Do not give up on these dogs yet

High re­wards are still a pos­si­bil­ity

Financial Mail - Investors Monthly - - Guest Column - The writer owns Grindrod and Aveng shares Twit­ter: @Richard­s_Karin

We all like a bit of a punt, pro­vid­ing the po­ten­tial re­ward is high enough. Here are some beaten-down dogs of the JSE. All have fallen dra­mat­i­cally, but they have the po­ten­tial to sur­prise on the up­side by 80% or more. The risk is, of course, high, but it can be con­trolled with a tight stop. The charts are on a log scale to show the re­ver­sal pat­terns more clearly. Grindrod This is a pop­u­lar stock which has greatly dis­ap­pointed in­vestors. On the pos­i­tive side, net debt re­mains low with gearing at only 4% and a net as­set value (NAV) of R22.28/share. At the time of writ­ing it was trad­ing at R12.73.

Grindrod is on the cusp of break­ing a cru­cial trend­line that has served as re­sis­tance since the top in 2014. It is fac­ing stiff his­tor­i­cal re­sis­tance at the cur­rent price.

A break would tar­get R16, which is the most re­cent high.

The sec­ond tar­get is R18.80. This is just be­low the 200-week mov­ing av­er­age, where there will be strong re­sis­tance.

Once it reaches R16 I ex­pect it to con­sol­i­date for some time. If so, it will lay the foun­da­tion for an ul­ti­mate move to R23.

Stop is a daily close be­low R11.80. Long-term in­vestors use a weekly close be­low R10.80. Aveng Con­struc­tion stocks have been ab­so­lutely ham­mered, with Aveng fall­ing from R69 in 2008 to be­low R2 in De­cem­ber 2015. Since then it has re­cov­ered strongly to trade at R6.35 at the time of writ­ing.

It is se­curely above the im­por­tant 200-day mov­ing av­er­age (ma) for the first time in three years. It has formed a su­perb cup-and-han­dle pat­tern, the cup print­ing a bullish pat­tern ex­actly on the 200-day ma.

Tar­get out of the pat­tern is R7.80. The sec­ond tar­get is R9.40; the ul­ti­mate one is R14.20.

Stop can be as tight as a daily close be­low R5.30; how­ever, more wrig­gle room down to R4.70 is ad­vis­able. York Tim­ber The stock has had a pre­cip­i­tous de­cline from R40 in 2007 to R2.45 in 2009. It has been in a seven-year con­sol­i­da­tion. The re­cent trad­ing up­date has been favourable At the time of writ­ing it was trad­ing at R2.75.

The seven-year con­sol­i­da­tion is in the form of an ex­tended chan­nel (in red). Within the chan­nel there is a fur­ther bullish cup­ping pat­tern.

First step would be a break of the neck­line of the cup at R3.00 (in or­ange) and a break above the 200-week ma at 3.06. This would set up a first tar­get of R4.10. Sec­ond tar­get would be the height of the chan­nel pro­jected up at R5.70.

Be­yond R6.00 there is al­most no re­sis­tance and there is a huge gap on the daily be­tween 7.05 and 9.00. It would be nor­mal for this gap to close, giv­ing a third tar­get of 9.00.

The liq­uid­ity on this one can be poor; keep po­si­tions small. Stop is a daily close be­low R2.50.

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