If Warren Buffett Were Singaporean, What Stocks Would He Look At?

I’ve always wondered: If Warren Buffett is a Singaporean, what are some of the shares in Singapore’s stock market which might be of interest to him? Before I give my perspective, I’d like to point out that this question actually has two parts to it. And that’s because it really depends on whether you’re addressing the current Buffett, or the Buffett of old.

You see, Buffett has evolved greatly as an investor over his long investing career. When he was younger and had just started in the business, he was investing very much in the mold of his mentor, the great Benjamin Graham. Graham liked buying unpopular stocks – often with underlying businesses that were of poor quality – at dirt cheap prices such that it is hard to lose money on them. And that is what Buffett did.

But as Buffett grew older and had an ever larger growing pile of capital to invest, he began to warm up to the idea of paying, not a dirt-cheap price, but a fair price for great businesses that have very bright long-term prospects.

With these in mind, let’s answer the question I posed right at the start by taking a look at Singapore’s stock market through the eyes of both the young and the old Buffett.

The young and smart Warren Buffett

Looking at the list of stocks in Singapore with statistically “cheap” valuations, it is no surprise to find a large concentration of shares with small and mid-level market capitalisations. Shares often trade at undemanding valuations when there’s less attention on them, and given their small size, that is often the case with small- and mid-caps.

Trawling through the list, Buffett might find a company such as Chip Eng Seng Corporation Ltd (SGX: C29) an interesting option. The company, which is involved with construction and property development, isn’t very well-known to the investing public likely due to its smaller size; it has a market capitalisation of just S$557 million at the moment. At its current price of S$0.885, Chip Eng Seng’s shares are trading at a price to earnings (PE) ratio of just 3.8 and a price to book (PB) ratio of 1.

For some perspective, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks Singapore’s market barometer the Straits Times Index (SGX: ^STI), has a PE and PB ratio of 13 and 1.3, respectively.

Perhaps Buffett might also be interested in Sino Grandness Food Industry Group Ltd (SGX: T4B), a food and beverage company based in China. Shares of the company, currently worth S$0.525 each, are trading at very low valuations with a PE ratio of just 2.8 and a PB ratio of 0.8. The depressed valuation of Sino Grandness is likely due to the negative reputation of S-Chips (China-based companies listed in Singapore), as well as an anonymous report criticizing the company’s business which surfaced a few months back.

Although the general idea of investing into cheap shares is sound, investors should still be aware of the risks involved. A statistically cheap share – such as what Chip Eng Seng and Sino Grandness are – can still be a value trap. Investors who want to emulate the investing style of the young Buffett ought to keep this in mind.

The old and wise Warren Buffett

The older Buffett – the one more investors are familiar with – believes in buying companies with strong and long-lasting competitive advantages. These advantages – which are popularly dubbed as “economic moats” by Buffett –  allows a company which possess them to grow its earnings at a nice clip over the long-term. In the process, such a company can produce great returns even for shareholders who bought its shares at a fair price.

From the historical records of companies in Singapore, there are indeed a few that have been extremely profitable for long term investors. For example, the conglomerate Jardine Cycle & Carriage Limited  (SGX: C07) has actually compounded its revenue at 32.3% annually for the past decade. Meanwhile over the same period, its net income and dividends has grown at annual rates of 14.2% and 28.2% annually. A long track record of outstanding growth might just interest Buffett.

A company like Silverlake Axis Ltd (SGX: 5CP) might also pique the attention of the octogenarian investor because of its long-term track record of success. Like Jardine Cycle & Carriage, the banking software services company has compounded its revenue at an impressive clip of 32.4% per year for the past 10 years. That top-line growth has managed to benefit investors as Silverlake Axis’ net income and dividend per share had also compounded at equally impressive annual rates of 31.3% and 14.3% respectively for the past decade.

Of course, there’s no guarantee that a firm’s future would be like its past. It would be interesting to see how both Jardine Cycle & Carriage and Silverlake Axis would perform over the next decade for its investors. But whatever it is, investors who bought into both companies at the start of 2005 should be very happy with their returns now – Jardine Cycle & Carriage and Silverlake Axis have generated capital gains of 276% and 231% over the past 10 years.

Foolish Summary

This little experiment of picking out statistically cheap companies as well as long-term compounders shows that there are still some very interesting companies to be found in Singapore’s stock market despite it being of much smaller size as compared to say, the U.S..

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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 writer Stanley Lim doesn't own shares in any company mentioned.