Saturday, April 5, 2014
Singapore Stocks - Bargain Hunting
After a dramatic plunge below 3,000 points in February, the benchmark Straits Times Index has since recovered to close above. Yet a good many stocks remain undervalued or underowned. In this post, we will highlight 2 stocks – CWT and CSE Global.
CWT has 2 main business segments, logistics and Commodity SCM business. CWT is trading at 6.4x FY14F PER, representing a steep discount to its peers (average 16.7x). CWT has traded down from its 52 week high of $1.83 due to over-estimation of risks in Commodity SCM and lack of clarity on earnings growth ahead. The volatility in earnings due to its commodity related business has caused investors to reduced ownership of the stock. However the Commodity SCM business is less risky than perceived as CWT fully hedges prices in its Commodity SCM business, rendering the trades back-to-back and eliminating risk of losses through adverse price movements. Also, its main logistics business is expected to grow at 16% with the addition of redeveloped Jurong East Logistics Centre, Cold Hub 2 and Pandan Logistics Centre.
CSE Global is another stock that has underperformed the STI but have paid dividends over the last 12 months. CSE’s FY13 bottomline took a hit as it made provisions for project cost overruns amounting to S$8.1m. Following the successful divestment of CSE Global’s entire shareholding interest in Servelec Group in Dec last year, the company can now focus on driving its growth largely from the oil and gas sector. CSE has significant exposure to the Gulf of Mexico and the company is expected to benefit from the on-going recovery following the ill-fated Macondo oil spill incident and the imminent liberalisation of the Mexican oil and gas market.
Beside these 2 stocks, investors can also screen stocks that are undervalued by a few parameters such as positive free cash flow, a high dividend yield, low debt to equity ratio. The Edge Magazine in a February article did a screening of Singapore stocks that have underperformed the STI. pay a dividend, generate free cash flow and are in a net cash position. The screen produces stocks such as Chosen Holdings, Civmec, Keong Hong Holdings, F&N, Smartflex Holdings and TTJ Holdings