Here Are 3 Potentially Cheap Bargain Stocks

The stock market in Singapore has fallen hard over the past year or so with the Straits Times Index (SGX: ^STI) currently down by 20% to 2,705 (as of 1:20 pm) since the start of 2015.

With falling stock prices come the possibility of bargains appearing. To find potentially cheap stocks, I decided to screen the universe of over 700 Singapore-listed companies to pick out ones that meet the following criteria:

  1. Is a net-net stock.
  2. Has a strong balance sheet with more cash than debt at the moment.
  3. Generated positive operating cash flow in last three fiscal years.

Before I reveal the names of three stocks (amongst others) that managed to filter through, let me first run through the importance of each criterion.

A net-net stock is a stock that has a market capitalisation that is lower than its net current asset value. The net current asset value in turn, is found by simply subtracting a company’s total liabilities from its total current assets.


Net-net stocks can be thought of as potential bargain opportunities because investors are getting a discount on a company’s current assets (things like cash, inventory, and yet-to-be-collected payments from customers) net of all liabilities. On top of that, a company’s fixed assets (things like real estate, factories, and long-lasting equipment etc.) are thrown into the mix for free.

But, it’s often the case that net-net stocks are deeply troubled businesses – that’s why they carry such low valuations. This is where the second and third criteria in my screen come into play. By looking for companies with solid balance sheets and a historical ability to generate cash flow, risks for investors are reduced.

With that, here are the three aforementioned companies: Fu Yu Corporation Ltd (SGX: F13), Kingboard Copper Foil Holdings Limited (SGX: K14), and T T J Holdings Ltd (SGX: K1Q). The table below shows their performance in the first two criteria of my screen:

Net-net table
Source: S&P Capital IQ; author’s calculations (data as of 11 January 2016)

Meanwhile, the chart below illustrates Fu Yu, Kingboard Copper Foil, and T T J Holdings’ operating cash flow over their last three fiscal years:

Operating cash flow for Fu Yu, Kingboard Copper Foil and T T J Holdings
Source: S&P Capital IQ (data as of 11 January 2016)

But before any of you rush out for the three stocks, do note that my screen is meant to only help with narrowing the field for further research. A deeper study will have to be done to determine if they are indeed legitimate bargains or just value traps. After all, even cheap shares have the capacity to turn into expensive long-term mistakes if their business fundamentals are to deteriorate.

If you'd like to learn more about bargain hunting as as well as the latest news regarding Singapore's stock market, you can get both from The Motley Fool's free weekly investing newsletter, Take Stock Singapore.  It can help you grow your wealth in the years ahead, so come sign up here!

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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 Chong Ser Jing doesn't own shares in any companies mentioned.