Are These Singapore’s Cheapest Stocks Right Now?

At any one point in time, there are many stocks in Singapore’s stock market that can be considered to be great bargains, theoretically.

I’m talking about net-net stocks. These are stocks that have a market capitalisation lower than their net current asset values, where the net current asset value is given by the simple equation below (the financial numbers needed are all found on a company’s balance sheet):

Net current asset value = Total Current Assets – Total Liabilities

A net-net stock can be thought of as a great bargain theoretically because investors are getting a discount on the company’s current assets (assets such as inventory and cash), net of all obligations (debt, leases, and all). On top of that, the company’s fixed assets (assets such as buildings, factories, long-lived equipment etc.) are thrown into the mix for free.

Now, I had stressed the word “theoretically” repeatedly because net-net stocks are often companies that are in serious trouble and/or have horrible business economics. This means that investors in them are also at risk of seeing their capital evaporate if things continue heading south.

That’s one reason why diversification is important. The legendary Benjamin Graham, who liked to invest in net-net stocks when he was investing professionally, tried to mitigate risks by diversifying widely amongst net-net stocks.

As of today, there are 105 net-net stocks in our local stock market. Many of them are small companies that have market capitalisations of less than S$100 million. In fact, there are only 12 net-net stocks that have a market cap of over S$100 million. They are (ranked alphabetically):

Here’s a table showing the market caps and net current asset values of the dozen companies:

Net-net stock large cap table
Source: S&P Global Market Intelligence

The 12 aforementioned larger net-net stocks, along with the other 93 net-net stocks, are the statistically cheapest stocks in Singapore’s market. But, this does not mean that they are necessarily real bargains.

As I’ve mentioned earlier, net-net stocks still carry risks, despite their low valuations. It’s important that investors assess the business of a net-net stock and determine if any value in the company would be preserved for a reasonably long timeframe or have a high likelihood of being destroyed in a short period of time.

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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 company mentioned.