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 the company’s shares are a good bargain. On the other hand, when most people are shying away from a company, we might be able to pick up shares at a good price.
How can we tell if investors are staying away from a company’s shares? By seeing if its share price has fallen hard in recent times. Today, we’re looking at two blue-chip companies with share prices that have declined significantly from their respective highs over the past year: Keppel Corporation Limited (SGX: BN4) and DBS Group Holdings Ltd (SGX: D05). They’re considered 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 Fact
First up is Keppel Corporation, a conglomerate with major business segments including offshore and marine, property, infrastructure, and investment.
The company has recently seen significant shares bought by institutional investors (one of the top ten last week). Also, it delivered a positive performance in its latest earnings release.
For the quarter ended 31 December 2018, Keppel reported that revenue was up 8.5% year on year to S$1.7 billion. Yet, profit from operations fell by 96.5% to S$5.1 million, driven mainly by higher operating costs. Despite lower operating profit, net profit attributable to shareholders for the quarter swung from a loss of S$492.0 million last year to a profit of S$145.3 million. The higher profitability in the quarter is mainly due to the absence of one-off costs incurred in the previous year.
In addition, the conglomerate proposed a final dividend of S$0.15 per share for the quarter. Together with the interim dividend, the total dividend per share for 2018 was S$0.30.
One thing to note is that Keppel is trading at a valuation (see the above P/E and P/B ratios) comparable to the market average P/E and P/B ratios of 12.3 and 1.1, respectively, using SPDR STI ETF (SGX: ES3) as a proxy for the market.
The second blue-chip company is DBS Group, one of the three local banks in Singapore. Similar to Keppel Corporation, DBS Group posted a good performance in its latest quarterly results.
For the fourth quarter ended 31 December 2018, DBS Group reported that total income grew by 6% from a year ago to S$3.2 billion. Net interest income (income from loans) improved 11% year on year to S$2.3 billion, driven by improvement in net interest margin and loan volume growth. Higher net interest income was partially offset by weaker non-interest income, which was down by 4% year on year to S$915 million. Net profit also strengthened by 8% to S$1.3 billion due to higher income and lower allowances.
DBS Group proposed a final dividend of S$0.60 per share for the quarter. Including the interim dividend, the total dividend per share for 2018 was S$1.20.
Similar to Keppel, DBS Group is trading at a compelling valuation (see the above P/E and P/B ratios) when we compare it to the market’s average valuation. In other words, investors are paying a reasonable price if they acquire DBS Group’s shares at their current level.
Keep in mind that the information presented here is by no means a recommendation to take any action on the companies 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 recommends DBS Group Holdings Ltd.