Despite the global events unfolding this year ranging from Russia’s conflict with Ukraine to the appalling plunge in oil prices, there have been many companies which have steadily marched higher. In here, I’d look at two blue chips that are part of the Straits Times Index (SGX: ^STI) and which are near or at their 52-week highs. Beneficiary of low oil prices One of the best-managed airlines in the world, Singapore Airlines Limited (SGX: C6L) has had a phenomenal run-up in the past two months; the airline’s shares have soared 17.9% to reach S$11.67 – a whisker away from a 52-week high…
In here, I’d look at two blue chips that are part of the Straits Times Index (SGX: ^STI) and which are near or at their 52-week highs.
Beneficiary of low oil prices
One of the best-managed airlines in the world, Singapore Airlines Limited (SGX: C6L) has had a phenomenal run-up in the past two months; the airline’s shares have soared 17.9% to reach S$11.67 – a whisker away from a 52-week high of S$11.68 – in just two months since the end of October. This roughly coincides with the period in which the decline in oil prices started (oil has declined by almost 50% from its 2014-peak of around US$120 per barrel in June).
It is easy to understand why. Plunging oil prices are welcome news for airlines as jet fuel accounts for a significant proportion of their expenses. As an example, Singapore Airlines’ fuel expenses over the last 12 months amounts to S$5.6 billion. This is more than one-third the firm’s revenue of S$15 billion.
Thus, expectations are running high that Singapore Airlines will benefit handsomely from the slump in oil prices. But, investors should also be aware that any potential cost savings for airlines may be limited in the near term as airlines are known to hedge their fuel costs much earlier (an attempt to lock in cheaper rates during rising prices) and Singapore Airlines is no exception.
At the airline’s current share price, it trades for a lofty 69 times its trailing 12-month earnings. It also has a 1.8% dividend yield.
Riding on strong tailwinds
A familiar face in Singapore’s financial markets, stock exchange operator and regulator Singapore Exchange Limited (SGX: S68) has been making some unwanted headlines recently.
Although the two glitches did not cause any severe impact, it has drawn the ire of the Monetary Authority of Singapore (MAS), which instructed Singapore Exchange to conduct a comprehensive review of its systems.
The small hiccups notwithstanding, the company does have a number of positive developments going for it. For example, it has the upcoming change in the minimum lot sizes from 1,000 to 100 (which might help boost activity amongst retail investors) and the strong growth in its derivatives market, especially from the China A50 Index futures.
Since the start of the year, Singapore Exchange’s shares have gained 7.7% to S$7.83; that price also happens to be a 52-week high for the firm. At its current price, Singapore Exchange is trading at a P/E ratio of 28 with a dividend yield of 3.6%.
Investors are often troubled by the fact that shares at their respective record highs may drop or pull back a great deal after any perceived euphoria is over.
But it’s good to keep in mind that, over the long run, the share prices of great companies will continue breaking new highs as long as their business fundamentals remain intact. So, will Singapore Airlines and Singapore Exchange deliver handsome returns in 2015 from this point on? That would heavily depend on their businesses performance amongst other factors. Only time will tell.
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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 James Yeo doesn’t own shares in any companies mentioned.