I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near a 52-week low is a good place to start my search for a good reason.
These are the stocks that are either neglected or beaten down by investors. Many deserve the treatment. But, some of these stocks can be bargains in relation to their actual economic worth because market participants can occasionally react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles.
Nearly once every week, I will screen for stocks that are trading near a 52-week low. There are many stocks that pop up on my screen each time I run it. But in here, let’s have a look at three stocks I’ve chosen at random from a list of those that popped up. They are: Straits Trading Co Ltd (SGX: S20), Chip Eng Seng Corporation Ltd (SGX: C29), and GL Ltd (SGX: B16).
Source: SGX Stock Facts
You may have noticed that all three stocks also have a price-to-book (PB) ratio of less than 1. A company with a PB ratio of less than 1 is trading below its book value. In theory, investors can end up with a profit if they liquidate all the company’s assets and settle all its liabilities; in other words, a company with a PB ratio of less than 1 is worth more dead than alive (again, in theory).
The first company on the list is Straits Trading. It is an investment company with stakes in other companies that deal with real estate, hospitality, and resources.
Straits Trading has been a major shareholder of real estate funds management company ARA Asset Management Limited (SGX: D1R) for a number of years. ARA Asset Management is now in the process of being privatised by a consortium of investors that includes its founder John Lim, Straits Trading, and Cheung Kong Property amongst others.
According to data from S&P Global Market Intelligence, Straits Trading’s book value per share has declined from S$3.59 in 2011 to S$3.18 in 2015. In the third quarter of 2016, the company managed to post a 5.8% increase in its book value per share from S$3.10 a year ago to S$3.28.
Chip Eng Seng is next in line. The company has over 30 years of experience in general construction and is registered with the Building and Construction Authority (BCA) under the A1 classification. This is the highest classification and allows Chip Eng Seng to bid for public sector projects of unlimited value.
The company also owns a number of investment properties in Singapore and Australia which produce rental income.
In the first nine months of 2016, Chip Eng Seng saw its revenue and profit attributable to shareholders fall by 3.2% and 60.9%, respectively, when compared to the same period a year ago. The company attributed its revenue decline to lower contributions from its construction business.
Chip Eng Seng mentioned in its earnings release that it has to plans to “launch its New Upper Changi Road development [in Singapore] in 1H2017” and to roll out the first phase of its South Melbourne Project in the same period. The company also said that it will continue building construction expertise in “non-public housing and other civil engineering projects.”
As for its investment properties, Chip Eng Seng expects its properties’ occupancy rates “to remain stable amid increasing pressure to reduce rental rates on lease renewal.” The company also expanded into Maldvies’ hospitality market in October 2016 and said that its hotel in Singapore – Park Hotel Alexandra – would be negatively affected by the “weaker economic climate and corporate climate.”
We’re down to GL, which is formerly known as GuocoLeisure. It holds a number of investments that are in businesses such as oil and gas, property development, gaming and hotels.
GL is actually the largest hotel owner operator in London with 17 hotels under its stable. These hotels come under six brands and have over 5,000 rooms. As for the rest of the businesses, GL’s oil and gas investment sees it receive royalties from the production of oil and gas in certain areas of Australia’s Bass Strait; the property development business is active in Fiji and Hawaii; and the gaming business involves The Clermont Club casino in London.
The company’s latest earnings was for the quarter ended 30 September 2016. During the quarter, GL experienced a 15% decline in revenue and a 65% fall in profit. Commenting on its future, GL thinks that its hotels business “may be negatively impacted” in the months ahead. The company also expects the oil and gas industry to continue to be weak for the most of 2017, thereby impacting its oil and gas royalties.
It’s worth noting that not every company with a stock price near a 52-week low is a legitimate bargain. A declining stock price can decline yet further if the underlying business performance continues to weaken.
Nothing we’ve seen here about Straits Trading, Chip Eng Seng, and GL should be taken as the final word on their investing merits. The information presented in this piece should be viewed only as a useful starting point for further research.
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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.