Will These 2 Blue Chips Rebound Strongly From Their 52-Week Lows?

Stocks which are trading near their 52-week lows can make for potentially interesting investing opportunities. Here are two blue chip stocks which are at that price level.

A slippery slope

Palm oil producer Golden Agri-Resources Ltd (SGX: E5H) saw its shares last close at S$0.31 yesterday, some 41.5% lower than a 52-week high and just 10.7% higher than a 52-week low of S$0.28.

Golden Agri is an integrated palm oil outfit with large oil palm plantations (a total planted area of 484,472 hectares as of end-June 2015) in Indonesia. The firm has business interests in the entire value chain for the palm oil industry, from the growing of the palm fruit to the production of consumer end-products that are based on palm oil.

The company’s share price today is a culmination of a multi-year decline from a post-Financial Crisis peak of more than S$0.80 that was reached in early 2011. What may have caused that dreadful performance?

Golden Agri’s financials would have some role to play for sure. According to S&P Capital IQ, Golden Agri’s revenue had stepped up from US$5.95 billion in 2011 to US$7.05 billion in the 12 months ended 30 June 2015. But over the same period, the palm oil producer’s profit had nearly vanished from US$1.27 billion to just US$38.4 million.

Meanwhile, Golden Agri’s financial strength also deteriorated significantly. In the same period as above, its total debt to equity ratio had more than doubled from 14.8% to 33.8% as a result of its net-debt (total borrowings minus cash & equivalents and short-term investments) ballooning from US$885 million to US$2.49 billion.

The other culprit – and perhaps the main culprit – would be palm oil prices; that’s what has contributed to Golden Agri’s poor financials too given that the company’s business revolves around the commodity. For an inkling on how bad the situation with palm oil prices is, the Wall Street Journal had reported earlier this month that palm oil had hit a six-year low.

Investors who are interested in Golden Agri would need to get a good grip on the dynamics affecting the palm oil industry. And even then, commodity prices – including palm oil’s – are notoriously hard to predict.

Golden Agri is currently valued at 100 times its trailing earnings.

Ring… ring… who’s there?

Shares of local communications giant Singapore Telecommunications Limited  (SGX: Z74) last traded at S$3.77 yesterday, a mere 3.7% higher than a 52-week low of $3.63 and some 17.5% lower than a 52-week high of S$4.57 that was reached in April.

While Singtel may have a sizeable local business, its reach spreads far beyond Singapore’s shores. Most notably, it’s the sole owner of Optus, one of Australia’s largest telcos. Beyond Optus, Singtel also has stakes in telcos in countries like Indonesia, Thailand, India, and the Philippines.

In Singapore’s context, Singtel counts StarHub Ltd (SGX: CC3) and M1 Ltd  (SGX: B2F) as its main competitors.

Singtel’s latest earnings release – for the first-quarter of the fiscal year ended 31 March 2016 (FY2016) – indicates that it’s still experiencing low but stable growth. In that quarter, revenue inched up by 2% while net profit climbed by 13%.

That said, competition is heating up in Singapore’s telco industry with the Infocomm Development Authority (IDA) offering a 60% discount to new bidders on the starting bid price for an upcoming spectrum auction. The IDA’s aim is to usher in a fourth telco in Singapore to compete with the incumbents.

At Wednesday’s close, Singtel is valued at 15 times its trailing earnings and sports a healthy dividend yield of 4.6% thanks to an annual dividend of S$0.175 for FY2015.

In my opinion, Singtel’s double-digit fall since April is more a product of general market turmoil than a deterioration in its underlying fundamentals. In other words, bargain hunters may want to dig deeper into the company as there may be an investing opportunity at hand.

Foolish Summary

Falling or low stock prices may make shares look like bargains, but investors should not focus solely on prices. It is crucial that we perform due diligence and determine if a share’s underlying business fundamentals are still intact and if its valuation makes sense at current prices.

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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 James Yeo does not own any companies mentioned above.