Are these outstanding stocks - what to consider? (Other Stock Exchanges)

Tips B - Other Stock Exchanges. This is a quick guide to diversification concepts as well as case study companies listed in other countries (from a Malaysian perspective).  Look here if you want to see the infographics of Bursa Malaysia case study companies.  BTW I would like to clarify that the post is not about investment advice but rather teaching you how to invest. If you were enrolled in an educational institution to learn about investing, these would be your quick revision notes.  Revision date:  2 Oct 2022.

The first thing that all investors learn is that you have to think in terms of the risk-reward ratio when looking at a particular investment. While every investment has its upside, there is also a potential downside.

One way to take care of the downside when you invest in the stock market is to have a diversified portfolio. I have several infographics here that look at issues related to diversification - from how to assess risks to portfolio management.

There are several perspectives to diversification.
  • You can diversify by spreading your investment to different industries and different market caps.
  • I also spread my investments based on the various business economic situations faced by companies eg turnarounds and compounders.
  • Another common diversification plan is to invest in both local and global companies.

Geographical diversification can be quite nuanced. It is not necessarily about investing in companies that are listed in stock exchanges other than those in your country.

For example, if you are in the US and you invest in NYSE-listed The Coca-Cola Company, you are actually investing globally as a significant part of The Coca-Cola revenue are from non-American sources.

Accordingly, while the infographics in this post covered companies that are listed in other stock exchanges (from a Malaysian perspective), it does not necessarily mean that they do not have operations in Malaysia.

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  • Baby steps in assessing Permanent Loss of Capital.
  • Baby steps in Asset Allocation for a Value Investor.
  • Baby steps in constructing a stock portfolio.
  • Baby steps in maintaining a stock portfolio.
  • UOA
  • Steel Dynamics
  • New Toyo International
  • Wing Tai
  • Boise Cascade
  • Tempur-Sealy
  • Leggett & Platt
  • Worthington Industries
  • Generac
  • Timken Steel
  • Cummins
  • Zeus
  • MDC
  • Lohakit Metal
  • NVR
  • US Steel

Case Notes

When I value a non-Malaysian company, I have to use different data for computing the cost of capital.  The differences are for the following parameters:

  • Risk-free rate. It is obvious that the risk-free rates for the US would be much lower than those in Malaysia.
  • Rating and coverage ratio. I use the rating and coverage ratio from Damodaran to determine the cost of debt. Damodaran has a different set of data for the US compared to the emerging markets.
  • Equity risk premium.  This is a function of the country's stock market performance and different countries will have different premiums.
  • Beta. Although I adopt the build-up Beta approach, Damodaran has a different set of Beta data for the US and the emerging markets. 

So you should not be surprised to see a different cost of capital for a US company compared to a Malaysian company even if both companies are in the same industry, of the same size with the same debt to equity level, and have similar risks.

For beginners, it can be challenging to take into account these differences when valuing companies from different countries.  If you still want to invest in companies in other countries based on fundamentals, and you are not familiar with the adjustments to be made it may be better to rely on third-party analyses. 

There are several financial advisers who provide such analyses. Those who do this well include people like Seeking Alpha.* Click the link for some free stock advice. If you subscribe to their services, you can tap into their business analysis, valuation, and risk assessment.  Then as you become more experienced, you can phase them out. 

Baby steps in assessing Permanent Loss of Capital

There are 2 schools of thought when it comes to risks
  • Those that view it as volatility.
  • Those that view it as a permanent loss of capital.

There are various ways you can suffer a permanent loss of capital. They can be due to stock market changes, portfolio construction, wrong estimation of intrinsic value, and deterioration of the intrinsic value. 

A risk management framework can be used to assess the likelihood and impact of each of the threats. This was then used to compare the relative risk of different stocks

The risk management framework was also used to identify the various measures to adopt to mitigate a permanent loss of capital

You can then use the framework to compare the risks between different companies. 

Baby steps in assessing permanent loss of capita

Baby steps in Asset Allocation

There are 3 questions when it comes to asset allocation 
  • How many asset classes?
  • How to determine that amount for each class?
  • How do you rebalance?

Furthermore, any asset allocation plan should satisfy at least 2 goals:
  • Perform well under various economic situations. There are 4 main economic scenarios that we live through.  These are the results of the combination of inflation vs deflation and economic growth vs depression.
  • Provide you with peace of mind. Peace of mind comes from having an asset allocation plan that you can stick with and sleep peacefully at night.

At its core asset allocation is about risk mitigation and should take into account your investment style. My asset allocation plan taking these into consideration covers the following:
  • Have 3 groups - liquid, safe and risky assets.  Within each group, you can have a few different types of investments.
  • View the asset allocation through several lenses - 3 Buckets, FAA, and All-Weather.
  • When starting out young and at the accumulation phase, have an equal amount for the safe and risky assets. As your wealth increases cap the amount for the safe assets so that more is channeled to the risky assets.
  • At the withdrawal phase, have an equal amount in the safe and risky assets 

Baby steps in asset allocation

Baby steps in constructing a stock portfolio

A stock portfolio is merely a collection of stocks. 
  • Having a portfolio of stocks is part of the risk mitigation plan.
  • You can identify the stocks in the portfolio by either a top-down or bottom-up approach.  The important thing is to focus on individual stocks rather than the economy or industry. 
  • Target to have at least 30 stocks uncorrelated stocks in the portfolio.  This is a good balance between maximizing returns from concentration and minimizing risks with diversification.
  • Allocate more to those stocks with the most conviction. From a Kelly Formula perspective, this is better than allocating the same amount to all the stocks.
  • Scale in and scale out of a position rather than buy or sell in one lump sum.

Baby steps in constructing a stock portfolio

Baby steps in maintaining a stock portfolio

Review your stock portfolio quarterly to ensure that it is still in line with the return and risk objectives.
  • There are 2 critical review areas - the portfolio returns and the portfolio risk.
  • There are 3 ways to assess the portfolio returns - absolute basis, compared with benchmarks, and risk-adjusted basis.
  • To assess risks, compare the current diversification against the portfolio diversification criteria

Baby steps in managing a stock portfolio


UOA Ltd is listed on both the Australian (ASX) and Singapore (SGX) stock exchanges. At the same time, the majority of its operations are in Malaysia undertaken by 2 companies listed on Bursa Malaysia - UOA Development Berhad and UOA REIT. 

In order to get a sense of the crowd’s valuation of UOA Ltd, you need to look at these 3 markets as well as the valuation of all these 3 listed entities in comparison with the infographic.

For details of the analysis and valuation in the infographics, refer to the 3-part series of 2 Aug 202016 Aug 2020, and 30 Aug 2020.  

The conclusion that UOA Ltd is not a value trap is based on the following: 
  • At the current market price of AUD 0.63 per share, there is an ample margin of safety
  • The analysis has not suggested that there will be any impairment of the assets.   There is a low risk of reducing its intrinsic value
  • While growth will be challenging, the Group would be able to sustain its performance.  This means that the Earning Power Value is a reliable indicator of the intrinsic value.  

Since value traps and bargains are opposite sides of the value investing coin, it must mean that the market has mispriced UOA Ltd.

Note that there is an updated version dated 21 July 2021.

Stock tips: UOA Ltd is not a Value Trap

Steel Dynamics

Nasdaq listed Steel Dynamics Inc (SDI or the Group) is an iron and steel Group that can be considered as a good company because of the following:
  • It is financially strong.  The Group has the industry average debt to capital ratio while having a higher than industry cash position.
  • Both the Steel and Steel Fabrication segments are generating returns that appear to be higher than the cost of funds.  While the Metal recycling segment has not performed, it may have contributed to the Steel segment performance.
  • SDI physical steel external shipment has grown at a CAGR of 7.4 % over the past 10 years compared to the USA steel consumption CAGR of 2.3 %. SDI has increased its market share of the USA market. 

At the current market price, it is obvious that SDI is not a value trap as it is not cheap from the perspective of the past 12 months' prices. What is the investment thesis then?
  • This is Group with a strong growth track record and a leadership team that is a good operator and capital allocator.
  • The Biden administration will unfold an economic stimulus plan that will spur the demand for steel. I expect the trade protection measures to continue to provide import replacement opportunities. 

The main investment risk at the current price is that even for a 7% margin of safety, you have to assume that SDI can grow according to the long-run US GDP nominal growth rate.

However, I believe that SDI will report a declining profit in 2021/22 with the opening of the new mill.  I do expect the market to have a knee-jerk reaction that will provide you with a better buying opportunity.

For details refer to the posts of 3 Jan 2021, 10 Jan 2021, and 12 May 2021.

Is Steel Dynamics a reverse value trap?

New Toyo International

New Toyo International Holdings Ltd is a specialty materials packaging group listed on the Singapore Stock Exchange (SGX).
  • New Toyo is undergoing a turnaround. Part of the losses in the past few years were due to the impairment and retrenchment costs.
  • The packaging printing industry is not a sunset industry and globally the market is projected to grow at 4.7 % CAGR till 2024. This would be positive for the New Toyo turnaround plan.
  • The Group has ceased and restructured the loss-making operations and has seen the first signs of improvement in the 1H 2020 results. The challenge for New Toyo is venturing into new areas for any quantum leap.

However, there is ample margin of safety at the current price when compared to the Asset Value and Optimistic Earning Power Value. The conclusion is that New Toyo is not a value trap. This is because
  • I do not expect further impairment of PPE.
  • The current businesses have the potential to deliver a steady return.

For details refer to the posts of 7 Feb 2021 and 21 Feb 2021. I have an update published in March 2022 titled “Has New Toyo move beyond being a cigar-butt investment?” together with a new infographic. The conclusion is that New Toyo is still a cigar-butt investment.

Is New Toyo International a value trap?

Has New Toyo moved beyond being a cigar-butt investment?

Wing Tai

Wing Tai  Holdings is a leading Singapore property and lifestyle retailing group with 3 main business segments:
  • Property Development with both residential and commercial properties.  Current projects are in Singapore and Malaysia.
  • Property Investments with serviced residences, office buildings, data centres, and hotels. These were developed across several geographical locations.
  • Lifestyle Retail. The Group has many branded stores in Singapore and Malaysia with many lifestyle brands as Uniqlo, Topman, and Dorothy Perkins.

Wing Tai is undergoing a turnaround with a past 3-year average return of 3 % compared to the 3 years average return of 9 % a decade ago. 

Part of the losses in the past few years were due to the fair value loss from investment properties. Another part is due to the slowdown in property development activities.

As any impairment of the investment properties in Hong Kong will be about 8% of the Total Assets, I would conclude that Wing Tai is not a value trap.

For a long-term value investor, there would be enough margin of safety for any investment in Wing Tai. 
  • The Group is financially strong and will be able to meet the challenges of a prolonged soft property market. 
  • Its operations have been diversified to several countries and have recent expansions to new markets (eg Japan, Australia)

The current market price is more than a 50% discount to the Book Value, the normal Earning Power Value, and the Look Thru Earning Power Value.  

For details, refer to the posts of 7 March 2021 and  21 March 2021. There is now an update posted on 10 April 2022.

Is Wing Tai a value trap?

Boise Cascade

Boise Cascade (BCC) is a US NYSE listed company in the Lumber & Wood Production Industry that I classify as a good company.

It is financially strong with the industry average debt to capital ratio while having a higher than industry cash position. Revenue is trending up through a combination of organic growth and M&A exercises.

Management has been able to perform better than its peers from an operational perspective. However, there are issues with capital allocation. Over the past 8 years, the Wood Products segment investment has been doubled the segment operating income for the same period.

At the current price, BCC is overpriced. The investment thesis is that while waiting for the price to decline to below the EPV level, BCC must also improve the business economics.  Otherwise, there is no margin of safety at this level. 

This requires both a change in the capital allocation approach as well as improvements in the returns. Or else it could be a potential value trap.

For details refer to the post of 14 March 2021 and 29 March 2021. There is now as update "Boise Cascade - beware of illusory valuations"

Is Boise Cascade a growth stock or a value stock?


Tempur-Sealy International Inc (TPX) is an NYSE-listed global bedding company. The Group is one of the top 2 bedding industry leaders in the US market. 

The bedding industry is not a sunset industry. TPX's two business segments - North America and International - still have organic growth prospects. The industry growth in the US seemed to have been driven by the growth in the Housing Starts. But this is not long-term sustainable growth. 

My investment thesis is that TPX is a growth trap.
  • TPX achieved a lower revenue growth rate compared to the industry.
  • In the past 3 years, EBIT/TCE employed averaged 19 %. This is commendable at it is above the cost of funds. But TPX Return on Assets is the worst among the peers.
  • While it has created shareholders' value, the share buyback plan was carried out at prices that were greater than the intrinsic value.
  • The current market price far exceeds the EPV. 

The market is pricing TPX as if it was a high-growth stock. I have shown that it has short-term revenue boosters ie from Housing Starts and anti-dumping.  But the long-term outlook is likely to be growth at the US long-term GDP rates.

The current business economics of the Group is good.  In the short run, it can even overshadow some of the non-value-adding decisions. But if management does not take advantage of this to make the necessary changes, TPX may not have a bright future in the long run.

For details refer to the posts of 9 May 2021, 23 May 2021, and 25 Jul 2021.

Is Tempur-Sealy a growth trap?

Leggett & Platt

LEG is a pioneer in sleep technology. Today the Group conceives, designs, and produces a diverse array of products that can be found in most homes, offices, and vehicles. 

By analyzing LEG as comprising a Special Foam division and a Classic LEG division, you can see the growth potential for LEG.
  • The Classic LEG division is a “steady” business with revenue growing at a CAGR of 2.2 % from 2010 to 2019.
  • The Specialty Foam division is in a growth sector with double-digit revenue growth in 2019.

LEG management has extolled the Specialty Foam contribution to LEG's bedding business. The question is whether it will be able to transform the Group into a growth stock. For this to happen, the following must occur:
  • The Specialty Foam division growth must result in double-digit growth for the Group.
  • The intrinsic value of the Group must far exceed the current market price.

The revenue growth for the Group in the first quarter of 2021 barely touched 10%. The Group has not reported whether this growth was driven by the Specialty Foam division. At the same time, there is no conclusive evidence that the Group can sustain an overall growth rate of more than 10 % for several years.  

There is currently no margin of safety even if you viewed the Specialty Foam Division as a growth segment.  At the current price, LEG is a growth trap.

For details refer to the posts of 3 Jun 2021 and 27 Jun 2021.

Is Leggett & Platt a growth trap?

Worthington Industries

The Group today has 2 major business segments - Steel Processing and Pressure Cylinders. The analysis suggested that WOR is a good company.
  • It has been profitable over the past 11 years. This covered 2 hot-rolled steel price cycles and the Covid-19 pandemic. 
  • It is financially sound with a Debt Equity level lower than the industry average. As of Feb 2021, cash represented 29 % of the total capital employed.
  • It has a good track record of growing shareholders’ value.  
  • The sustained excess returns and the EPV > AV scenario suggested that it has a sustainable competitive edge.
  • While there may be limited opportunities for high growth in the US, there is a global demand for its Pressure Cylinder segment products.

At the current price, there is no margin of safety from the EPV perspective. I would argue that there is also no margin of safety from a Conservative Earning with a 2 % growth perspective.
For the price to go higher and hence project some justification for buying, you would have to view WOR as a growth stock.

But the analysis did not provide any evidence of a high growth phase. If you invest based on a high growth expectation, it would be investing in a growth trap.

For details refer to the posts of 4 July 2021 and 18 July 2021. There is now an update posted on 15 May 2022.

Is Worthington Industries a growth trap?

Generac Holdings

Power generation and storage are the key focus of the Group. Its success is built on its engineering expertise, manufacturing excellence, and innovative approaches.

The analysis showed that GNRC is fundamentally strong. 
  • It is financially healthy with a 0.6 Debt Equity ratio as of Jun 2021. The Group had been able to increase its ROE from 13 % in 2010 to 24 % in 2020. 
  • It achieved a 15.4 % CAGR in revenue from 2010 to 2020. About 1/3 of this has been from organic growth. The Group has been able to fund its growth from internally generated funds.  
  • The generator industry is not a sunset one. There are still prospects for growth.  But the bigger growth will be from the international market where GNRC has a small presence.
  • Management has a good track record for operations and capital allocation. 
  • It has been able to create shareholders’ value.
  • The main risk - new acquisitions - seemed manageable.

Unfortunately, the current market price does not provide any margin of safety. The market is pricing GNRC at a growth rate that is not realistic.  I would conclude that GNRC is a growth trap.

For details refer to the posts of 15 Aug 2021 and 22 August 2021.

Is Generac Holdings a growth trap?

Timken Steel (TMST)

Except for its IPO year of 2014, TMST had not been profitable since then. However, the Group is financially strong and a breakeven analysis showed that the poor performance is due to its operating below its breakeven levels.

The prospects of lower fixed costs, higher selling prices, and larger sales volume meant TMST would be able to be profitable. Given TMST's technical expertise and customer relationships, if it can get align its cost structure with the cyclical product prices, it would be able to turn around.

There is a new CEO/President starting work in Jan 2021. This could be a catalyst to turn the Group around. 

The Investment Thesis is that TMST would be able to turn the Group around. If this is achieved there is a sufficient margin of safety at the current market price.

If it failed, the current market price is 1.1 times the Book Value. This would limit the downside if the turnaround is not successful.

For details refer to the posts of 5 Sep 2021 and 19 Sep 2021.

Is Timken Steel one of the better NYSE stocks?

Cummins Inc (CMI)

CMI designs, manufactures, distributes and services a wide range of engine related products worldwide. These included diesel, natural gas, electric and hybrid powertrain and powertrain related components.

CMI is fundamentally strong.
  • It has very low net Debt-Equity ratio.
  • It has achieved an average 23 % ROE from 2010 to 2020.
  • It has been able to achieve a revenue CAGR of 4.1 % from 2010 to 2020. 
  • The Group had changed its business direction to take into account the market trends.
  • Management is both a good operator as well as a capital allocator. 
  • The Group has a track record of creating shareholders value. 

CMI has a good margin of safety. This comes from assuming that it can deliver the high growth rates over the next 10 years. These are actually single digits growth rates just a few % points above the US long term GDP growth rates. The numbers are not some mind-boggling growth rates.

I would conclude that there is an investment opportunity here and that CMI is one of the better NYSE stocks to invest in.  For details refer to the articles posted on 14 Nov 2021 and 28 Nov 2021

Is Cummins one of the better NYSE stocks?

Olympic Steel Inc (Zeus)

Zeus is a leading metals service centre that provides metals processing and distribution services for a wide range of customers. 

In Oct 2021, I had concluded that Zeus had poor business economics. Zeus was in a cyclical sector and as such, the fundamental analysis should be based on its performance over the cycle.

The sector is currently in the uptrend part of the cycle and as such you would expect relatively good results compared to its past. But cyclical sectors mean revert.

My valuation showed that the EPV is only 1/6 that of the Asset Value. There is only a margin of safety based on the Asset Value The low EPV relative to the Asset Value implied that the Group had not been effective in using its assets. 

Could there be risks that my conclusions are wrong?
  • A new CEO took over in 2019 and there are signs of the Group divesting the lower returns business and acquiring those with better margins. 
  • The management continue to report progress in improving the operations even though the impact has not been significant. There could be a turning point when there is a spike in operating efficiencies

My view is that the weight of history is against this. As such Zeus is not one of the better Nasdaq stocks to invest in.

Is Olympic Steel one of the better Nasdaq stocks?

M.D.C. Holdings (MDC)

MDC is one of the top ten homebuilders in the US. I do not consider MDC fundamentally strong for the following reasons:
  • It has a debt level that is higher than the industry. At the same time, it had sold off all its investments in securities to fund its growth.
  • It had generated cumulative negative Cash Flow from Operations from 2010 to 2020. 
  • It does not have a sustainable reinvestment rate.
  • The revenue growth from 2010 to 2020 was because of the tailwind from the growth in Housing Starts.
  • MDC just maintained its market share during the past 11 years. MDC revenue would also be cyclical and its long-term average revenue would be pegged to the long-term Housing Starts average. 
  • MDC performance compare to the top 5 homebuilders by 2020 revenue is at best average. At the same time, it had not been able to create shareholders’ value

A valuation based on an Optimistic Scenario showed there is no margin of safety.  MDC is not one of the better NYSE stocks to invest in. The current market price of MDC only makes sense if you believe that its business is not cyclical. But this would be challenging 6 decades of a cyclical Housing Starts. 

Is MDC Holdings one of the better NYSE stocks?

Lohakit Metal PLC (LHK)

LHK is steel company under the Stock Exchange of Thailand. LHK is a fundamentally strong Group. 
  • It is financially strong.
  • It has a strong performance track record.
  • Management has a good track record as an operator and capital allocator.
  • It has been able to create shareholders’ value.

While the current performance of the Group has been affected by the Covid-19 measures, it had a good performance track record over 2 price cycles.

The performance of cyclical companies will mean revert. As such any fundamental analysis should be based on its performance over the cycle

A valuation of LHK showed sufficient margins of safety under the EPV and EV with growth scenarios. 

My view is that with little borrowing, the Group would be able to withstand any negative economic scenarios without any impairment of its assets. In other words, the Asset Value provides a floor value and I am happy with more than a 30% margin of safety based on the EPV.

For further details refer to the article posted on 3 April 2022.

Is Lohakit Metal one of the better SET steel companies?


NVR is a US home builder. NVR was a good stock to invest in a high inflation environment as follows:
  • Over the long term, house prices have increased at a faster rate than inflation and construction costs. The long-term average Housing Starts are also not affected by inflation. This meant that if you value homebuilders from a long-term perspective, you are likely to have more reliable estimates. 
  • I carried out a valuation of NVR on such a basis. It indicated that there is a margin of safety at the current market price. At the same time, NVR was fundamentally strong. It had a track record of sector-leading returns and creating shareholders' value. It was also financially very sound. 
  • The key was not the track record. Rather the track record points to an underlying strong management and good business model. This is important given the uncertainty regarding the duration and short-term impact of high inflation. 

The market price of NVR had declined to USD 3,951 per share as of 28 Jun 2022. Despite the decline in the share price, there is still a good margin of safety. As such I would consider NVR as one of the better NYSE stocks to invest in.

Is NVR one of the better NYSE stocks?

US Steel

United States Steel Corporation (X) has transformed itself over the past 10 years. It has reduced its capacity to match its demand and diversified to making steel via EAF mini-mills. Apart from improving its business operations, X has today a stronger balance sheet. 

Any analysis and valuation of X should be based on this “transformed” profile. At the same time, steel is a cyclical sector. A valuation of X on such bases shows that there is a margin of safety at the current price of USD 25.50 per share (as of 6 June 2022).

I also analysed X from another perspective. X can be considered of comprising 3 divisions – the US, Tubular, and Europe. The US division covers the company’s US flats and the mini-mill segments. The Tubular and Europe divisions are the US tubular and USSE segments

From 2013 to 2021, the main contributor has been the US division. The Tubular division has not generated any cumulative returns. Europe, while profitable, currently faces market and supply risks due to the Ukraine invasion.

The market price has already priced in the downside from Europe. I reached this conclusion based on a sum-of-parts valuation of X.

US Steel - a case study on getting insights from Annual Reports


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Disclaimer & Disclosure
I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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