Fishing for Opportunities in Blue Chip Stocks

It’s been a tough year for stocks in Singapore given how the Straits Times Index (SGX: ^STI) is likely to end 2015 with a mid-teens percentage decline.

But amidst the wreckage may lie a bargain or two. Luckily, we have some help in bargain hunting from a recent report by exchange operator Singapore Exchange Limited (SGX: S68). It contains names of some of the  blue chips – the 30 components of the Straits Times Index – with the lowest valuation numbers as of 18 December 2015.

Fishing in the blue chips pool

Let’s first have an overview of where the index stood as of 18 December 2015 (all subsequent valuation data are taken at this date too).

From a price-to-book (PB) and price-to-earnings (PE) perspective, the Straits Times Index was trading at 1.14 times and 13.2 times respectively. With these numbers in mind, let’s look at the blue chips that are cheaper than the market.

Palm-oil producer Golden Agri-Resources Ltd (SGX: E5H) is among the ones that had a PB ratio lower than that of the Straits Times Index; it was valued at just 0.3 times its book value.

But, there may be reasons for the low valuation: The company had recently cut its dividend amidst a tough operating environment which caused its revenue and earnings to plummet. The falling earnings also resulted in Golden Agri-Resources sporting one of the highest PE ratios in the Straits Times Index – at 57.2 – at that time.

Elsewhere, real estate players Hongkong Land Holdings Limited (SGX: H78) and UOL Group Limited  (SGX: U14) were trading at PB ratios of 0.6 each. With the real estate duo each holding a slate of valuable investment properties under their umbrella, they may be worth a deeper look.

Shipbuilder Yangzijang Shipbuilding Holdings Ltd (SGX: BS6), one of the newcomers in the Straits Times Index, had a PE ratio of just 6.0 and held the distinction of having one of the lowest PE ratios among the blue chips.

Belonging to the same category as Yangzijiang are SembCorp Marine Ltd (SGX: S51) and Keppel Corporation Limited (SGX: BN4). The oil & gas duo carried PE ratios of 8.8 and 6.4, respectively, and have been struggling in their businesses with the onset of lower oil prices this past year.

Elsewhere, vehicle distributor Jardine Cycle & Carriage Ltd (SGX: C07) was trading at a PE ratio of 12.3 while offering a 3.5% dividend yield.

Foolish takeaway

High and low valuations represent a starting point for further investigation by investors. But without a business point of view that considers the long-term business prospects of a stock, looking at its comparable ratios may be less useful.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.