Fundamentals to recognize investment opportunity

Not many investors are able to recognize investment opportunities of listed stocks on HOSE, HNX and UPCOM. Most investors do not know what factors make price to move or what criteria should be considered before investing in stocks.

Illustrative photo.

Illustrative photo.

There are many reasons for the ineffectiveness of an investment. This article will present some necessary things that investors need to know when joining the stock market to achieve better investment results. 

Besides the 1,615 companies listed on the three stock exchanges, there will also be many more companies doing IPO in coming times. Furthermore, the government and State Securities Commission have built a clear plan to privatize and list the State Owned Enterprises (SOEs) by 2020. Some of them are MobiFone, TKV and Viettel. There will be more investment opportunities, hence, how to recognize them is very important for investment.

Dividend: Necessary but Insufficient

Several investors have invested in some stocks just because of their high dividend yields. SAS, GAS, NCT, VNM and TCT are examples of high-dividend stocks. These companies have paid good cash dividend over the last few years.

However, these stock are not best performing stocks in the market and usually the target of short term investment flows only.

At the beginning of 2019, the stocks which mostly attracted investors were VGI, CTR, VTP, DAH, HAH, CCL, GTN and many stocks which posted strong price growth were not high-dividend stocks. These companies did not even pay cash dividend for a long time.

This does not mean that the dividend policies of listed companies are not important in investment or in choosing stocks. Evaluating whether companies can operate effectively to have profit to pay dividend is the thing that investors need to consider seriously.

Good company does not mean good stock

One of the mistakes that investors usually make is they only care about the companies which have good operating results or high growth of revenue and profit. This causes investors to ignore the other better investment opportunities.

Some investors just invest by following other people, or by listening to suggestions of other investors that are very popular in the market now. We know that companies which have good profits and share price increase, are mostly of interest to investors. However, if investors invest in good companies, the share price may not be cheap any more or even could be above their fair value.

So, the key things to note here is, besides a good fundamental knowledge, investors should choose the companies which have been improving operating results, have good management team to encourage business development and are cost saving, such as VIS, which has improved revenue and profit, one of the indicators that makes share price move up.

Cyclical stocks, value stocks or growth stocks?

It is common to see good companies go up and down throughout their lifetime. Share price of these companies sometimes goes up and down irrationally as well. Besides knowing about timing, investors also have to understand the business nature of different sectors and companies. Not every good company sees its share price increase, even if it shows good profits. We have to understand the type of stocks, and there are three typical group of stocks.

Firstly, most professional investors classify companies which operate in sectors of pharmaceutical, information technology, telecommunications, and automobiles in group of growth stocks. Some examples of this group are FPT and CMG which are of interest to many investors.

Secondly, the stocks of companies in sectors of energy, insurance, financial services are classified in groups of value stocks given their low P/E ratio. Investors should only buy these stocks at cheap price.

Thirdly, the stocks of companies in sectors of rubber, chemicals, tires, steel are classified as cyclical stocks. Profits of these companies fluctuate in line with their business cycle. The moving-up phase may last for 3-5 years, and the moving-down period may be the same.

Selecting stock is very important in investment. Investors should consider the nature of business of companies and sectors. Some companies grow in a short period, while other companies can maintain the growth for a longer term. These are things that investors, including both individual investors and professional investors, need to take note of to improve their investment result.

Choosing right stock is not easy and to maintain the investment result over many years is a challenge for many investors as well.

Learning from mistakes, accumulating experience, understanding fundamentals of companies as well as knowing how to use technical analysis, to timing the entry and the exit, are what individual investors need to do, to see better investment results.

Dr. Le Duc Khanh

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