There are many ways to find investment ideas. Some useful ways are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue.
Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they are doing, as a way to generate ideas.
In this article, I will look at three Singapore stocks (among the top ten stocks) that have seen the highest net disposals in dollar value by institutional investors for the week ended 28 June 2019. They are DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11), or UOB, and Venture Corporation Ltd (SGX: V03).
Source: Singapore Exchange; SGX Stock Facts
From the above, we can see that institutional investors have been net sellers of bank stocks in the past week. Despite such sell-offs by these investors, the banks have actually delivered rather strong financial performance lately.
Let’s start with DBS Group. For the first quarter ended 31 March 2019, DBS Group reported that total income grew by 6% from a year ago to a record high of S$3.6 billion. Net profit also strengthened by 9% to S$1.7 billion due to higher income and lower allowances. Similarly, UOB had a strong quarter. Here are the numbers: total income increased by 8% year-on-year to S$2.4 billion. Net profit also grew by 8% year-on-year to S$1.1 billion.
Another thing to note here is that both banks are trading at rather cheap valuations since both have PE ratios lower than 12, which is the average PE ratio based on the SPDR STI ETF (SGX: ES3). For investors who want to compare the valuation of all the local Singapore banks, you can head here.
Going forward, investors might need to pay attention to risks that might slow down the economy since this will have an impact on the banks’ performance. One of those risks is clearly the US-China trade war.
Uncertainty for Venture
The other company that saw its shares sold off by institutional investors is Venture. As a quick introduction, Venture is an electronics manufacturing services provider with expertise in a wide range of activities.
Similar to the banks, Venture has delivered a positive quarterly performance lately. For the quarter ended 31 March 2019, the Group registered revenue of S$928.8 million, an increase of 8.5% year-on-year on the back of broad-based growth. Similarly, net profit attributable to owners of the company rose 8.6% year-on-year to S$90.9 million for the reported quarter. Such performance is commendable given the challenges that the hi-tech manufacturing sector is facing.
Nevertheless, there are risks that investors should keep in mind before investing in Venture. My colleague Royston Yang recently wrote an article pointing out a number of these. Such factors include uncertainty with major customers, trade tensions, as well as valuation.
Going forward, several macroeconomic factors, such as trade wars and a global economic slowdown will likely lead to weak sentiment among customers. Moreover, some customers’ product transitions might introduce near-term volatility to the group’s performance, yet this could be mitigated by some new product launches.
Looking at what institutional investors are doing could be a useful tool in your toolkit when sourcing for investment ideas. But do note that the information presented here is by no means a recommendation to take any action on the stocks 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 recommended shares of United Overseas Bank Ltd and DBS Group Holdings Ltd.