Koon Yew Yin 5 Sept 2020
Currently all the glove stocks dropped quite rapidly in the last few days and all glove stocks investors are wondering what to do. I anticipated this similar situation before on 17 August when all the 7 glove stocks plunged more than 20% from their peaks as shown in the price chart below. Fortunately, I sold almost all my holdings and waited for the prices to rebound.
The glove bulls were spooked by news that vaccines for Covid-19 would be available for mass production in a matter of months. Besides Russia, China is another country that has revealed its success in developing a Covid-19 vaccine. Investors were afraid that the demand for gloves would be reduced.
After the plunge on 17 August all the glove stocks recovered to establish new peak prices as shown in the price charts below.
In addition to the reasons for the 17 August glove stock plunge, a few Investment Banks have downgraded the glove stocks from buy to neutral a few days ago. One Investment Bank went as far as to say that all the glove stocks were fully valued.
Adding fuel to the selling is the renewed speculation of the government mulling over a windfall tax on the glove makers.
As a result, most of glove stockholders were rushing to sell aggressively. I believe many more glove stockholders will follow like sheep to sell their holdings. As the selling continues the prices will continue to drop until there are more buyers than sellers to push up the share prices.
About 1 week ago, with good intention I posted my article namely “Supermax is a lame duck” to encourage investors to sell before the price drop further. But a few investors who did not believe that the price could fall so rapidly were annoyed because my article would depress the share price further. As you can see Supermax has been dropping more rapidly than the rest of the glove stocks. If my readers sold earlier, they would have made more money.
As I often said no stock can continue to drop for whatever reason. After some time it should rebound. I believe the demand for gloves will continue to exceed supply in the next 2 or 3 quarters until the Covid 19 pandemic is under control. Many scientists predicted that even with the vaccines, the pandemic will not be under control for at least 1 or more years. It will take a long time to produce enough of vaccines to vaccinate everybody in the world. Unless everybody is vaccinated, the virus can still continue to spread. Moreover, to vaccinate so many people, more medical workers will be employed who will require more gloves.
Covid 19 cases in the US
Currently US has 6.38 million Covid 19 cases and 192,000 deaths. Moreover, these figures are still spiking. US has the greatest number of cases in the world. Yet President Trump until a few weeks ago, did not believe in wearing face mask. In his re-election campaign speech, he said vaccines will be available next month, October. World Health Organisation (WHO) immediately said that it did not expect widespread immunisation against Covid 19 until mid-2021.
Furthermore, there is already a change in lifestyle, rubber glove usage has become part of our daily lives. In short, the demand will remain.
After I sold almost all my glove stocks, I cannot find any stocks besides glove stocks that have profit growth prospect which is the most powerful catalyst to push up share prices. The pandemic has been affecting everybody and all the listed companies with the exception of medical gloves and medical products for the virus prevention.
I believe the glove stock play is not over yet. All the glove makers should be reporting increasing profit in the next few quarters. Smart investors can still make money. I am waiting for the glove stock prices to rebound.