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Attention Investors! These 2 Shares Are Near 52-Week Lows And Have Cheap Valuations Too!

With Singapore’s stocks entering bear market territory – the Straits Times Index (SGX: ^STI) is now more than 20% lower than a 52-week high that it reached in April – it may be easier to find companies with depressed share prices and attractive valuations.

Here are two shares which are near their 52-week lows and which have low price-to-earnings (PE) and price-to-book (PB) ratios.

For some perspective on the valuation numbers later, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – has a PE and PB of around 11 and 1.1, respectively, at the moment.

Shop and save

Retailer and property developer Metro Holdings Limited (SGX: M01) has seen its shares decline by double-digits in recent months from more than $1.00 this May to S$0.855 currently. At that level, it’s just a hair’s breadth away from a 52-week low of S$0.84.

With the fall, Metro is now also priced at just 0.5 times its latest book value and 4.2 times its trailing earnings. By any measure, those are cheap-looking valuations.

But, Metro’s retail business has been suffering over the past year with it routinely clocking pre-tax losses. At the moment, Metro’s profits are coming from its associates and joint-venture companies, many of which are in property-related businesses. As property businesses tend to post revaluation gains, a large portion of Metro’s profit may be due to non-recurring items. That’s one risk to note with the company.

The spin-off roller coaster

On its first trading day after its spin-off from Fraser and Neave Limited (SGX: F99) in early 2014, Frasers Centrepoint Ltd  (SGX: TQ5) closed at S$1.49.

Since then, Frasers Centrepoint’s shares have been on a roller-coaster ride, spiking to an all-time high price of nearly S$2.00 in May 2014 before dropping back down to S$1.51 currently, which is almost right where they started. (That price is also just six cents higher than a 52-week low of S$1.45.)

But, Frasers Centrepoint is today a very different company compared to what it was in early 2014. For instance, it has made some lacquisitions and is now one of the largest real estate owners in Australia.

After being spun-off from Frasers and Neave, Frasers Centrepoint also became the sponsor of a new hospitality trust back in July 2014. The trust’s assets had come from both Frasers Centrepoint and the TCC Group. The TCC Group is an investment vehicle of Thai billionaire Charoen Sirivadhanabhakdi and it’s one of the major shareholders of Frasers Centrepoint.

At its current price, Frasers Centrepoint has a PE and PB ratio of 6.6 and 0.68 respectively. It is also offering investors an attractive dividend yield of 5.7% thanks to its annual dividend of S$0.086 per share for the fiscal year ended 30 September 2014 (FY2014).

But while Frasers Centrepoint’s low valuation numbers and high yield look tantalizing, there are significant risks to note. To fund its growth, Frasers Centrepoint has borrowed heavily such that its total debt to equity ratio is more than 100% at the moment. “I like to look at the balance sheet and I don’t like debt because it can really get a company into trouble,” the legendary investor Walter Schloss once said.

Foolish Summary

Bargain hunters may well be attracted to Metro and Frasers Centrepoint now given the duo’s low valuations. But, like my colleague Chong Ser Jing wrote recently, “shares with cheap valuations can still become horrible investments if their underlying businesses become worse over time.”

Careful consideration of both Metro and Frasers Centrepoint’s future have to be made before any investing-conclusion can be reached.

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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 shares in Frasers Centrepoint Ltd.