Sunday, 12 July 2020


The premise was a very simple one. In hindsight, it may seem obvious, but there were a lot of doubts and skepticism at the time. Everyone was calling a bubble in March, April, May.... and so on.

On 8 June 2020, we published a blog post - you can read it in its entirety, but our analysis essentially boiled down to several key insights:

1) If you really like glove stocks, buy the Big 4 - KOSSAN, HARTA, TOPGLOV, or SUPERMX. They offer the greatest profit potential, because they have all sorts of inherent fundamentals advantages.

2) Avoid hype - this means the penny stock companies that are just getting into the gloves game - and stick to the obvious plays. The Big 4 will actually make lots of money from selling gloves, because demand is set to exceed supply for quite a while until this imbalance is addressed. It sounds stupid simple, because it is....

3) The Big 4 will do better than the second tier glove players, many of whom have already enjoyed spectacular price gains. The Big 4's upside potential from both stock price and earnings perspectives are... to put it simply, greater.

So as of 10 July 2020, let's see whether we had just been talking cock, or if our insights made sense.

Chart 1 : Price Performance of the Big 4 counters since our blog post.

Chart 2 : Performance of the 'second-tier' glove counters since our blog post. For this comparison we'll use COMFORT, RUBEREX, and CAREPLS.

So it wasn't even a fair contest...

Chart 3 : For added measure, let's see how the other healthcare plays have fared. These are your hospital bedmakers, face mask manufacturers, glove mould companies, PPE providers etc. Note that our selection isn't comprehensive, but they are there to illustrate how the 'non-Big 4, non-second tier gloves' segment has performed.

These include companies that have just announced plans to enter the healthcare business, as well as those who do not currently count on healthcare as a major earnings contributor.

There are some important caveats for this huge outperformance though, and they are not very positive:

Global COVID-19 infections are still on the rise, with no peak in sight for countries like the USA and Brazil.

There are already second wave possibilities and sporadic community outbreaks, like in China in Hong Kong. In fact, the Hang Seng fell 2% after the news of new infections came out.

A persisting outbreak is not good for the long term health of the global economy. Neither is it good for stock markets, obviously.

At the same time, it's very possible that low interest rates and cheap liquidity are fueling a global stock market bubble. This will be debated for a long time, still.

As for the Big 4 counters, a few notable things have happened.

Analysts have steadily upgraded their fair value ratings for the Big 4. That in turned fueled spectacular rallies in the likes of SUPERMX and KOSSAN. HARTA had its own huge rally, but historically it had always commanded a higher valuation premium due to its high nitrile glove product mix.

Hell, just look at TOPGLOV now:

So what has happened within the past month is that the entire market is now contemplating much higher fair value possibilities. This in turned drove stock prices higher - way higher than in March or April.

We are not gloves perma-bulls. We are only here to highlight the facts, and all that has happened in just one month since our blog post.

Things may turn south quickly, and this post is not a rallying call to buy Big 4 gloves until they gain another 20%.

In our view, the very best stocks are both investible and tradeable. The Big 4 clearly meet this criteria, and we have already traded countless times in and out of this story.

The most important thing for traders or investors is that ideas make money. We're not too attached or have fallen completely in love with the sector; our preference is to zig when the market zags.

So we did what we always do :

Take profits lah!

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