Safety in volatile market

Many blue chip stocks have dropped today. Banks are facing an increase number of risks in relation to the economy.

Oil and gas companies and commodities companies had experienced a lower prices on their commodities. This may slow down loan growth in banks and also companies's ability to pay up.

Property stocks like GLP, Capitaland and HK Land, have dropped due to the weakening of the Chinese currency, with fears that a conversion back to Singapore currency will reflect lower profits.

Cargo volumes dropped, indicating a slowdown in overall economic activity. Companies with lesser profits result in their ability to pay back loans. This factor could lead to a slowdown in bank earnings.

The launch of Singapore bonds on 1 October 2015 will also reduce the amount of cash deposits held in banks as close to about $1 billion a month of Singapore bonds will be issued out in October.

Amid volatile markets and a possible correction, these 2 stocks provide safety in volatile markets:

1. M1
2. Q&M Dental

M1

• Oversold
• 6% dividend yield at current price
• Offer cheaper plan to scoop up bottom markets to scare off 4th telco

Q&M Dental

• Aggressively acquiring clinics in Singapore, Malaysia and China
• Closest to becoming monopoly in Singapore dental industry
• price to earnings growth stood at 0.3(PEG is undervalued if less than 1)  after Q2 2015 results

20k Portfolio in Blue Chips SGX stocks

My perspective of a $20k blue chip stocks for retail investor. Below are a list of stocks that would construct a retail investor portfolio.

Prices of Stocks

• STI ETF ($3.38)
• M1 ($3.25)

4000 shares x STI ETF = $13,520

2000 shares of M1 = $6500

Total cost is = $20,020

STI ETF provides excellent diversification in the event of a single sector crash. Its top 5 holdings include 3 relatively strong Singapore banks namely DBS, OCBC and UOB.

Source: Bloomberg

Current Dividend Yield 2.75%

Over a 10 year period, the STI ETF provided a return of 9.06% including dividends and 5.89% excluding dividends

Source: STI ETF Annual Report

M1's recent drop in price due to news of a fourth telco had became an attractive buy with a dividend yield of 5.83%.

Source: Bloomberg

Its recent first quarter financial statements, M1 slashed off 16% of its debt. Lesser company debts keep M1's balance sheet healthy. 

19 Jun 15, chairman of M1 bought 50,000 shares at $3.23 each. This could be an indication of a slightly undervalued share value.

Noble group, attractive vs not attractive

Noble group has been one of the very 'glamorous' favoured by retail investors. Its share price dropped to 6 year low on 3 Jun 15. Despite its accounting discrepancies, investors are still positive of a rebound.

Below is the summary of findings by Iceberg-Research

Summary of Findings:

Noble exploits the accounting treatment of its associates to avoid large impairments and fabricate profit.-

Yancoal is the most representative example, with a gap of $600m between the carrying and market values. However, the accounting technique has been used for other companies.-

Contrary to what Noble’s management claims, the misfortunes of these associates have a
substantial cash impact on Noble.-

The proclaimed recovery of the Agri business in 2014 was manufactured through the use ofquestionable methods such as subsidies from the group or depreciation cuts.-

We believe the final price for the new associate Agri will be much lower than the provisional $1.5b payment; and/or that Noble will have substantial remaining financial commitments to its new associate. Noble may once again use the accounting for associates to hide the impairment.-

Selling the palm oil business will be very difficult for Noble since the licence of one of its subsidiaries has been revoked by the local government.

Source: Iceberg-Research

The person behind Iceberg isn't someone normal but rather an account or an auditor. He or her understanding of financial statements have shown accounting background.  Carey Wong, an analyst in OCBC investment research in Singapore believes that the person who wrote Iceberg has an accounts background with good understanding of financial statements. Without the report, it is not easy for retail investors to learn about such information. The person could probably be a former employee in Noble in order to understand such detailed accounts engineering.

Even with share price uncertainty, it is not easy to know the actual valuation and how low it could get unless we get some perspective from somewhere. I happened to chance upon Iceberg's third report which gave a hint of how low Noble's price can go."After impairments and using a price-to-book valuation method, we find a valuation of S$0.1 per share." 

Attractive or not attractive?

Be careful of China

China's growth story can be bullish but the amount of debts that could be haunting the country is worrying.

Source: http://www.ft.com/cms/s/0/085e0368-a534-11e4-bf11-00144feab7de.html#axzz3QX7IXZuC

Bank stocks in Singapore like DBS and OCBC have been soaring as well and both banks have exposure to China.

Since the change of lot sizes from 1000 to 100, investors can now have the option to switch DBS and OCBC for UOB, which have lowest exposure to China among its peers.

Source: http://sbr.com.sg/commercial-property/news/chart-day-heres-how-risky-singapore-banks-china-exposure-can-get

What to buy when times are good

Source: Bloomberg

The STI index shot up from 3200 to 3350, about 4% in 1 week. Stocks on the STI Index became more expensive in a week.

When the graph is up, downside risks get higher. Stocks like Jardine Cycle and Carriage, DBS, OCBC, UOB have gone up quite a bit.

However, even if these high cap stocks going up, buyers can still look for bargains in the market, especially low cap stocks.

A sector to look at is the property sector. Property stocks have gone down since the cooling measures implemented by the government to slow down or prevent a property bubble in a low interest rate environment.

As Singapore dollar strengthened against the Aussie dollar, a lot of property companies in Singapore have moved their focus to Australia.

Below is a list of some of the low cap property/construction stocks.

• Heeton Holdings (Market Cap:155.8 million PE Ratio:11 Book Value:0.5)
• Hong Fok (Market Cap:660.87 million PE Ratio:2 Book Value:0.4) 
• Centurion (Market Cap:386 million PE Ratio:6 Book Value:1.2)
• Wee Hur (Market Cap:344.72 million PE Ratio:3 Book Value:1.5)