Warren Buffett once said that as an investor, it is important to be “fearful when others are greedy and greedy when others are fearful.” The idea is simple. When everyone is buying shares in a company, it’s unlikely that the company’s shares will be a good bargain. On the other hand, when others are shying away from the shares of a company, we might be able to pick some up at a good price. How can we tell if investors are staying away from a company’s shares? By seeing if it has fallen hard in recent times. In this spirit,…
Warren Buffett once said that as an investor, it is important to be “fearful when others are greedy and greedy when others are fearful.” The idea is simple. When everyone is buying shares in a company, it’s unlikely that the company’s shares will be a good bargain. On the other hand, when others are shying away from the shares of a company, we might be able to pick some up at a good price.
How can we tell if investors are staying away from a company’s shares? By seeing if it has fallen hard in recent times. In this spirit, here are three blue-chip shares with prices that have declined significantly from their respective highs over the past year: Oversea-Chinese Banking Corp Limited (SGX: O39), Singapore Airlines Ltd (SGX: C6L), and Keppel Corporation Limited (SGX: BN4). They are blue-chips because they’re part of the 30 constituents of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
Source: SGX.com Stock Facts
OCBC is one of the three major banks based in Singapore. Although OCBC’s share price had declined recently, the bank actually reported a good set of numbers in its latest earnings update.
In the second quarter of 2018, the bank’s total income grew by 5.2% from a year ago to S$2.47 billion. The total income is made up of a few components, which includes net interest income; this component, which is the income from the bank’s loans activities, grew 7.8% year-on-year to S$1.45 billion, driven by improvements in net interest margin and loan volume growth. The bank’s non-interest income also increased by 1.8% to S$1.02 billion as a result of growth across the board.
As a result, OCBC’s net profit jumped by 16% to a record S$1.21 billion. The bank’s interim dividend was raised by 11% too, up from S$0.18 per share a year ago to S$0.20 per share.
OCBC’s CEO Samuel Tsien shared the following comments on the bank’s business performance and prospects in the latest earnings update:
“Our record quarterly performance reflects the resilience and strong foundation for growth of our diversified banking, wealth management and insurance franchise. Yearly and quarterly revenue growth was driven by increases in both net interest and non-interest income. 2Q18 net interest income rose from a year ago, driven by robust loan growth and improved asset yields in both the Singapore and Malaysia markets. Non-interest income growth was broad-based, led by higher fees, trading income and insurance income. Operating expenses were well-managed and credit cost remained low.
The operating environment is increasingly challenging and we are watchful of the severe implications to the global economy and financial markets from the escalating trade and political tensions. With our strong and diversified franchise, capital and balance sheet, we are well-positioned and committed to supporting our customers and pursuing long-term sustainable and stable growth for our shareholders.”
OCBC will be releasing its 2018 third quarter earnings update just a few weeks later on 1 November 2018.
Next up is Singapore Airlines, which needs little introduction. Besides running two full-service airlines (under the Singapore Airlines and Silk Air brands), the company also has a low cost carrier arm in Scoot.
In its latest quarterly earnings update, for the quarter ended 30 June 2018, Singapore Airlines reported revenue of S$3.84 billion, which was down 0.5% from a year ago. Operating profit fared way worse due to higher fuel costs, plunging by 52.3% to S$193.1 million. Similarly, profit attributable to shareholders sank by 58.7% to S$139.6 million. As of 30 June 2018, Singapore Airlines had a net debt position of of S$1.67 billion, up from S$0.56 billion at 31 March 2018.
In term of its outlook, this is what the company said in the latest earnings update:
“Passenger traffic is expected to grow in the coming months, although competition in key operating markets persists. Costs remain under pressure, especially from higher fuel prices. Cargo demand in the near term is steady despite concerns over global trade tensions, the escalation of which could potentially have a longer-term impact on air cargo demand.
The Group continues to hedge its fuel requirements. For the remaining nine months of the financial year, the Group has hedged 46.3% of its fuel requirements in MOPS (21.8%) and Brent (24.5%) at weighted average prices of USD65 and USD54 per barrel respectively.”
Lastly, there is Keppel Corp, a conglomerate with the following major business segments: Offshore and Marine; Property; Infrastructure; and Investment.
Keppel Corp’s latest results was for 2018’s second quarter. During the quarter, Keppel Corp reported that revenue fell by 2.0% year-on-year to S$1.52 billion. Yet, net profit attributable to shareholders rose 44.4% to S$246.2 million, leading to a 44.7% jump in earnings per share to 13.5 cents. Keppel Corp’s higher profitability was driven by strong performances in its Property and Infrastructure divisions.
The conglomerate also improved its balance sheet significantly over the past year, with its net debt declining from S$7.05 billion in 2017’s second quarter to S$4.87 billion in the reporting quarter. The net gearing ratio (net debt over equity) also fell from 0.58 to 0.40 as a result. Moreover, the Offshore and Marine segment’s net order book (excluding orders from the troubled Sete Brasil) had increased from S$3.4 billion in 2017’s second quarter to S$4.6 billion.
Investors should also note that Keppel Corp and Singapore Press Holdings Limited (SGX: T39) have joined forces to gain majority control of M1 Ltd (SGX: B2F), Singapore’s smallest operational telco. Keppel Corp will be releasing its 2018 third quarter earnings update on 18 October.
So there you go, three beaten-down shares that may outperform the market over the longer term. Nevertheless, the information presented here is by no means a recommendation to take any action on the shares 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. The Motley Fool Singapore has a recommendation for DBS Group, Oversea-Chinese Banking Corp, and United Overseas Bank Ltd.