Investors are getting nervous. After a long period of calm, the US stock market started falling last week. Right now, the S&P 500 – a leading US stock market benchmark – is down by 5.5% from its record-high close on 20 September. At home in Singapore, the Straits Times Index (SGX: ^STI) is down by 11% year-to-date. Though a market pullback worries most investors, the truth is that market sell-offs are great times to buy shares of companies at bargain prices. With this in mind, let’s look at two blue chips that I think are good buys if the market crashes. The duo…
Investors are getting nervous. After a long period of calm, the US stock market started falling last week. Right now, the S&P 500 – a leading US stock market benchmark – is down by 5.5% from its record-high close on 20 September. At home in Singapore, the Straits Times Index (SGX: ^STI) is down by 11% year-to-date.
Though a market pullback worries most investors, the truth is that market sell-offs are great times to buy shares of companies at bargain prices. With this in mind, let’s look at two blue chips that I think are good buys if the market crashes. The duo are known as blue chips because of their status as one of the 30 constituents of the Straits Times Index.
Blue Chip No.1
My first company is one that needs no introduction as it is Singapore’s largest operational telco, Singapore Telecommunications Limited (SGX: Z74).
Although the company has “Singapore” in its name, its reach extends far beyond our Garden City. In its financial year ended 31 March 2018 (FY2018), Singtel generated free cash flow of S$3.61 billion, of which only 31.2% came from Singapore. Australia accounted for 27.4% (this comes from Singtel’s wholly-owned Australian telco, Optus), while dividends from Singtel’s regional associates made up the rest. These regional associates include Telkomsel from Indonesia, Airtel from India, AIS and Intouch from Thailand, and Globe from the Philippines.
Singtel’s business has come under significant pressure in the last few years, because of the proliferation of communication mobile apps (such as Whatsapp, for instance), the rise of over-the-top video streaming services, and the Australia-based TPG Telecom’s win of Singapore’s fourth telco license in December 2016. In India, Singtel’s associate continues to face significant challenges because of aggressive pricing strategies by a newer competitor. In FY2018, Singtel’s underlying profit declined by 8.4% to S$3.5 billion.
But, there are still positive traits about Singtel. For a start, the company’s geographically diversified, as I mentioned earlier. In a previous article of mine, I shared five reasons why Singtel may be a good investment; one of the reasons was Singtel’s wide geographic reach. The other reasons are: (1) The presence of a strong balance sheet; (2) a good track record in paying dividends; (3) an attractive valuation; and (4) the presence of investments that are being made for the future. What’s more, Singtel’s telco service is very likely to still remain in demand even if the economic environment turns weak.
Blue Chip No.2
My next idea is also a company that needs little introduction, as it is Singapore’s largest bank by total assets, DBS Group Holdings Ltd (SGX: D05). DBS Group has over 280 branches in 18 markets, and has total assets of S$540 billion as of 30 June 2018.
Singapore’s bank shares are currently out of favor among investors – this can be seen in how DBS Group’s share price has fallen by over 20% from its peak this year that was reached in April. Some of the worries on investors’ minds are the ongoing trade war between US and China, and slower global economic growth – these are all good reasons to worry. As a lending institution, changes in the macroeconomic landscape could affect DBS Group’s business.
But, I still see plenty of positive traits in DBS Group. I pointed out five things to like about the bank in a recent article of mine. These traits include (1) a good track record of profitability; (2) a positive quarterly earnings update; (3) a good dividend track record; (4) the presence of conservative capital adequacy ratios; and (5) a reasonable valuation on its shares. I think investors should give DBS Group a good look, especially if the market continues to fall and make the bank’s valuation even cheaper.
A Foolish conclusion
No one knows when the market will crash, and if it does, how long or steep the sell-off will be. But with stocks already looking vulnerable to a correction, it’s a good time to prepare a watchlist of potential buys. To me, Singtel and DBS Group look like good candidates for the watchlist.
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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 on DBS Group.