Monday, September 26, 2011

Defensive And Attacking Stocks!

I am always bemused when I read financial articles asking investors to go for 'defensive stocks'.

Yo! Are we playing a game or what? Defensive stocks? I guess when markets are good, they would suggest investors to go for 'offensive stocks'? And then they might say, 'Oh, right now, your portfolio, needs to have an offensive line-up'.

Yeah, market is hot, let's buy some attacking stocks! Market is bearish, let's go buy some defensive stocks!

Me I don't like to judge just based on my mindset. I like to compare what was said versus what has happened or what is happening.

Recently on the 2nd Sept 2011, on the Edge business, there was this article saying: Sticking to defensive stocks

  • Sticking to defensive stocks
    Written by
    Friday, 02 September 2011 14:05

    KUALA LUMPUR: The outlook on the global economy and the European sovereign debt crisis remains hazy going into September especially after the selldown in global equities, says OSK Research.

    The research house said on Friday, Sept 2 that for September, it would continue to stick to its defensive top buys which have recession resilient business models and some capacity to rebound after the recent sell-off.

    It said despite the 6.5% drop in the FBM KLCI in August was in line with the global sell-off in equities, it believed the outlook on the global economy and the European sovereign debt crisis remained hazy.

    OSK Research said investors should avoid aggressive bottom fishing and it advised investors to stick to defensives with some rebound capacity, especially with 2Q2011 earnings looking decidedly weak.

    “We foresee a 1% - 2% cut in our earnings growth forecast and KLCI year-end target,” it said.

    The research house cautioned the selldown in global equities in August reflected uncertainties over global economic growth as well as the concerns over sovereign debt positions in Europe.

    “We believe these uncertainties have yet to be resolved,” it said.

    To recap, OSK Research said August, which was the month of Ramadhan, saw strong news flow in Malaysia.

    Among the corporate news were the share swap between shareholders of MALAYSIAN AIRLINE SYSTEM BHD [] and AIRASIA BHD [], the sale of ExxonMobil units to San Miguel, the award of a small field contract to Dialog and Sime Darby’s purchase of a 30% stake in Eastern and Oriental Bhd being amongst the more noteworthy news.

    OSK Research, which was scheduled to issue its full results round-up on Monday, Sept 5, said the preliminary indications were the 2Q2011 results were below expectations.

    “As such, we are likely to see a 1.0 to 2.0 percentage point cut in our 17.1% earnings growth forecast for 2011 and 12.8% estimate for 2012.

    “This will likely lead to a cut in our year-end 1557 pts KLCI target although we will likely leave our 2012 KLCI fair value of 1,466 intact on a higher price-to-earnings ratio (PER),” it said.

    OSK Research said despite the 6.5% fall in the KLCI in August, it believed that uncertainties on the global economic outlook would linger.

    It advised investors to continue to focus on defensive stocks while nibbling at some rebound plays in September.

    “For those with a higher risk appetite, trading in recession resilient Mid Caps that have been sold down such as AirAsia, KPJ Healthcare and Supermax is an option,” it said.

    It also advised strongly against aggressive bottom fishing at this level as yet.

    The research house said it continued to see a potential KLCI maximum for the remainder of the year at 1,557. The potential KLCI minimum for the remainder of the year was 1,378.

    As for 2012, the KLCI fair value was 1,466, it said.

    Despite the cautious outlook, OSK Research said a short term rebound was possible.

    “Given the reasonable rally in global markets over the past week when the KLCI was closed for holidays, a modest rebound in the KLCI is to be expected. Nonetheless, given uncertainties in the global economic outlook, we would caution against an aggressive bottom fishing strategy at this point in time,” it said.

    OSK Research said in view of the strong possibility of an early general elections by year-end, the re-election of the current Barisan Nasional government might spur a modest rally in the market post elections.

    Hence, its view was that a better time to bottom fish might be when profit taking accelerates ahead of the election date.

    “Some trading positions may be taken in Mid Caps. While we continue to advocate a generally Defensive strategy, investors with higher risk appetite may wish to trade in selected Mid Caps that have been sold down of late and might appear attractive,” it said.

    The research house advocated Mid Caps with longer term recession resilient business models such as KPJ Healthcare and Supermax.

    It explained bashed-down Mid Caps tend to outperform when a recovery sets given their high degree of recovery.
It mentioned AirAsia, KPJ and Supermax.

The closing day price for these stocks on 2 Sep 2011 was AirAsia 3.32, KPJ 4.35 and Supermax 2.80.

Ok, before I started comparing these prices to Friday's 23 Sep 2011 prices, I for one, had noted this market perspective had been repeated recently.

Yes, it wasn't a new idea!

Now this is important. I feel investors should always check the date of when the 'idea' was first suggested. Yes, when you read a stock tip on a forum or on a blog or on a twit or on facebook, which includes a research on the stock, pay attention to the date of the report. If the report is outdated (ie the report was written some 3 months or more ago) then it's very likely the recommendation could very well be unjustifiable because some events might have happened since then. Events that might cause the stock recommendation to be invalid!

That's my flawed thinking. Know when the report was written. Don't bet your investment based on outdated facts!

Check this out: On 6th Aug 2011, On Business Times:  OSK: Local stocks will keep climbing

  • It has recommended six alternative defensive stocks for the longer run that would benefit in the event a recession does set in early.

    The alternative stocks recommendation varies from airline, healthcare, media group, food, education and rubber glove stock. They are AirAsia Bhd, KPJ Healthcare Bhd, QL Resources Bhd, Media Chinese International Ltd, SEG International Bhd and Supermax Corp Bhd.

    "These stocks will benefit from a drop in incomes and commodity prices and are generally more inward looking as we believe domestic incomes should be more resilient," it said.

    OSK Research has given a "buy" call on the six stocks based on a 12-month outlook.

Six alternative defensive stocks! The nicely drawn table..

But that wasn't it.

A few days later, on Aug 10th: Resilient and defensive stocks to ride through the volatility

  • Resilient and defensive stocks to ride through the volatility
    Written by Chong Jin Hun
    Wednesday, 10 August 2011 12:50

    KUALA LUMPUR: As the prospect of a weaker global economic landscape batters global stock markets, the experts are recommending a defensive stance in their investment strategy.

    While analysts and fund managers believe Asian equities might see a rebound after the sharp correction in the last two days, they are also mindful that these gains might be technical and temporary as they factor in the still weak global economic backdrop as growth slows in advanced economies.

    Below are several stocks recommended by OSK Research for their longer term prospects:

    AirAsia Bhd
    The largest low-cost carrier in Asia will gain from declining jet fuel prices in tandem with the fall in crude oil rates. Although an economic downturn will result in less travel, the drop in corporate and personal income may prompt business and leisure travellers to switch from full-service to budget airlines.

    Trading of AirAsia was suspended in conjunction with a share swap exercise with rival Malaysian Airline System Bhd. Prior to the suspension, AirAsia’s last traded price was RM3.95 per share as at last Friday. The stock has gained 56% this year.

    KPJ Healthcare Bhd
    The largest private hospital chain in Malaysia will continue to see good business in spite of an economic downturn due to the relatively recession-proof nature of the healthcare sector. While some may argue declining income may prompt consumers to switch from private to public healthcare, analysts said the disparity between the two in Malaysia is quite large.

    With the lower cost advantage in Malaysia, it is believed KPJ will lure back Malaysians who used to seek treatment abroad and attract cost-sensitive medical tourists. KPJ shares closed unchanged at RM4.50 yesterday. The stock has advanced 21% this year.

    Media Chinese International Ltd
    The largest Chinese newspaper company in Malaysia is expected to gain from declining commodity prices, which in turn lead to cheaper newsprint, a major cost component. Demand for newspapers is anticipated to stay firm in the event of an economic downturn given the relatively inelastic purchase of newspapers. Media Chinese shares ended unchanged at RM1.09 yesterday for a year-to-date (YTD) advance of 27%.

    QL Resources Bhd
    The country’s second largest producer of chicken eggs and Southeast Asia’s largest producer of fish paste could see demand for its products increase as consumers downtrade to cheaper food products during an economic downturn.

    While QL’s expansion plans in Indonesia and Vietnam may slow down, earnings from domestic operations would be enough to sustain the company. QL shares fell five sen to close at RM2.93 yesterday. The shares have gained 0.34% this year.

    SEG International Bhd
    The country’s largest private education provider with a student base of 23,000 is expected to gain from more students seeking more affordable courses locally as a possible recession and a stronger US dollar will inflate the cost of overseas education. SEGi saw its shares decline six sen to RM1.83 for a YTD gain of 71%.

    Supermax Corp Bhd
    The world’s second largest rubber glove producer by capacity is expected to gain from cheaper natural rubber in tandem with declining crude oil prices. Analysts said cheaper raw materials will improve the company’s profit margins as demand for healthcare-related rubber gloves remains resilient. Supermax shares shed 18 sen to RM3.26 yesterday for a YTD decline of 18%.

    This article appeared in The Edge Financial Daily, August 10, 2011.
Same report re-broadcasted a few days later.


And needless to say, the article headlines was rather amusing.

On the 6th Aug 2011, the chosen headline was OSK: Local stocks will keep climbing

On the 10th Aug 2011, the chosen headline was Resilient and defensive stocks to ride through the volatility.

From climbing to resilient.

So this morning I did a comparison of three set prices.

First set price was based on 6th Aug's prices. Next set was based on 2 Sep prices. Last set was based on 23 Sep prices.

So AirAsia: 3.95 vs 3.32 vs 2.82 means AirAsia was 3.95 on 6 Aug. On 2 Sep AirAsia prices was 3.32 and on AirAsia closed at 2.82 on Friday, 23 Sep.

The current results:

  1. AirAsia: 3.95 vs 3.32 vs 2.82
  2. KPJ Healthcare: 4.60 vs 4.35  vs 3.93
  3. QL Resources: 3.09 vs 2.95 vs 2.58
  4. Media Chinese: 1.19 vs 1.13 vs 0.935
  5. SEG: 1.90 vs 1.82 vs 1.77
  6. Supermax: 3.61 vs 2.80  vs 2.37
Like how these defensive stocks are faring?

Ok, I am aware that these stocks were recommended based on a 12 month outlook and it would be fair that I compare the results next Aug 2012. Nonetheless, what do you think of the current performances of these so-called 'defensive' stocks?


I am not a fan of 'defensive' and 'offensive' stocks.

In my flawed opinion, there always should exist a better reason to own a stock than this. Yeah, a stock should be invested based on its own merits.


limko said...

I think they are not allowed to say 'Keep cash' and that results in the flawed recommendations.

Moolah said...

Yeah... 'hide cash in the milo tin' is not allowed.

So where's your milo tin ah?


Moolah said...

Well... where do you find cows?

In the zoo la.



Mr ICICI said...

they r just doing their job la. they are brokers. they can only make money if you buy and sell shares. telling you to keep cash is the last thing they will say!

Remnant 888 said...

Vested interest, vested interest, very interesting.

Buy so that they can dump... It makes a whole lot of financial sense to them.

Ever wonder why they always launch this and that unit trust funds at the peak of the market...?

Moolah said...

ICICI: Yeah.. they are just DOING their job. :(

And what about those 'unlucky' readers who buy based on what they wrote?

Moolah said...


Come to think about it.. cows in zoo is a rarity.


TK said...

I thought why I so dump. Always don't understand what is defensive stock....