After being a big straggler in 2020, the Straits Times Index (STI) is finally waking up from its slumber.
Since the beginning of the year (as of March 26) the benchmark index for the stock market in Singapore has risen by 11.1 percent and outperforms all major world index indices. This includes the US Dow Jones Industrial Average and the S&P 500.
If things continue as they are, it will be the STI’s best first quarter in nine years.
Despite the optimism about the index, some blue chips are still selling below their net asset or book value.
Potentially undervalued companies
The late Benjamin Graham, often touted as the father of value investing, liked to buy a stock for less than its intrinsic value.
For example, if we buy a $ 1 asset for 50 cents, we have a 50 percent safety margin, and this “safety margin” can help minimize the downside risks of the investment.
Here, let’s take a look at all of the blue chip stocks that currently have price-to-book (P / B) ratios below 1, which could mean they are undervalued.
Source: Shareinvestor (as of March 30, 2021 at the time of writing)
Cheap doesn’t make it an automatic purchase
Some of the companies could make good investments.
For example, Hong Kong Land, which owns prime office and luxury retail properties in Hong Kong and Singapore, has a solid long-term financial track record and has paid stable dividends over the years.
On the other hand, there are companies on the list that have not done well in the past.
For example, Keppel Corporation has seen sales, net income, and dividends decline in the past five years, and there may be more headwinds going forward.
The contrasting examples show that just because a company has a P / E ratio of less than 1 does not mean that it is a “buy”. Cheap could be cheap for a reason.
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As investors, we need to go beyond the headline and make sure that the companies we invest in have solid business foundations to begin with.
With the list above, investors can use them as a starting point to dig deeper into the companies they envision and see if they are worth investing in for the long term.
This article was first published in Seedly. The information provided by Seedly is intended as educational material and is not intended as personalized investment advice. Readers should always do their own due diligence and consider their financial goals before investing in stocks. The author can have a legitimate interest in the companies mentioned.