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Singapore’s Best Shares For 2019: How Cheap And Good Are They?

Yesterday, I published an article titled The 30 Best Shares In Singapore For 2019. The article is part of a real-time experiment on Singapore’s stock market I started running in January 2015 to see whether the Magic Formula investing strategy works in our Garden City. The investing strategy was developed by investor Joel Greenblatt and he described it in his 2005 book, The Little Book That Beats The Market.

In my article yesterday, I listed the 30 Singapore-listed shares that had the best scores at the start of 2019 according to the Magic Formula. The top five were:

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1. Noble Group Limited (SGX: CGP)
2. Lung Kee Bermuda (SGX: L09) (SEHK: 255)
3. China Sunsine Chemical Holdings Ltd (SGX: CH8)
4. AEM Holdings Ltd (SGX: AWX)
5. Aspen (Group) Holdings Ltd (SGX: 1F3)

The whole idea behind the Magic Formula is to pick the highest-quality shares (the ones with the highest returns on invested capital) that are available at the lowest valuation (the ones with the highest earnings yield).

The strategy ranks shares according to their return on invested capital, with each share given a score based on its rank. Then, all the shares are ranked according to their earnings yield and given a score. Both scores are then added up for each share, and the 30 shares with the best scores are then selected. The Magic Formula requires the scoring exercise to be conducted each year to build a fresh portfolio.

Here are the formulas I used to calculate the return on invested capital and earnings yield:

1. Return on invested capital = (Earnings before interest and taxes) / [(Net debt) + (Total equity)]
2. Earnings yield = (Earnings before interest and taxes) / (Total enterprise value)

The following table shows the returns on invested capital and earnings yields of the 30 shares that I listed in The 30 Best Shares In Singapore For 2019:

Source: S&P Global Market Intelligence

I hope the numbers given here can be a useful starting point for your own 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 writer Chong Ser Jing owns shares in Noble Group, Valuetronics, Yangzijiang Shipbuilding Holdings, Hi-P International, Straco Corporation, AusGroup, Boustead Singapore, and Venture Corporation. The Motley Fool Singapore has a recommendation on AEM Holdings, Straco Corporation, and Boustead Singapore.