Koon Yew Yin 6 September 2020
Why all the glove stocks shot up so rapidly?
Covid 19 pandemic is affecting everybody’s movement and all listed and non-listed companies with the exception of medical glove stocks and other medical products for the prevention of the virus. As a result, the demand for gloves far exceeds supply and all glove makers can increase their selling prices easily to make more and more profit.
Based on this factor, investors have been buying glove stocks aggressively to push up the share prices a few hundred percent in the last few months. Moreover, most investors rushed to buy Top Glove to get 2 bonus shares for every 1 share held by investors. Investors also rushed to buy Supermax to get 1 bonus share for every 1 share held by investors. The share prices for Top Glove and Supermax shot through the roof.
Why glove stocks are dropping?
All the glove stocks were dropping in the last few days as shown on the charts below. The reasons are as follows:
1 There were more sellers than buyers.
2 all the glove stock prices shot up too rapidly and overshot through the roof.
3 a few Investment Banks downgraded glove stocks from buy to neutral. One Investment Bank even said the glove stocks were overvalued.
4 Many investors rush to sell their holdings because they were afraid that the Covid 19 vaccines will be available soon. Although 6 vaccines are in phase 3 testing, WHO said that vaccines will only be available in mid-2021.
5 Adding fuel to the selling is the renewed speculation of the government mulling over a windfall tax on the glove makers.
All Glove stock price corrections are overdone already.
1 Even if the vaccines are finally approved by FDA, it will take a long time to produce enough of vaccine to vaccinate everybody in the world to be effective. Moreover, additional medical staff and clinics will be required to do the vaccination and these new setups will require more gloves.
2 Currently there are 27.045 million Covid 19 cases and 883,000 deaths in the world. The number of new Covid 19 cases and deaths are still spiking every day as shown on the chart below.
3 Furthermore, there is already a change in lifestyle, rubber glove usage has become part of our daily lives. In short, the demand will remain.
USA is the biggest market for gloves
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 Covid 19 cases in the world.
During Top Glove recent analyst briefing, management said that they are still increasing their selling prices for their products. The additional selling price is pure profit because it does not involve production cost. Top Glove like all other Glove companies will continue to report more and more profit in the next few quarters.
I think all the glove stock prices corrections are overdone already. It is a good time to start buying back at cheaper prices.