The Formula for Luck [QAF Limited SGX: Q01]
Updated: Aug 8, 2020
When I was in secondary school, can't remember too clearly but there was a teacher who told me that there is no such thing as plain luck in this world. In fact, she mentioned that,
Luck is when chance meets opportunity.
Here is how I interpret this, lets say a tourist is in Singapore and he/she needs directions to somewhere but he/she only speaks french. COINCIDENCE! I also speak french (very very basic though) so I was able to give them the directions they needed, I would count myself lucky as I was able to help.
I would also assume that they are lucky too as they were able to bump into someone who could speak french.
Now lets put that into an investing context and try to make some cents out of it.
Photo Source : https://www.qaf.com.sg/wp-content/themes/tangent_QAF/images/brand-logo/all-brands01.png
Here is my stock pick of the day,
QAF Limited SGX: Q01
Before we even look at financials or technical analysis blah blah those boring things, lets look at it on the surface.
QAF is a food manufacturer and they own the following brands in the photo above.
Some food for thought, (no punt intended)
1) If Covid-20 happens will people continue eating Gardenia?
2) 30 years from now will people continue eating Gardenia?
3) When you have less money to spend do you buy cheaper food or more expensive food?
I'm sure everyone gets where I'm going with this so logically speaking, it makes sense to invest into QAF but the question is, does it make cents? (OMG I'm loving this)
QAF had a pretty bad run in the past few years.
Simply put, as a food manufacturer, they are extremely susceptible to changes in raw material cost. What happened in 2018 was that there was some sort of drought in Australia (where they get their flour from) and as a result the cost of flour increased causing their raw material cost to go up. Apart from that some management problems blah blah the usual crap in every big company.
Some ask, if raw material prices increase, why can't QAF just pass on the cost to their consumers by increasing the ASP? That sounds absolutely logical but can you imagine going to supermarket tomorrow and instead of $2.50 you now pay $5 for a loaf of bread? BIG LOL. Now I don't know what happened but my guesses are that CASE or something wouldn't be too pleased about that. So chances are they just sucked it in and accepted that they will earn less that year.
Back to the point on luck, so here is my analogy. We're now in the middle of Covid-19. Things are about to get worst before they get better. As we now have less money to spend, I'ld think that logically we will eat more bread. Furthermore, QAF had no implications during the circuit breaker (Yes please spell out circuit breaker as I find calling it CB is very vulgar and impolite) therefore I would say their revenue is relatively unaffected.
With those points above, I bought into QAF.
Now, will I be lucky? The chances are there right? The logic is certainly aligned here. Here is 1 piece of good news today.
Why trading halt out of no where? No surge in prices yesterday or the day before. Everything seems normal.
Gets better. After market closed today, this came out of no where.
So with the trading halt plus the positive 1H2020 results announcement I do hope that my senses will prevail and hope some cents to be collected on Tuesday.
Happy Weekend everyone!