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3 Blue-Chip Stocks Near their 52-Week Lows: Are They Undervalued?

Walter Schloss, dubbed a Superinvestor by Warren Buffett, was a deep value investor. He was very keen on stocks that were selling at 52-week low prices.

In Singapore, even among the blue-chip companies of the Straits Times Index (SGX: ^STI), there are a few stocks that are at or near their respective 52-week low prices.

Let’s look at three of them – Jardine Cycle & Carriage Ltd (SGX: C07), Wilmar International Limited (SGX: F34) and Singapore Telecommunications Limited (SGX: Z74) – starting with the stock that is closest to its 52-week low price in terms of percentage.

Source: Google Finance and SGX StockFacts

Jardine Cycle & Carriage announced in December last year that it had increased its stake in Vietnam-listed Refrigeration Electrical Engineering Corporation from 23.6% to 23.9%. It forked out close to US$2 million for the purchase.

The acquisition came after another investment in the country. In November that year, the conglomerate invested US$1.2 billion for a 10% stake in Vietnam Dairy Products Joint Stock Company (Vinamilk), a leading dairy producer in Vietnam with a market share of approximately 58%. Vinamilk is still majority-owned by a Vietnamese state shareholder.

According to a recent article in The Business Times, a large number of the country’s state-owned enterprises are on a privatisation effort, allowing both foreign and domestic investors to have a stake in the firms. This would in turn “boost the national coffers and grow the private sector”.

Agribusiness group, Wilmar International, saw its revenue for the third quarter ended 30 September 2017 increase 0.4% year-on-year to US$11.13 billion. The rise was on the back of higher sales from oilseeds and grains. However, the firm’s net profit and core net profit dropped 5.7% and 15.9% respectively.

Looking ahead, chairman and chief executive of Wilmar, Kuok Khoon Hong, said:

“We expect the good performance in the Oilseeds & Grains segment to continue into the fourth quarter, with crush margins and volume anticipated to remain positive. Performance of the other major business segments is expected to be satisfactory. With good economic performance in key Asian countries, we remain optimistic about the future of Asia. We will continue with our expansion plans, especially in Oilseeds and Grains including Consumer Products.”

Investors would know for sure how the company performed for the fourth quarter and full year ended 31 December 2017 when it announces its financial results on 22 February 2018.

Singapore Telecommunications, or Singtel for short, announced its financial results for the third quarter ended 31 December 2017 this morning.

For the quarter, revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) grew 4% and 6% to S$4.6 billion and S$1.3 billion, respectively. The improvement came on the back of robust contributions from its core and digital businesses. However, net profit was affected by falling voice revenues and higher infrastructure investments. This led to a 9% year-on-year drop in earnings to S$890 million.

Singtel’s chief executive, Chua Sock Koong, said:

“We see our investments in network infrastructure and spectrum as critical to our future growth and longer term returns in this digital world. Already, our transformation strategy is delivering with digital and ICT [Information and Communication Technology] services accounting for 23% of our revenue this quarter. In our core business, the digitalisation of our services across the Group has enabled us to deliver better customer experience and manage costs. The Australia business, particularly mobile, drove profitable growth. We will strive to provide more value to our customers by anticipating their needs and staying ahead of the competition.”

With the blue-chips selling near their respective 52-week lows, are they a bargain?

To get a quick answer, we can compare the valuation of the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the fundamentals of the Straits Times Index, to the valuation of the respective companies.

As at 7 February 2018, the STI ETF has a PE ratio of close to 11 and a dividend yield of around 3%. This could suggest that Singtel is worth a second look with its PE ratio lower than the market and dividend yield higher than the market. Jardine Cycle & Carriage and Wilmar International do not look undervalued, despite their tumbling stock prices.

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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 Sudhan P doesn’t own shares in any companies mentioned.