks from short term to long term when direction is wrong, finally ending up sell low when price breaks below their psychological limit one day.

Ein55 Newsletter No 025 - image - Oil & Gas - ST

When Optimism Strategies are combined with Fundamental Analysis (value investing & growth investing), Technical Analysis (support / resistance / trends), and Personal Analysis (mind control of greed and fear), it is very powerful when one is able to take the right action (Buy, Hold, Sell, Wait or Short) at the right time aligning with own personality.

The unique Optimism Strategy developed by Dr Tee provides a special advantage to know which investment (stock, forex, property, commodity, bond, etc) to buy safely, when to buy, when to sell, including option of long term holding.  So far over 10,000 audience have benefited from Dr Tee high quality free courses to the public.  Take action now to invest in your financial knowledge, starting your journey towards financial freedom.

Brexit has created new stock trading and investing opportunities globally.  At the same time, British Pound is severely corrected, one could apply Forex Optimism to maximize the gains in stock market.   The fear factor has supported the bullish gold price and gold related stocks (eg. gold miners), analysis with Commodity Optimism is needed.  Every crisis is an opportunity, provided one knows how to position.

 

 

 

Filed Under: Commodity Market, Market Optimism Tagged: ,