Sunday, April 27, 2008

Keppel Corp

Early last week: Keppel Corp looked as it was breaking out of its 200MA on high volume, and appeared to be reversing a downtrend. Headlines were full of sky-high oil prices and a possible 30 billion barrel oil find in Brazil by Petrobras (one of their major customers).

I skimmed through their FY07 results, checking that their earnings and balance sheet are OK. They are the largest sea based oil-rig manufacturer in the world, with abt 60% of the global market for jackup rigs - not an exaggeration to say this is a 'world class' company. PE was about 18 (excluding exceptionals) - a bit higher than I'm used to, but it is a blue chip. And they have managed to increase their earnings by 20-30% over the past 5 years, so the PEG looks reasonable. There is some sort of story here - so maybe the uptrend can continue.

I bought 1 lot at 11.98.

Late last week: 1Q08 results released on the were under expectation. Analysts were expecting 20-30% growth, they got 4%. Actually the results weren't that bad (at least there's still some growth), but the market reacted terribly. The stock gapped down and then continued dropping, on the highest volume in several years, ending 6% lower.

Shit! What should I do? Cut loss or hold?

Reasons to cut loss:
  • No way can a 6% fall with the highest volume for years be considered part of a healthy uptrend.
  • If it was reversing or in an uptrend, the market would have taken the bad news better.
  • Last 2 days on the chart give 2 days of distribution, long black candles on higher volume.
  • Keppel was the only blue chip stock that day to fall. Falling in a healthy market is worse.
Reasons to hold:
  • Needs to break down through 10.00 to confirm the downtrend.
On balance: sell. Price/volume action just dosen't look right.