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Is Noble Group A Value Industrial Stock?

When it comes to trading and distributing industrial equipment and products, Noble Group (SGX: N21) is the big daddy. The $8b company accounts for around 75% of the market capitalisation of the sector.

But Noble does not come cheap on almost any measure. It is priced at a 20% premium to its book value, while its Price-to-Earnings is a hefty 46. More disappointingly for a large company that is ranked 76th in the 2014 Fortune Global 500 list and with almost S$5b of cash on its balance sheet is the meagre dividend yield of 1%.

The second biggest company in the sector is Pan-United Corporation Limited (SGX: P52). Despite being the second largest, it has a market capitalisation of only S$500m. That is only 1/16th the size of Noble Group. But what Pan-United offers that Noble doesn’t is a generous dividend yield of 4.6%.

Pan-United also comes at a more reasonable price of around 12 times earnings. However, priced at nearly twice its book value, Pan-United doesn’t provide much in the way of a margin of safety.

Of the ten largest stocks in this sub-sector, several trade below their book values. Hupsteel Limited (SGX: H73) and Sin Heng Heavy Machinery Limited (SGX: KF4) offer dividend yields of around 5%. This is twice the risk-free rate that investors could earn on a 10-year US Treasury bond.

Both companies have cash on their books which is a bonus. But the similarity ends there. Hupsteel trades at over 35 times earnings, whilst Sin Heng trades at just seven times profits. To put this into perspective, the market average P/E is around 14.

From a value investor’s perspective, Sin Heng looks the cheapest. Not too far behind is Pan-United Corporation, which could, arguably, be less risky by virtue of its size.

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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 Adam Kuo doesn’t own shares in any companies mentioned.