These 2 Blue Chip Stocks Are At Fire-Sale Prices – But Are They Real Bargains?

Stocks in Singapore have fallen hard in recent times with the Straits Times Index (SGX: ^STI) down by a quarter or so from a 52-week high of 3,550 that was reached on April.

But, the magnitude of the current fall is nothing compared to what happened during the Great Financial Crisis of 2007-09, when the index fell by over 60% from peak-to-trough. The crisis appeared to be a great time for bargain hunting as the Straits Times Index is still up by 80% from its crisis-era low even after its recent decline.

It’s anybody’s guess as to when the next big crisis will hit, but within the blue chips – the 30 companies that make up the Straits Times Index – there are some stocks that appear to be screaming bargains on the surface. That’s because they are currently selling at valuations lower than the lowest numbers seen back in 2007-09.

Two such blue chip stocks are Singapore Press Holdings Limited (SGX: T39) and Noble Group Limited (SGX: N21). Here’s a table comparing the duo’s current price-to-book (PB) ratios with their respective crisis-lows:

Singapore Press Holdings and Noble Group's PB ratios
Source: S&P Capital IQ (click table for larger image)

Given their low PB ratios at the moment when compared with history, it does appear that investors may be getting a steal. But here’s the rub: Both companies have lower profits now as compared to the crisis period:

  • In its fiscal year ended 31 August 2009 (FY2009), Singapore Press Holdings had made S$422 million in profit; in FY2015, the media and property development outfit’s profit had declined to S$322 million.
  • In 2009, Noble’s profit came in at US$556 million; this has shrunk to a loss of US$70 million in the 12 months ended 30 September 2015.

What this could possibly mean is that the economic characteristics of the businesses of both companies have deteriorated, such that their assets are now less economically valuable – this could be a reason for their lower PB ratios.

The key question here is whether the possible-deterioration is cyclical or permanent (or very long-term in nature). If it’s the former, the two stocks we’re looking at may just turn out to be legitimate bargains. But if it’s the latter scenario, then what’s cheap may just go on to become even cheaper.

This is something that may be worth mulling over for an investor who is considering Singapore Press Holdings and Noble as potential investing opportunities on the basis of their low PB ratios in relation to history.

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'sfreeweekly 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.