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
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
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
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