Super Profit from “Flyweight” Stocks

The Vietnamese stock market was lacklustre in October but some stocks still generate hefty profits on the books. Neither blue-chip stocks of companies with annual profits amounting at trillions of Vietnamese dong nor previous hot picks, but rather “flyweight” stocks with super-low market prices are generating huge returns for investors.

 

Statistics from the Hanoi Stock Exchange (HNX) in October ending on October 22 showed that 26 stocks rose 20 per cent from their lows in the recording period. Of course, this growth is in theory because a majority of investors can earn part of such a high profit rate and only a small proportion of investors enjoy a whole gain. Interestingly, no fast-growing stock had market value of more than VND10,000 - the par value.

 

FLC Group Joint Stock Company (FLC) led the upswing with a rise of some 64 per cent. FLC hit the bottom of VND4,500 per share on October 2 and closed at VND7,400 on October 23. There is a high likelihood for investors to take short-term profits because the stock has a very good liquidity.

 

However, to enjoy this enormous profit in October, many FLC shareholders had to “go through hell” previously. FLC was deservedly called a "nightmare" stock of the market in 2012. It slid from the highest price on of VND46,000 in March 2012 to below VND5,000 in early October.

 

The underlying driver for the FLC rebound was the catastrophic decline in those seven straight months. Quick selling of real estate products was expected to bring big revenues for FLC in the third quarter and the whole year. However, the market is still waiting for more accurate data rather than estimations and current FLC prices are reflecting expectations, not reality.

 

Viet - Han Corporation (VHG) was the biggest upward mover on the Ho Chi Minh City Stock Exchange (HOSE). The stock recovered over 42 per cent from the lowest price of VND2,100 on October 2 to VND3,000 on October 22. However, VHG’s top position for biggest gainers is likely to be lost to Cuongthuan Investment Corporation (CTI), as the former showed signs of weaknesses, featured by a mass sell-offs on October 22, and the latter kept growing.

 

VHG was strongly driven up until the end of last week and started to decline when the company incurred another loss, of VND5.49 billion in the third quarter, totalling more than VND21.6 billion in the first nine months. In the last three days of gains, traded volume of VHG reached 1.25 million shares. Then, the stock lost liquidity seriously. The volume of shares transferred was over 11,000 units on October 22 and just about 6,000 shares on October 23.

 

Although the losing time of VHG was not as long as that of FLC (seven months), the former was called the worst “money-squeezing” stock on the market. VHG slumped from VND6,600 in early May 2012 to VND2,100 in early October. Liquidity was very poor during this declining period.

 

Statistics from the Ho Chi Minh City Stock Exchange showed that 16 stocks jumped over 20 per cent in October, of which nine stocks had market prices below the par value of VND10,000. Apart from VHG, three stocks with the growth of 30 per cent in the month were Cuongthuan Investment Corporation (CTI), Bac Giang Exploitable Mineral Joint Stock Company (BGM) and Truong Thanh Furniture Corporation (TTF). Six stocks with the growth of over 25 per cent were Kinhbac City Development Share Holding Corporation (KBC), Foreign Trade Development and Investment Corporation of Hochiminh City (FDC), Construction and Materials Trading Joint Stock Company (CNT), Thu Duc Water Supply Joint Stock Company (TDW), Royal International Corporation (RIC) and Lao Cai Mineral Exploitation and Processing Joint Stock Company (LCM). At the Hanoi Stock Exchange (HNX), 26 stocks leaped over 20 per cent, 10 stocks soared over 30 per cent, and eight stocks surged from 25 per cent to 30 per cent. All 26 stocks are being traded below the par value of VND10,000. Nam Vang Corporation (NVC) had the lowest price of just VND1,000.

 

On the Ho Chi Minh City Stock Exchange, Vinamilk (VNM) caught the interest of investors because it was the only blue-chip which advanced more than 20 per cent. In October alone, the country’s largest milk producer stood at the bottom of the biggest movers with the growth of over 20 per cent, behinds dozens of super-penny stocks. Nonetheless, from the perspective of profit quality and profit-taking prospects, VNM was certain to stand at top place.

 

In fact, VNM had a very good growth performance since the beginning of August. The share climbed nearly 53 per cent from August 2012, growth rarely seen for a heavyweight blue-chip. Traded value of VNM shares was very high due to high market prices. This meant that the stock drew investors with a lot of money. VNM has long been known as an investment stock, but this time is a rare opportunity for speculative activities.

 

Unlike VNM, strong-growing penny stocks have unimpressive quality growth because they encounter difficult business operations. The low price reflects intense disappointments and low expectations during the previous periods. But, these socks have enough favourable reasons and conditions to drive them up.

The first reason is always the steep decline in prices. Many stocks are dirt cheap in terms of nominal value. These stocks therefore have certain attraction if investors refer to price performances. Many investors expect a rally, given price history.

 

A serious decline is generally interpreted that the stock has digested all bad news, meaning that the price is unlikely to go down further unless the situation gets worse. The next reason is the relatively small amount of cash for driving up the stock. Depending on the liquidity, a certain amount of money can make the stock soar to the upper daily limit very easily. Finally, information about the company is of not transparent - a good condition for spreading rumours, an underlying catalyst for price movement.

 

A dark spot of “flyweight stocks” is the profit margin primarily lies on the books or the pie is mainly for small retail investors. Daily liquidity is the most accurate evidence for the absolute value of profit.

 

With daily traded volume of some thousand units like Vinaconex Infrastructure Development and Construction Investment Joint Stock Company (VCH), Luong Tai Construction Joint Stock Company (LUT) or Bacviet Steel Joint Stock Company (BVG), 30 - 50 per cent of profit margins are insignificant. Perhaps, only currently trapped shareholders smile.

 

Another factor is the low market price, which makes percentage growth very high. For example, NVC rose 10 per cent in just a single day, above the daily upper limit of 7 per cent on the HNX.