Stocks Today
SINGAPORE, March 26 - Olam International fell as much as 11.9 percent to S$2.00 with 3.4 million shares traded after a downgrade by Merrill Lynch triggered a selloff.
“The Merrill Lynch note not only downgraded the stock, but also gave a price target below its current trading price. Basically traders are just dumping Olam’s shares,” a dealer from a local brokerage said.
Merrill Lynch analyst Han Lim Chong cut the commodities trader to “sell” from “neutral”, with a target price of S$1.60, citing the firm’s high debt levels and slower earnings growth.
“Olam has become dependent on leverage for growth which, in our view, is not sustainable given the high 460 percent net gearing and low 1.7 times interest coverage,” Han said in a client note.
He added that Olam’s high valuation of five times net asset value and 26 times earnings and negative cash will make it difficult for the company to raise new equity.
My views: My opinion is that many people follow the analysts’ reports by herd instinct. They rarely questioned or investigate the worthiness of the stock. If the analysts’ reports is true, isn’t it true that they or the firm being able to make more $$$ by being first?
Secondly, let’s say the panic selling makes it cheap enough for some big institutions to buy in? So they are helping themselves to a bigger slice of the cake.
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