Investing Lessons From The Stock Market Performance Of Singapore’s Blue Chips In 2016

In four previous articles of mine, I identified the top six performers and top six losers in 2016 amongst the 30 constituents of the Straits Times Index (SGX: ^STI). The 30 stocks are referred to as blue chips in the context of our local stock market.

(For the four articles, you can check them out here, here, here, and here.)

As a quick recap, the six biggest winners are, in ascending order, Genting Singapore PLC (SGX: G13), Jardine Cycle & Carriage Ltd (SGX: C07), Wilmar International Limited (SGX: F34), Thai Beverage Public Company Limited (SGX: Y92), SATS Ltd (SGX: S58), and Golden Agri-Resources Ltd (SGX: E5H).

Meanwhile, the six worst laggards are, Keppel Corporation Limited (SGX: BN4), Singapore Airlines Ltd (SGX: C6L), Hutchison Port Holdings Trust (SGX: NS8U), ComfortDelgro Corporation Ltd (SGX: C52), StarHub Ltd (SGX: CC3), and Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6).

Now, I thought it would be both interesting and useful if I were to draw a few investing lessons from looking at the winners and losers:

1. Not all players in the same industry are created equally

SATS and Singapore Airlines are both from the airline industry. In 2016, as we’ve seen, SATS was a big winner whereas Singapore Airlines was a loser. But more importantly, SATS’s business performance was better than Singapore Airlines.

The first nine months of 2016 saw Singapore Airlines’ revenue decline by 3.8%. And although there was a 58.6% jump in profit, Singapore Airlines’ bottom-line growth had come mainly from a one-off sale of an asset by a majority-owned subsidiary. SATS, on the other hand, had enjoyed revenue and profit growth of 1.2% and 9.9%, respectively, over the same period.

There is also a big difference in terms of the economics of the two companies’ business. Whereas SATS enjoys a dominant position in Changi Airport, Singapore Airlines has to compete with many other airlines for travellers who are looking to fly into/out of Singapore.

So, a lesson here is to understand each individual company separately instead of simply lumping all companies in the same industry under the same mould.

2. Contrarian investing was shown to work

The palm oil producers Wilmar and Golden Agri-Resources were two big winners in 2016. But if we go back to the end of 2015 (or the start of 2016), the two companies looked bleak.

During 2015, Wilmar and Golden Agri-Resources’ share price dropped by 9.3% and 26%, respectively. Moreover, Wilmar’s profit in the first nine months of 2015 had declined by 8.2% compared to the previous year while Golden Agri-Resources’ positive bottom-line had turned negative.

But those who bought the two companies’ stock when things seemed to be going wrong with their businesses ended up making money.

The experience of Wilmar and Golden Agri-Resources is a reminder that for investors looking to invest in cyclical companies that are exposed to commodity prices, it would be best to look at them when commodity prices are low. It is during this period of time that most investors would avoid the cyclicals, thus presenting a potential investing opportunity.

3. Even dominant businesses can be disrupted

2016 looks like a challenging year for telecommunications companies in Singapore so far (while we’re already in 2017, companies’ results for the whole of 2016 have not been reported yet).

There are currently only three telcos operating in Singapore (a fourth telco recently appeared onto the scene, but have yet to offer any services), so they are in some sort of oligopolistic situation.

But even so, StarHub lost almost a quarter of its market capitalisation in the whole of 2016 and saw a 1.4% dip in profit for the first nine months of the year. Another blue chip telco, Singapore Telecommunications Limited (SGX: Z74), also saw its Singapore-based mobile business results fall in the same timeframe.

What we can learn here is that we should always be watchful of the business environment of our investments, since the forces of capitalism can disrupt even dominant companies.

4. Complexity may present opportunity

Jardine Cycle & Carriage depends on its Indonesia-listed subsidiary, Astra International, for the bulk of its revenue and profit. Astra, in turn, is a conglomerate that can be complex and hard to understand due to its diverse business interests. (Astra has business interests in areas such as automotive, financial services, heavy equipment and mining, agriculture, and more).

This complexity can at times result in conglomerates trading at low valuations and thus present an investing opportunity for investors who are willing to do their homework.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of SATS. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.