Warren Buffett famously said that his favourite holding period is forever. It might seem difficult to find investments that you can buy and hold forever in this era of rapid technological disruption, but there are still stocks in Singapore I believe have a good chance to generate great returns over the next decade or even longer. Here are two stocks for investors to consider. Banking on banks It is no secret that Warren Buffett is a big fan of bank stocks, with five of the 10 largest holdings in his investment conglomerate Berkshrie…
Warren Buffett famously said that his favourite holding period is forever. It might seem difficult to find investments that you can buy and hold forever in this era of rapid technological disruption, but there are still stocks in Singapore I believe have a good chance to generate great returns over the next decade or even longer.
Here are two stocks for investors to consider.
Banking on banks
It is no secret that Warren Buffett is a big fan of bank stocks, with five of the 10 largest holdings in his investment conglomerate Berkshrie Hathaway having a banking component. Investors in Singapore can also gain exposure to bank stocks by buying one of the three major locally-listed banks. The pick of the bunch, in my opinion, is DBS Group Holdings Ltd (SGX: D05). Although all three major banks in Singapore have shown consistency over the past decade in their business performances, DBS stands as the largest and most recognised bank in Singapore and its current high dividend yield makes it a relatively more attractive proposition for long term investors.
DBS also has an impressive track record of growth. Its total income (a bank’s revenue) more than doubled from S$5.34 billion in 2006 to a record high of S$13.1 billion in 2018. In addition, its earnings per share increased from S$1.28 to S$2.01 over the same time frame. The fact that this period included the great financial crisis of 2008/09 makes DBS’s track record all the more impressive. DBS has shown in the past that it can withstand even the most challenging economic climate and emerge stronger through it all.
On top of traditional interest income, DBS has also been building its fee-based services such as wealth management, card, investment banking, and other services. This segment contributed around a fourth of DBS’s total income earned in 2018. With the change in its product mix, DBS has managed to improve its return on equity, generating 12 cents for every dollar invested in the company in 2018, the highest in more than a decade.
At DBS’s share price of S$25.12 currently, it sports inexpensive valuations of 1.3 times book value and 11.2 times earnings, and has an attractive dividend yield of 4.8%.
Building its network effect
When building a portfolio to hold for 10 years, I tend to gravitate toward larger companies with long track records. Although this next stock may not fit that mold, I still believe it possesses enough qualities so to give it a good chance of providing great returns for investors over the next decade or so. The stock I am talking about is iFAST Corporation Ltd (SGX: AIY).
Founded in 2000 and listed in December 2014, iFAST is an internet-based company that distributes investment products to individuals and businesses. It aggregates a variety of investment products – such as stocks, funds, bonds, and other investment products – and provides them in a platform to investors. In essence, iFAST acts as a middle man for investors to purchase these products from their respective providers.
One of the appealing aspects of iFAST’s business model is its network effect. As iFAST carries an increasingly larger number of investment products on its platform, it attracts more users, which in turn attracts more investment product suppliers, creating a virtuous cycle.
iFAST’s track record of growing its assets under administration (AUA) illustrates this phenomenon.
Source: iFAST 2018 Earnings Presentation
As you can see from the chart above, the company’s AUA has increased consistently since its inception.
iFAST is also in the early stages of operations in China, which could open up a whole new set of opportunities for the company.
Naturally, iFAST’s revenue has increased along with its AUA. The Singapore-headquartered company’s revenue grew by 11.5% per year from S$78.35 million in 2014 to S$121.24 million in 2018. Although earnings per share has been volatile due to start-up costs for the China business, if iFAST can continue growing its earnings in its core markets and as its China operation matures, we should see more consistent earnings per share growth in the future.
As mentioned earlier, iFAST is a young and relatively small company with a market capitalisation of just S$297 million. But, its strong network effect and huge market opportunity could make it a market-beating stock over the next decade at least. The company has also been very nimble in moving with the times: It developed a mobile app in 2011 and launched a robo-advisory service in Hong Kong and Singapore in 2015 and 2016, respectively. It is also currently in the midst of pursuing a virtual banking license in Hong Kong despite failing in its first attempt.
At the time of writing, iFAST’s share price of S$1.10 gives it a price-to-earnings ratio of 27 and a dividend yield of 2.8%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on DBS Group Holdings Ltd and iFast Corporation Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings Ltd.