DDJH

I think I’ve been wrong about this stock every single time, whether it was up or down, so a smart reader by now probably knows to do exactly the opposite of what I might suggest.

Still, let’s see what I can come upo wtih this time…

ddjh

What’s most important here is a strong resistance band between approx. 32 and 45kn. I think the stock will have serious trouble penetrating through this zone. The final, 5th wave of the fall looks as it might yet be incomplete, which means downside risks have not disappeared.

For this stock to truly show a change of trend, it should form a W and break through the 52kn mark, which would set the target somewhere in the 60, or even 90 zone. Although the target is pretty high, a strong fundamental change such as the new APC production in UAE is a significant enough event to create such a jump.

Fundamentally, however, this company is still crap. Even such a big job is unlikely to result in any significant profitability, and once the production ceases the company will be back where it once was. Except that the percentage owned by the state has actually grown, so the long term profitability is likely to decrease even further. Still, a large short term gain is possible even when trading fundamentally bad companies, so the possibility should not be discarded. Anyway, one should keep an eye out for both scenarios, since they both have a realistic chance of occurrence.

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GRVG

It seems the stock has finished its H&S pattern, and is likely to resume an uptrend. There’s really not that much new info to share, but three things stand out. First of all, there’s the technical picture:

grvg

There are several things we can see here. The H&S pattern is complete, and although it went further than the first resistance zone at 5.50, it was stopped at 5.00 and quickly rebounded back. This is most likely the final phase of the 5-3 growth wave, which means a continuation of the uptrend is most likely.

Second thing that stands out is the last month’s financial report, which is quite good. Revenues are up slightly, and profits are up significantly. This is exactly what I’ve been talking about, a firm with a very low P/S ratio needs only a tiny increase in profitability for a drastic increase in P/E.

http://www.gorenjegroup.com/en/media/press-releases/2014/11/6360-Gorenje-Group-performance-in-the-period-January-September-2014

Finally, there’s the Russian crisis. I think it’s overblown. Yes, Russia is an important market for Gorenje, and this will likely decrease the profits and the revenues in the near future. However, I don’t think it will be nearly as significant an event as most people seemed to think when they were selling rubles for 70$. At worst, we’ll be back in the high sales / low profit zone for a few quarters. Considering how the stock is priced, it’s really not a singificant cause for concern.

However, if the situation seriously deteriorates and the stock bottoms out below 5.0 (which is possible however unlikely), the next downward target is the super heavy 4.0 to 4.5 resistance zone.

ZVZD

A picture says a thousand words

zvzd

There are several nice things to see here, but I’ll start with the most important one – the two year long downward trendline seems to have been breached! This basically means the stock is likely to form a nice W (blue), with a first price target somewhere in the 3800-4000kn range. It’s the point where a second trendline meets with somewhat dense overhead resistance.

Would I sell at 4000? Looking at a short term, yes. The stock is likely to stagnate for a while or drop to 3500 after the first target is reached. But if we’re talking about long term, then the answer is no. Aside from the excellent fundamentals I’ve already been talking about, there is a classic 5-3 growth pattern, which is most likely to continue into wave 3, reaching the next resistance level of 5500-6000kn. Even when that happens, the stock will likely still not be overpriced, as a fair price for this stock based on the book value and cash flow is in my opinion somewhere in the 8000-12000kn range. This stock has already been at around 20k with pretty much the same fundamentals, so I wouldn’t exclude another bubble in the next several years or so, but personally I would consider it to be a somewhat irrational investment above 12000, unless technicals would strongly suggest otherwise.

Also, in retrospect, we can see an example of the head & shoulders pattern, with a peak in the first half of 2013. It’s basically composed of the first two waves, and it’s a really nice real world example of the pattern. This pattern has pretty much made its target at around 2700, meaning it should no longer be considered relevant for the future price movement. However, I’ve mentioned it because it makes a nice example.

DDJH

This is a stock that has been presented by some as a great buying opportunity (and I must admit I actually fell for that narrative for a while), but which is in reality a bad company on the verge of bankruptcy.

For starters, a very important technical event happened today, the stock broke through the support line to an all time low. If it weren’t for the media hype, it would have happened way sooner, but now that it finally did, it pretty much shows where the stock will likely be going from now on.

ddjh

Fundamentally, it’s plain and simple a bad company to invest into. I know most of my readers are from Croatia and nearby countries, but even those who are not can see how bad the company is doing just by noticing the amount of red color on this page http://www.mojedionice.com/fund/IzvFundOsn.aspx?sifSim=ddjh-R-A

What happened that caused such drastic price oscillations? Well, the company announced a secondary offering to get out of debt. Some people claimed the offering would go for 40-50kn per share, which caused a significant price rise. Until it was discovered it would go for 20kn, and that nobody in their right mind wanted to pay even that for a share that’s going nowhere fast. So the state intervened and pretty much took most of the offering upon itself, meaning the company will now be under absolute state control. And we all know how that goes. For those that don’t, a very likely scenario is privatization for 1kn for the whole company, or a complete shutdown alltogether.

Why would such a ting happen? Well, for starters, the offering is about to raise 80Mkn, 30 or so of which are already reserved for layoffs. The rest will bump the book value of shares to about 25kn, thereby reducing the debt to capital ratio from current 1500% to barely noticeable 500% or so (I believe readers will forgive me for approximate numbers, since they’re so horrible that even splitting them in half wouldn’t make much of a difference).

The only thing that goes for this company is the prospect of getting a few big business deals in the defence industry, as it has been promised a 150% offset for its APC manufacture by Patria of Finland. Another big potential deal is upgrading Kuwaiti tanks manufactured in the former Yugoslavia. Both of those prospects are, in my opinion, false. While it is true that this company was hemorrhaging less money when making those APCs than when it was not, it actually showed that even in the best case scenario the profitability of this company was near zero. And that was at a time when the company debt was only between 100% and 200% of its capital base. In other words, even if Patria gets the UAE APC job, and even if the Kuwaiti guys decide to pick DDJH as the carrier for their tank upgrade, this company wouldn’t be able to make any profit on them even if the debt was 5 times lower than it is today. On the other hand, if these deals don’t come through, the company has less than one year to live considering its current financial structure.

So what we have here is two scenarios –  a bad one which results in a company surviving for a year or two without generating any profit whatsoever, and a worse one which results in the company going bankrupt any day now. This is a company that should in my opinion be avoided, both from a technical and from a fundamental perspective. I admit, miracles do sometimes happen, but it the downside of this company is significantly bigger than any potential upside, which means it is best to be avoided.

Agrokor

This is quite an interesting bit of news

http://www.reuters.com/article/2014/11/26/us-agrokor-ipo-idUSKCN0JA1RB20141126

Basically, the owner of ZVZD and VPIK is thinking about an IPO worth around 5 billion US$. I believe this may result in quite an interesting development in regard to market valuation of these (and some other) stocks, because we’ll see exactly how much they’re indirectly valued through their individual percentage of the company property. It could also mean increased interest from foreign investors, some of whom are likely to sniff around and investigate the details of what they’re thinking about buying. This just may be the trigger that’s needed to break through the upper resistance line we’ve been following for the last couple of years on both of these stocks.

All in all, this is pretty big, and might actually change the whole paradigm of ZSE. It’s exactly what is needed to boost this market out of its current lethargy – big foreign investors. I’m actually pretty surprised that this was not a hot topic on local news. Oh well, more time to fatten up on these stocks before things start unfolding.