On Friday, various companies with low P/E ratios surged, and what exactly is value investing, value speculation, and pure speculation became lively again. I need to explain what I understand as different low P/E ratio gameplay.
I have been involved in white horse stocks such as Yunnan Baiyao, blue chip stocks such as Agricultural Bank of China, speculative stocks like Huali Family that made a profit in May 2015, high dividend companies like New Hope, and expected themed stocks like Zhuhai Port before the establishment of Guangdong Free Trade Zone. Therefore, I am familiar with various models. So earlier, I had a question specifically introducing the operating modes of different stocks.
Let me explain the issue of price to earnings ratio in layman's terms:
For example, low P/E ratio air conditioners such as Gree Electric account for 80% of their revenue, and their performance is basically driven by the growth of their main business performance. Therefore, if their main business performance continues to increase, their stock price will still not have a high P/E ratio. Similarly, Little Swan washing machine accounts for 90%, Kweichow Moutai Maotai Liquor accounts for 91%, and ICBC financial business accounts for 47%... I won't give examples one by one. However, Kweichow Moutai will increase by more than 50% this year. If its performance can only increase by 20% next year, I think it will be difficult for its share price to rise sharply next year, because this year's share price has already reflected the expectation of high growth next year. Everyone's expectation is very good now. Once it is lower than the expectation, many of the high participating funds and the low participating profits will choose to leave. Then more funds will leave than the funds that want to continue to participate, and finally adjustment will be made.
Similarly, Changan Automobile's performance mainly relies on automobiles. But the previous decline was due to lower than expected sales. But funds are usually proactive, and it can be analyzed that large funds are selling in advance to suppress the decline. When everyone sees a decline in performance, because the stock price has already reflected the pessimistic expectations in advance, I suggested in mid May that there should be a chance for a rebound. Recently, Changan Automobile has indeed rebounded, but after all, its performance will not suddenly explode in the short term. Therefore, after the rebound, I chose to reduce my holdings and keep a bottom position.
So the result is that companies that rely on their main business for growth may experience a decline in performance, but the market has already reacted to the sharp drop. However, the price to earnings ratio will not increase significantly in the future, so they can rebound. If the decline exceeds the actual decline in performance, and the performance only declines slightly, which is not as pessimistic as expected, then there is an opportunity for rebound repair.
Unless it is a small cap real growth stock that rises sharply at a high level, once a large cap stock has a short-term increase that is too high and overvalued, the increase exceeds the performance growth by a lot. If the final performance is lower than expected, it will also fall sharply. After all, the P/E ratio is high. If it is on par with the expectations of most large funds, but the stock price already reflects the performance expectations, the P/E ratio is high, and it also needs to be digested at a high level for a period of time. Therefore, if it is in the middle line, it will not have much participation value. Because it's not underestimated after all.
After discussing the type just now, let's move on to growth stocks. Growth stocks are essentially companies that analyze their ability to sustain future performance growth. However, the problem is the existence of fraudulent listings and companies that have changed their performance. The crackdown is also relatively weak, so it can be seen that many new stocks have changed their performance, with a P/E ratio of 30 times this year and a P/E ratio of 180 times next year. So it is precisely because there are many fake growth stocks, coupled with the rapid expansion of new stocks and the low number of delistings, that many funds avoid this sector and turn to seeking stability in bear markets, whether in terms of supply and demand, safety moat issues, or capital preferences, due to the high proportion of suspended new stocks and the number of underperforming new stocks. All of these have led to a significant drop in the issuance of new stocks every time they are suspended or accelerated. Of course, real growth stocks will continue to soar in the future, but the problem is that in the current macro environment, such as fluctuations in raw materials and policy uncertainty, there are still very few real growth stocks. In addition, there are fake growth stocks that have been falsely listed. Therefore, I would rather choose to invest in growth stocks from more established and familiar companies. For example, I have invested in Little Swan and now its P/E ratio is only over 10 times. Of course, when it is high, I have reduced my holdings and kept some to seek stability. After all, Kangde Xin and other companies are old stocks and companies that have experienced many years of market baptism. If there were any problems with these companies, they would have been exposed earlier, so it is not easy to have major problems. Therefore, investing in older companies is actually safer.
To get back to the point, let's continue discussing the issue of low price to earnings ratio
For example, Hualian Holdings has a very low P/E ratio and relies on its main business performance for growth. Currently, its P/E ratio is only 4 times. On July 14, 2017, it was announced that the expected net profit for the period from January to June 2017 is between 1.02 billion yuan and 1.06 billion yuan; Earnings per share: 0.8935-0.9286 yuan (net profit for the same period last year: 432.1198 million yuan, earnings per share: 0.3845 yuan). The reason for the year-on-year increase in performance is mainly due to a significant increase in real estate sales revenue carried forward during the reporting period. At the same time, the bankruptcy investment losses of Far East Petrochemical, in which the company has a stake, were offset against the current period's income tax, resulting in a significant increase in the company's performance compared to the same period last year.
But the problem is that there is a lot of uncertainty in real estate regulation. Can the performance continue to grow so much next year? Moreover, the recent surge, such as on Friday when the theme of real estate leasing hit the limit up, is due to the closure of Guochuang High tech. Looking at the top 5 buying amounts:
Top 5 branches or trading units with the highest purchase amount: Purchase amount (yuan) Sell amount (yuan) China CITIC Securities Co., Ltd. Guangzhou Sports East Road Securities Branch 38756785.18 3443508 Wanlian Securities Co., Ltd. Guangzhou Dongfeng Middle Road Securities Branch 27219306.36 737797.00 Guotai Junan Securities Co., Ltd. Ningbo Rainbow North Road Securities Branch 22499058.00 27147666.10 CITIC Securities Co., Ltd. Chongqing Fuling Square Road Securities Branch 22355316.00 4484.00 Caitong Securities Co., Ltd. Shaoxing Renmin Middle Road Securities Branch 21665592.00 144247.00
Obviously, it is a speculative capital model. If the selling pressure of leading Guochuang High tech intensifies and the trend of high opening and low closing does not continue, even the low P/E ratio of other rental properties will fluctuate.
After discussing the previous few options with low P/E ratios and those with P/E ratios increasing from low to high. Now let's talk about another type of pure P/E ratio theme.
For example, the first quarter report of Commercial City shows that in 2017, it was disclosed that due to the payment of the remaining 45% equity transfer payment of RMB 234.6975 million from Taiyuan Maoye to Shengjing Bank during this reporting period, the cumulative net profit from the beginning of the year to the end of the next reporting period may be positive, and there may be significant changes compared to the loss in the same period last year.
So the result is obvious, the price to earnings ratio will be higher next year.
For example, Donghu High tech with a price to earnings ratio of 3 times. On April 29th, Donghu High tech announced its first quarter report for 2017, achieving a revenue of 1.244 billion yuan, a year-on-year increase of 17.41%, and a net profit of 687 million yuan, a year-on-year increase of 5862%.
The reporter noticed that the sharp increase in net profit of Donghu High tech in the first quarter was mainly due to the transfer of 60% equity of its wholly-owned subsidiary Wuhan Yuanboyuan Real Estate Co., Ltd., with confirmed investment income of approximately 677 million yuan. The net profit of Donghu High tech in the first quarter after deducting non recurring expenses was 5.18 million yuan, which was not significantly different from the same period last year.
For example, Zhejiang Digital Culture disclosed in its first quarter report of 2017 that during the reporting period, the company sold 21 first tier subsidiaries' equity in news and media assets to its controlling shareholder Zhejiang Daily Holdings, affecting the company's net profit for the current period of 1.174 billion yuan. Based on this, the company predicts that the cumulative net profit from the beginning of the year to the end of the next reporting period will increase significantly year-on-year.
These P/E ratios are expected to rise next year, unless there is any sudden opportunity for a one-time increase in performance. So this is just a temporary way for speculative investors with low P/E ratios to avoid flash crashes. It can only be for short-term play, so I'll leave when I need to,. Otherwise, if the P/E ratio rises next year and falls, it will still not be able to rise.
Another type is coal, non-ferrous metals, chemicals, and steel with low P/E ratios. This type belongs to cyclical stocks. The policy has led to such price increases affecting performance, resulting in a significant increase in many interim reports. This type of problem also needs to be analyzed in the future, such as which commodities will fall due to policy issues, because policies can change at any time, such as egg prices jumping up and down. I like value speculation in this type of market, and I choose to invest in any period where there is a significant increase in price. It is safer than holding on to it, as it is a cyclical stock, not a growth stock. The performance is expected to fluctuate in the future. It is also good to speculate on the short-term performance growth value in the future. For example, I made a 9-fold P/E ratio for Huajin Shares on the 19th for petroleum coke. But there is no long term. Just make some money from a certain price increase. Of course, fluctuations with low P/E ratios would have been smaller, so I naturally choose to speculate on values with low P/E ratios.
There is also a portion of companies with low P/E ratios but high dividend ratios. Companies that rely on stable main operations and have high dividend ratios in the past also have a different style of liking large funds.
As for Agricultural Bank of China, Industrial and Commercial Bank of China, Construction Bank, and Bank of China, which have low P/E ratios, their performance will not increase significantly, but they also have fewer problems than small banks and will not experience a significant decline in performance. I mean a 50% decline. So lazy people don't like to analyze future performance investments. This type of subscription for new shares is the safest, much safer than speculating on new shares. In early May, Wuxi Bank encountered a special suspension and resumed trading, with a drop of more than 20%. The current P/E ratio is 5 times, and assuming a worst-case scenario of a 10% decline in future performance, the P/E ratio is still within 10 times, which is still undervalued compared to US banking stocks.
