Investing from Young

Medtecs

COVID-19 changed the world. Increased demand for medical consumables and gloves have powered the healthcare sector worldwide and presented an interesting investment opportunity that I will be sharing today.

Medtecs International is a healthcare products and services provider and manufacturer of medical consumables, ranging from masks to hospital gowns. Manufacturing plants are located in Philippines, China and Cambodia. They boast a strong presence in Europe, United States and Asia Pacific.

Purchased shares of Medtecs in Jun 2020 @ $0.28.

Stock prices of healthcare companies (e.g. Top Glove, UG healthcare and Medtecs) are not only pushed higher from the substantial increase in earnings, but also the expectation of investors that earnings will be even higher in the coming quarters.

Reasons for my purchase:

Firstly, rising earnings. Medtecs Q1 Net Profit jumped almost 17 times, from US $227,000 to US $3,700,000. Additionally, mentioned in their AGM, earnings for following quarters are expected to be on par or even higher. This reflects the management’s high level of confidence in subsequent earnings.

The World Health Organisation released an article titled “Shortage of personal protective equipment endangering health workers worldwide” on 3rd March 2020 asking for the industry and governments to increase manufacturing to meet rising global demand. Also, mentioned in the article would be the surge in prices of masks and gowns, sixfold and twofold respectively.

An article by CNN highlighted the skyrocketing cost of personal protective equipment (PPE) – more than 1000% in some cases – amid the surge in demand (Diaz, Sands and Alesci, 2020). “The federal government’s Strategic National Stockpile has nearly emptied and states have been left to find PPE supplies on their own”, showcasing the desperate need for PPE in the United States. Considering these articles were published in March and April, I am expecting a stronger demand and increased Average Selling Price (ASP) for Medtecs products in Q2.

Some may question that production capacity would have been running at 100% or at least close to their max capacity, thus it is unlikely that Medtecs would be able to increase their unit sales. However, it was mentioned in their AGM they have implemented methods to ramp up production. E.g. converted idle plants into additional production bases.

(Those that are interested to find out more about the implemented methods are invited to look at Question 3 of their AGM response to substantial and relevant questions, link below)

http://www.medtecs.com/attachments/category/139/2020%20AGM%20Q%20and%20A_ENG.pdf

With that said, my estimation for earnings in Q2 would be at least a twofold increase.

Secondly, there is an influx of investors into the healthcare sector. Increased popularity of healthcare stocks as seen in forums brought about massive money inflow. With more people hopping onto this bandwagon, stock prices of healthcare companies will be pushed even higher. However, it is also to note that this bandwagon has cooled significantly after the crash in share price on 13th Jul, as mentioned below.

Risks:

Firstly, Q2 earnings may not be up to expectations. Medtecs share price have already accounted for Q2 earnings to outperform Q1 substantially as seen in the recent spike. Should Q2 earnings be not up to par, Medtecs share price would surely take a beating.

This is unlikely to occur in Q2. However, it may happen in future quarters to come as suppliers ramp up productions levels significantly to a level where supply becomes more readily available, causing a decrease in ASP. This ultimately leads to lower earnings affecting share price.

Secondly, and most importantly in my opinion, would be the exit of big investors. As seen below, on 13th Jul, Medtecs share price crashed from a high of $0.965 to $0.56 (-41.9%) in a matter of hours. The share price recovered some loss to close at $0.68.

The exit of a big investor might have caused the crash in share price. Seeing a drop of a 5% at 11 am and subsequently 23% at 1 pm, new investors might have panicked and followed to sell off all of their holdings resulting in the steep decrease in share price, bottoming at $0.56 for the day.

Others say that this crash was caused by a drop in the share price of Medtecs Taiwan Depository Receipts (TWD$25.70 to TWD$21.10).

Reasons for big investors’ exit may range from share price hitting their target price to feeling a lack of confidence in the future prospects of Medtecs.

Judging from forums and also word on the street, a large number of investors in Medtecs are new to investing and are riding on this trend without any proper investment plan or analysis. They are easily swayed by hearsay and movement in share price. Thus, are easily flushed out when the share price decreases. This brings about a huge risk of Medtecs share price crashing to rock bottom if any unfavourable catalyst surfaces (e.g. COVID-19 Vaccine).

All in all, I believe the current share price has reflected the current fair value of Medtecs and thus, I may be looking to offload half of my holdings. The other half will be held till Q2 reporting in August. I am still optimistic that Medtecs will be able to report a surprisingly strong Q2 result which will send their share price to higher highs. From there, I will have to evaluate on the correct course of action for my remaining holdings.

References

Diaz, D., Sands, G., & Alesci, C. (2020, April 17). Cost of protective equipment rises amid competition and surge in demand. Retrieved July 24, 2020, from https://edition.cnn.com/2020/04/16/politics/ppe-price-costs-rising-economy-personal-protective-equipment/index.html

Shortage of personal protective equipment endangering health workers worldwide. (2020, March 3). Retrieved July 24, 2020, from https://www.who.int/news-room/detail/03-03-2020-shortage-of-personal-protective-equipment-endangering-health-workers-worldwide

My First Stock (AEM)

(Semiconductor, any of a class of crystalline solids intermediate in electrical conductivity between a conductor and an insulator. Semiconductors are employed in the manufacture of various kinds of electronic devices.)

Purchased 6000 shares of AEM in December 2019 @ $1.98

Reasons for my purchase:

News on a recovery in the semiconductor industry from the rise of 5G and the known fact that companies involved in the semiconductor industry tend to see a rise in share prices before the actual rebound of the semiconductor cycle. (May have been a little late to this as AEM’s share price was already on the rise since late 2019)

AEM has a solid financial health with 0 debt which is something that I really look out for due to the economic uncertainty these days.

Intel, AEM’s main customer, is expected to perform better for Q42019. (And indeed has done so with revenue increasing 8% from a year earlier in the quarter)

Immediately after my purchase, AEM soared to $2.20. However, today it is trading around $1.90 due to the recent outbreak of the coronavirus which has dampened many investors’ confidence.

I am confident that AEM’s share price will recover either when the coronavirus is overcome or when the company reports its 4Q2019 earnings in the coming months.

With how the world is changing and the need for semiconductors increasing due to technological advancements, I will be interested to see if the semiconductor cycle slowly fade as demand starts climb exponentially. This will lead me to my decision on whether to keep AEM in my portfolio forever.

My Target

My target? Maybe the 2 Cs, Condo and Car

(This target is too far for now, skip to below for my more realistic short term target).

In Singapore, I guess staying in most districts would be fine as there are plenty of amenities everywhere nowadays. A 2-bedroom condo in a non-central district would cost $1M on average.

My ideal car would be the Mercedes-Benz GLC300 Coupe. Selling price: $262,888.

Total = $1,262,888

With a starting amount of $15,000, it would take me 17 years to reach my target of approx $1.3M (assuming my yearly rate of return is 30% which is also an exceptionally high ROR).

*The above is a simple calculation, not considering a lot of aspects like annual additions to my portfolio

Now back to reality or a more realistic short term target. That would be a $100,000 portfolio before entering the workforce. I am entering Uni this year and thus have approx 4 years to reach my target. A simple breakdown of how I am planning to achieve my target would be as follows:

Starting Portfolio value of $15,000. Annual Additions would be from my monthly savings of $300. With 4 years and an estimated rate of return of 30% (this is my target rate of return, I usually invest in stocks that I feel would bring about at least 30% gain in equity. However, I may or may not hit this ROR yearly).

I should have a $70,000 portfolio by 2024. However, I am still $30,000 short of my target. Thus, I decided to pitch an idea to my Dad whereby he would grant me $35,000 to invest. My commission would then be 50% of all profits excluding dividends (The commission may sound extremely high but its a win-win situation as if that $35,000 is placed in the bank, interest would be a mere 1.6% – 1.7% p.a. / $595 annually).

I would also have to bear the losses should they arise.

Target for my Dad’s portfolio that I manage

For my Dad’s portfolio, I will be focusing more on dividend stocks as compared to growth stocks to allow him to have additional passive income and also to lower the risk. After all, it’s not my money.

By 2024, my own estimated portfolio value of $70,000 and estimated commission of $18,500 ($70,000 – $35,000 x 50%), I should have a total of $88,500. Still $11,500 short of my target.

For now, I have no plans to cover the $11,500 that I would be short of. However, I am planning to earn some side income (maybe through photography or part time jobs, interested in learning new skills like becoming a barista). Along the way should I come up with ideas to cover the $11,500, I will surely update it on my blog.

This is overall my rough target for the next 4 years, hopefully I will hit or exceed my target. Seeing that a recession is imminent in coming years, I would also have to proceed with caution and ensure my portfolio sails through the rough seas safely.

In my upcoming posts, I will be talking about what stocks am I holding currently for both my own portfolio and the portfolio that I manage for my Dad, and also update on the progress of these stocks. 🙂

The Start (why I invest)

The simple reason I started investing was to make money. Plenty of teenagers held part time jobs to make that extra cash, however I stayed home. Didn’t feel the need to start making money then.

However, as I got through Poly, I came to realise that it would be better to start making and saving money. Getting a car, a house and ensuring that my future wife and kids lead a good life.

Being a Business student, I have learnt that investing from young helps one grow their money (making your money work for you), beat inflation and most importantly it is something that I have passion for. Thus, my journey into the investing world started. (also low-key didn’t want to find a part time job as I am an introvert)

Leading from the previous point of being an introvert, originally my target was to build a portfolio that would allow me to lead my life on the dividends alone.

Approx yearly income needed: $80,000

Est Dividend yield: 5%

Portfolio value needed: $1,600,000

This looked impossible. I have 5 years more before I officially need to enter the working life (starting Uni soon) and my starting capital is only $15,000.

As shown above, I would need my portfolio to grow by 154.5% yearly (Hahaha, crazily impossible). Also, as seen above, the power of compound interest and investing, transforming a mere $15,000 to $1,600,000 in 5 years.

Thus, I gave up on this idea and now am just investing to meet certain targets which I will explain more in my following blog posts. 🙂

My First Blog Post

Introduction

Be yourself; Everyone else is already taken.
— Oscar Wilde.

This is the first post on my new blog. In my blog, I will be talking about my journey in investing, the progress I have made and future investing ideas I have.

I’m just getting this new blog going, so stay tuned for more. Subscribe below to get notified when I post new updates. Below will be a simple introduction to myself.

Introduction

Turning 22 this year. (Not sure what else to add … )

I studied Accountancy in Poly (honestly helped me a little with understanding the importance of investing, especially with compounding interest), will be pursing a Business degree in NBS this year.

Why are you blogging publicly, rather than keeping a personal journal?

Blogging I guess would be my platform to share the little experiences and knowledge acquired. Rather than keeping a personal journal, this blog will allow me to gain insight from others and also for others to share their opinion on my thoughts and analysis. After all, many may have differentiating views from me and I would be glad to learn more from them.

Who would you love to connect with via your blog?

Everyone, people who are interested in investing, people who have recently started investing like myself to professional traders

If you blog successfully throughout the next year, what would you hope to have accomplished?

I hope to gain more knowledge and different ideas: <how people evaluate companies> <different methods to calculate the value of a company> <upcoming growth markets>

Overall to learn more.