Before we go into the main topic, I think it is important to call out the elephant in the room because there are just so many false prophets out there at the moment. Somedays the market is completely red and suddenly, a large part of the investing community starts to claim credit about their brilliant guesses made in hindsight. On other days when the markets are green, “prophets” of the markets then creep out to affirm themselves about their amazing predictions ahead of time. The point I am trying to make is that every comment made in hindsight has little to no value as it is merely reporting observations about the market. True accuracy on the other hand is measured by consistency and the ability to look beyond the obvious. In this post, we will be using SATS (S58) as a case study to explain how proficient investors take the opportunity to trade and extract profits from this counter despite it being on a downtrend since March 2020.

Stay away from analysis made by amateurs

If you would have bought and held SATS shares since early 2020, you would have been rived with anger by now because SATS has not recovered as of last week’s closing and you would have made paper losses equivalent to around 32% or more if you would have bought in before March. That said, this counter has not been on a consistent downtrend therefore those who are still claiming credit for their bearish prediction on SATS have been largely wrong. This case study reminds us to be wary about comments made about companies such as SATS when it is at a low because those comments are made based on only 2 data points. Such analysis based on only the “high” and the “low” of the chart is clearly lacking in both insight and understanding of the counter.

Understand vested companies (SATS as example)

Barring the impacts of the pandemic, SATS is a quality company with a high cash balance and a decent ROE. Pre-COVID, SATS has sustained at a level of around $5 thereabouts with a dividend yield of around 3.2%. However, once the pandemic hit, SATS business prospects have been diminished severely in the interim as there is no real end-date of this pandemic. As a result, SATS continues to react violently to news related volatility in the past months. From the chart above, it showed that SATS rallied prominently on three occasions in the past six months which adds up to a maximum yield of around 100%. This means that even if you entered late and exited early, you would have had opportunities to seize roughly 30-60% yield in the same period.

How to spot and trade companies like SATS

First of all, void yourself of comments made by lay investors because most of them are merely reporters of daily price movements. Secondly, look out for quality companies that have been hammered by the current crisis because the company is still largely undervalued despite the loss of revenue during the crisis. Lastly, be realistic about your exit targets. As you can see from the second chart, the highs have not been consistent therefore it is important to set your target price with a realistic goal factoring your point of entry from the recent trough.

Closing Thoughts

Companies like SATS are undervalued because traders and funds are usually uninterested in companies that are facing a crisis. Hence, there are always opportunities for retail investors to accumulate an adequate amount of such shares in their portfolio for future gains and perhaps even short-term gains which can be more rewarding than the previous year’s dividend payouts. In conclusion, stay objective and remain steady when opportunities arise. To do that, stay away from observational analysis or retrospective comments.