Earlier this year, my Foolish colleague, Chong Ser Jing, ranked all the stocks in the Singapore stock market according to the Magic Formula, an investing strategy made famous by investor Joel Greenblatt in his book, The Little Book That Beats The Market. Ser Jing wanted to find the 30 best stocks in Singapore for 2018, based on the Magic Formula. I recently looked through Ser Jing’s list again and picked three companies that I like. Here they are. Company 1: The IT products retailer Challenger Technologies Limited (SGX: 573) operates the Challenger chain of information technology (IT) retail stores, and its online IT marketplace,…
Earlier this year, my Foolish colleague, Chong Ser Jing, ranked all the stocks in the Singapore stock market according to the Magic Formula, an investing strategy made famous by investor Joel Greenblatt in his book, The Little Book That Beats The Market. Ser Jing wanted to find the 30 best stocks in Singapore for 2018, based on the Magic Formula.
I recently looked through Ser Jing’s list again and picked three companies that I like. Here they are.
Company 1: The IT products retailer
Challenger Technologies Limited (SGX: 573) operates the Challenger chain of information technology (IT) retail stores, and its online IT marketplace, Hachi.tech. The company has a total of 38 stores, consisting of one flagship Challenger store, 25 Challenger superstores, and 12 small format stores.
Over the past five years, Challenger’s revenue and net profit had fallen by 4.4% and 1.3% on an annualised basis, respectively. But, I think that the company’s strong balance sheet should enable it to see through tough times. As of 31 March 2018, Challenger had S$65.7 million in cash and cash equivalents, and zero debt.
At its current share price of S$0.475, the company has a high dividend yield of close to 7%, and its dividend looks sustainable to me. While investors wait for Challenger’s business to recover, they can receive stable dividends.
At the price of S$0.475 per share, Challenger has a trailing price-to-earnings (PE) ratio of around 9.
Company 2: The precision-manufacturing provider
Spindex Industries Ltd (SGX: 564) is an integrated solutions provider of precision-machined components and assemblies. Its manufacturing facilities are in Singapore, Malaysia, China, and Vietnam, and the company serves a wide range of customers that are involved with domestic appliances, consumer electronics, telecommunications, and many more.
Unlike Challenger, Spindex’s historical financial performance has been spectacular from 2013 to 2017. In this time frame, the company’s revenue and net profit had grown by 11.2% and 18.9% per year, respectively.
Spindex also has a high return on equity (ROE) of 15% with negligible debt on its balance sheet. A business that can generate a good ROE while employing little or no debt has a high chance of possessing durable competitive advantages.
I think Spindex’s services are “sticky” and hence, its customers often come back for more. The price of the parts that Spindex provides to its clients should not make up a huge chunk of the cost of goods sold for the clients’ products. As such, if Spindex delivers consistently, it can enjoy rewarding long-term partnerships with its clients.
The “stickiness” is evident from Spindex’s corporate website; in there, the company mentioned that its “track records of long term partnerships with several Fortune 500 companies are a testament to the level of service & competitiveness that [it] provide[s].” The company also added that it has “received numerous supplier awards over the years.”
Spindex has a trailing PE ratio of 9, and a dividend yield of 3.6%, at its current share price of S$0.84.
Company 3: The electronics manufacturing services provider
Valuetronics Holdings Limited (SGX: BN2) is an integrated electronics manufacturing services provider with headquarters in Hong Kong. The company offers a wide range of design, engineering, manufacturing, and supply chain support services for electronic and electro-mechanical products.
From 2013 to 2017, Valuetronics had stable growth in its revenue, net profit and free cash flow. The strong historical performance could mean that the firm has a durable competitive advantage, which can help the business grow further in the years ahead.
Right now, with its share price of S$0.685, Valuetronics is trading at around 8 times trailing earnings, and has a dividend yield of 5.6%. Its share price has been falling in recent times, generally due to the weak sentiment surrounding electronics companies. But, investors who have a long-term view should not be worried about short-term changes in the stock price.
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore's new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge--Simply click here now to claim your copy
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.