Accumulate Golden Agri palm oil demand skyrocketing

Recent political scenario across the Middle East and North Africa (MENA) region seems to suggest the winds of change, the velvet revolution is beginning to commence there - whether at a gradual pace or a huge fast pattern. Commerce has stopped. Trucks stopped. And food supply stopped.

The demand outstrips supply. The demand for palm oil in these region will push a commodity rush.

At the other end of the world, huge, gradual increase in consumption and demand in India and China is not relenting. Demand outstrips supply again.

Now supply side economics. There is a downfall! Palm oil production from FFB has been going down the past quarters - flooding, rain, volcano - at the top producing nations - Indonesia and Malaysia - has reduced supply tremendously.

With a special tax by the governments of these countries, there is no doubt the cost and thus the final price of palm oil will gain handsomely. Prices are expected to reach 4000 RM this year.

Accumulate on Golden Agri, the second largest palm oil producer in Indonesia. Current prices still hovering at 70 cents (SGD) are so attractive you cannot miss it.

30 Stocks of the Singapore Straits Times Index 2011

Here are the 30 Component Stocks of the Singapore Straits Times Index 2011.
City Developments
Fraser and Neave
Keppel Corp
Neptune Orient Lines
CapitaMalls Asia
Singapore Airlines
Singapore Press Holdings
United Overseas Bank
Oversea-Chinese Banking
DBS Group Holdings
SembCorp Industries
Jardine Cycle & Carriage
Sembcorp Marine
Singapore Telecom
Jardine Matheson
Jardine Strategic
Hongkong Land Holdings
Singapore Technologies Engineering
Capitaland
Golden Agri-Resources
Sia Engineering
SMRT Corp
Wilmar International Limited
Singapore Exchange
Noble Group
ComfortDelgro Corp
Genting Singapore
CapitaMall Trust
StarHub
Olam International

Compared to the FTSE Bursa Malaysia CI, the banks consists just 3 which is all of the local banks. And seem more balance with several transport firms (SIA of course, Comfort, SMRT, Neptune) and commodities (Olam, Noble) plantations (Wilmar, Golden Agri).

Two interesting component stocks at least to me, is Jardine Matheson and Jardine Strategic.

So the question is : how do we make a stock index, or should we be making and mimicking the well-known STI index?

Every wise investor should have a strategy to buy and hold several of the stocks above, and ability to move sideways within a sector. Say for instance, now that Wilmar seems to have hit several highs and questionable situation with their new divergence into property development (from pure palm oil sector), a strategic investor that wishes for growth and strength in palm oil sector can still remain invested by selling their Wilmar shares, and buying instead Golden Agri.

Likewise with telco. One must have the capacity for making shifts within the sector. Sell Singtel, buy Starhub if the direction to expand overseas is taking a slower growth now after years of double digit growth in Australia and Indonesia.

Will write more on each component stock in separate articles.

Peter Lim A Wilmar and Golden Agri story

Most of you would have known this story - Peter Lim made his fortune investing in Wilmar many many years ago. Back then he invested when the company was at a low price, then now the price is over the moon. One factor was palm oil demand and prices went up through the years.

Wilmar along with Golden Agri, are listed in Singapore. While all their palm oil producing plantations are located in Indonesia. They are both the largest and second largest palm oil producers.

So now, if we are presented the scenario that Peter Lim had many years ago, when Wilmar was affordable. What would you do? With the knowledge that palm oil is heading upwards. And there is this second largest palm oil company being offered at a reasonably low price?

When I first invested in AirAsia, the similar situation hit. This airline is smashing records, over 75 destinations with over 183 routes, all over Asean and China and India, Australia. Recently it had gone from average of 1.50 RM, to over 2.50 RM in 4 months.

So I wonder if the day comes when Golden Agri had moved from 60 cents, to $1.00, to $5.00. What is the target price of Golden Agri? What was the target price of Wilmar? And that "was" was some time ago.

Similarly, what was the target price of Genting Singapore? Remember some powerful research house, or investment group were giving Genting Singapore $1.20 target price. 90 cents target price because of a Rights Issue. $1.25 target price and fear of estimating the gains. Fast forward to today, apparently the target priced has been revised upwards, conveniently.

My wish was to find such a Wilmar. And I had found it several times and several times too were swayed by wrong information, too much information, lack of confidence and believe in myself. So if you have found yours, believe in yourself and hopefully one day, you will know how Mr Peter Lim felt.

"When you first look at kungfu, it appears to be so easy.
When you are training in kungfu, it is very difficult.
When you have mastered kungfu, it appears to be so easy."

This was the legendary kungfu exponent Bruce Lee's philosophy about mastery. Which level of investment mastery are you at?

Palm Oil Commodity Fight - Wilmar versus Golden Agri

Palm Oil or Crude Palm Oil (CPO) dominated the headings when oil prices were hovering over $150, as a potential alternative biofuel for vehicle usage.

And rightly so, I have been writing some articles on Lithium as a new bet for hybrid car demand. Hybrid car batteries need Lithium, and so this commodity will heat up soon.

So back to palm oil. Besides being a biofuel, the main usage is for cooking oil, basic daily consumption, making soap and many other fast moving consumer goods (FMCG). Now the toss up surely is to look at the largest palm oil producers or harvesters. Who are the players?

Wilmar is the largest, and the current price is over $7.00
Next is Golden Agri, and the current price is around 65 cents.

Both companies own large tracts of palm oil producing fields in Indonesia - Sumatra, Kalimantan, Sulawesi. Labour cost is relatively low.

Perhaps the big simple question of investing is to go for the number 1. Wilmar. My suggestion instead is to buy into Golden Agri - 10 lots of Golden Agri is equal to 1 lot of Wilmar. And when price fluctuates, the investor has an easier way to divest out of several lots instead of holding to 1 large costlier lot.