One possible way to spot bargains would be to look up the list of shares that are near their 52-week lows. In light of that, I’ll be checking up 2 shares meeting that criteria to ask an important question: Are they due for a rebound soon?
1. Fraser and Neave
After the much talked-about takeover of Fraser and Neave (SGX: F99) by Thai billionaire Mr. Charoen Sirivadhanabhakdi last year, the company has since undergone some big changes. Besides a capital reduction exercise which saw Fraser and Neave pay out large dividends, the company had also spun-off its real estate interests into Frasers Centrepoint (SGX: TQ5).
Currently, Fraser and Neave is left with businesses that deal with beverages, dairy products, and printing & publishing.
At its current price of S$3.06, the company is just a smidge above its 52-week low of S$3.03. However, at that price, the company is still valued at a price to earnings ratio (PE) of 30 times based on annualising the company’s latest half-yearly earnings per share figure of S$0.051. Investors might want to consider the high valuation when thinking about a possible rebound in the company’s share price.
2. Del Monte Pacific
In a classic case of ‘biting off more than you can chew’, Del Monte Pacific (SGX: D03) might be suffering from an upset stomach now.
Last October, Del Monte Pacific had announced its decision to acquire the consumer food businesses of Del Monte Corporation (despite their similar names, both parties are not related) for US$1.675 billion. To proceed with the acquisition, Del Monte Pacific had to borrow a huge amount of money which saw its pro-forma net gearing (based on its financials for the year 2012) balloon from 46% to 410%.
With the acquisition of the consumer food business from Del Monte Foods completed on 18 February 2014, the company now faces two key risks:
1) A very high debt burden just as Del Monte Pacific’s earnings are turning south
2) High risk of substantial dilution for existing shareholders under a possible scenario where Del Monte Pacific has to refinance some of its borrowings by issuing new shares.
If investors are ready to bear these risks and the company successfully works through these issues, Del Monte Pacific might be a potential turnaround situation. Shares of the company are currently selling for S$0.575, just a little higher than its 52-week low of S$0.56.
Although a list of shares near their 52-week lows can be a great way to spot potential bargains in companies that are set for a turnaround, there is also the danger of investors falling into a value trap. Generally speaking, investors need to be careful about the companies they come across in such a list. Good deals are hard to come by; having patience might be an advantage when trying to find good turnaround stories.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Frasers Centrepoint Ltd.