Every beginning of a new year, The Edge Malaysia, make a recommendation on the counters to Watch for that year.
Similar to year 2010, they recommend 10 counters to look for based on its fundamental and share price valuation. The selection also taking into account the stocks liquidity and long terms return.
The Edge stock picks for 2011 are
Continue to see the market rallying on 3 Factors. After rising more than 20% at its highest in 2010, we still see the Malaysian market rallying to new highs in 2011 with our KLCI fair value at 1648 points.
We believe this rally will be driven by 3 key factors:
Malaysia’s palm oil inventory started to decline last month as production began on a seasonal downcycle. This, plus the still tight supply in 1H next year, should keep prices relatively firm and give plantations stocks the opportunity to appreciate further.
However, with recent rainfall seeming ordinary, we believe a bumper crop is in the making and we would see strong production from mid-2011 onwards. This may put an end to the current palm oil price upcycle, which is already more than 2 years old. Maintain Neutral on the sector.
Below are the target prices for selected plantation stock.
Buy for 2011. For December, we would advise investors to return to the market to position for a potential rally in 1H2011. We note that December had indeed been a good month since 1996, posting positive returns 86% of the time. We are, for December, inclined towards the Big Caps, with our Top Banking and Telco sector Buys again being CIMB, Maybank and Axiata. Our Top Buys for December include stocks from the Property and O&G sectors.
We continue to maintain our OVERWEIGHT call on the Auto sector, which will continue to remain favorable next year pointing that valuations remain attractive. Our top pick for the sector is now UMW, given the stock’s laggard performance and in view of the turnaround in its oil and gas bolstering FY11 profitability. Nevertheless, we continue to like Tan Chong in view of its earnings trajectory over the next 3 years as it transforms into a regional player from its exposure in the Indochina and BIMP-EAGA market. On the autoparts side, Delloyd Ventures is our favorite pick in favour of its Indonesian exposure from both the autoparts and plantation division, of which, valuation for the latter remains undemanding despite the recent rally in CPO prices.
Below are the target prices for automotive sector.