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2 Multi-Billion Dollar Companies That Have Seen Their Value Drop

Buying stocks with low valuations can be a good way to succeed in the stock market. That’s what highly successful investors such as John Neff have done.

While unknown companies are more likely to trade at cheap valuations since most investors are unaware of their existence, huge and well-known companies can at times be cheap stocks too.

Two companies with both multi-billion dollar market capitalisations and low valuations currently are DBS Group Holdings Ltd (SGX: D05) and Keppel Corporation Limited (SGX: BN4).

DBS Group and Keppel Corp share price and valuation table
Source: S&P Global Market Intelligence (click table for larger image)

DBS Group, Singapore’s largest bank, has a huge market cap of S$38.0 billion and yet have low PE and PB ratios of 8.5 and 0.94, respectively. It’s the same with Keppel Corp, a marine engineering and property development conglomerate. The company has a big market cap of S$10.7 billion but low valuations with a PE of 7.0 and PB of 0.96.

For perspective, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund which tracks Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – had a PE and PB ratio of 11.6 and 1.1, respectively, as of 28 March 2016. Given these numbers, the individual investor may ask: Just why are DBS Group’s and Keppel Corp’s shares carrying such low valuations?

Regarding DBS Group, my colleague Chin Hui Leong had written two weeks ago that “worries around [the bank’s] exposure to the oil and gas industry and a slowdown in China’s economic growth appear to be some of the issues weighing on its shares.”

While I think those risks are real, it’s also worth noting the magnitude of the impact of those risks. Hui Leong had recently gave a good account of how DBS Group is currently handling any issues it’s seeing with its oil & gas- and China-related businesses. I won’t rehash his points (check them out here and here), but I’d just like to say that DBS Group appear.to be handling its exposures to China and the oil & gas industry well.

Coming to Keppel Corp, it’s also oil-related worries – stemming from the drastic fall in the price of oil from more than US$100 per barrel in mid-2014 to around US$40 today – that are likely to be strangling the company’s shares. Keppel Group saw its overall profit for 2015 decline by 19% on the back of lower profit from its offshore and marine engineering arm. Many worry that the company might face further problems such as a cancellation of orders from its order book and the deterioration of its balance sheet.

Again, the abovementioned risks are real and worth keeping in an eye on. But, there are still positives about the company’s fundamentals at the moment, such as its diversified business and solid track record with paying a dividend.

 

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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 Lawrence Nga doesn’t own shares in any companies mentioned.