There are many ways to find investment ideas. Some useful ways are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue.
Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they are doing, as a way to generate ideas.
In this article, I will look at three Singapore stocks (among the top ten stocks) that have seen the highest net purchases in dollar value by institutional investors for the week ended 14 September 2018. They are: DBS Group Holdings Ltd (SGX: D05), Sembcorp Industries Limited (SGX: U96) and United Overseas Bank Ltd (SGX: U11).
Source: SGX; SGX StockFacts (as of 14 September 2018)
The company with the highest net disposal by institutional investors in August was DBS Group. Yet, this group of investors has bought significant shares of the company recently.
DBS continued its strong performance in 2018. For the second quarter ended 30 June 2018, DBS reported that income grew by 10% from a year ago to S$3.20 billion. Net interest income (income from loans) grew 18% year-on-year to S$2.22 billion, driven by improvement in net interest margin and loan volume growth. Similarly, net fee income increased 11% to S$706 million, led by growth in wealth management and cards. As a result, net profit jumped 20% to S$1.37 billion.
For the first half of 2018, DBS declared an interim dividend per share of 60 cents, up 82% from the 33 cents declared for the first half of 2017.
Similar to DBS , Sembcorp Industries reported a good quarterly earnings update recently. As a quick introduction, Sembcorp Industries is a conglomerate with three major business segments: Utilities, Marine, and Urban Development & Others. The Marine segment’s contribution mainly comes from Sembcorp Industries’ 61% ownership stake in Sembcorp Marine Ltd (SGX: S51).
For the quarter ended 30 June 2018, Sembcorp Industries’ revenue improved by 47% year-on-year to S$3.34 billion. Yet, profit from operations for the quarter declined by 13% year-on-year to S$192.1 million, driven mainly by weaker performance in the Marine segment. Still, net profit attributable to shareholder jumped 47% year-on-year to S$82 million, mainly due to lower finance cost, higher share of associates and joint venture result and lower tax expenses. As of 30 June 2018, Sembcorp Industries’ net debt stood at S$8.3 billion, up from S$7.2 billion at end-2017.
Here’s a brief comment by Sembcorp Industries on its outlook:
“The market environment is expected to remain challenging in 2018. While a broader based global recovery is underway, rising trade and geopolitical challenges could potentially increase volatility and dampen global growth. The group is confident that it has the right strategies and capabilities for the future”
The last company on institutional investors most bought stocks is UOB. Though many reasons could have contributed towards the high interest, I think UOB’s latest strong performance would be one of them. Below are some numbers from the latest earnings update for the quarter ended 30 June 2018.
Total income grew 11% year-on-year to S$2.34 billion, of which net interest income jumped 14% year-on-year to S$1.54 billion while net fees and commission income grew 11% year-on-year to S$0.5 billion. This resulted in an 11% year-on-year increase in operating profit to S$1.32 billion. Net profit improved even more by 28% year-on-year to S$1.08 billion due to higher total income and lower loan loss provisions.
UOB’s chief executive, Wee Ee Cheong, commented:
“Testament to our focus on generating sustainable growth, our second quarter results are built on the healthy growth momentum in the first quarter. Such discipline supports our ability to reward shareholders with an increase in interim dividend per ordinary share to 50 cents.
In the face of rising uncertainty globally, our stable asset quality, robust capitalisation and diversified funding base put us in a strong position to drive future growth. We will remain vigilant, nimble and continue to invest in capabilities to serve our customers’ evolving needs. As a long-term player, we remain steadfast in augmenting our regional footprint to extend our reach to a wider group of customers and to tap the region’s connectivity potential.
The Foolish conclusion
Looking at what institutional investors are doing could be a useful tool in your toolkit when sourcing for investment ideas. But do note that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it 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. Motley Fool has recommendations for United Overseas Bank Ltd and DBS Group Holdings Ltd.