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Mr. Market has been feeling rather pessimistic of late.
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| Winter has come? |
In the last trading session, I bought stocks of the following companies':
1. SembCorp Marine
2. SembCorp Industries
3. ST Engineering
These companies have relatively strong balance sheets and order books to keep them busy for years. It is hard to imagine that they might be going the way of the Dodo.
Of course, prices could weaken further. If they should weaken significantly, I would probably buy some again. Buy some again? Yes, I will continue to pace my purchases in the face of possible continual market weakness. We do not know when prices have bottomed until we are past the bottom.
So, nibble, don't gobble.
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| Not quite the Great Singapore Sale, for sure. |
During the GFC, we saw SembCorp Marine and SembCorp Industries trading at PE ratios of 7x to 9x. Personally, I do not think that we will see another GFC but we could see a soft landing. So, PE ratios of 10x to 11x, perhaps? Based on my estimates, SembCorp Industries could see its share price at between $4.00 to $4.40 then. What about SembCorp Marine? Perhaps, as low as $2.50 a share.
ST Engineering's PE ratio has always been somewhat higher and even during the GFC, its PE ratio was still pretty high at about 15x. Currently, ST Engineering is trading at a PE ratio of almost 20x which isn't crisis cheap but seems fair enough with a prospective dividend yield of about 3.8%, assuming a 75% pay out ratio. Compared to about $4.40 a share more than a year ago, current price level presents a more comfortable entry in more ways than one.
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| Learn from the squirrels? |
Of course, it is hard to say whether Mr. Market would go into a depression or not. So, it is important to have a war chest ready. When to roll out that war chest? When valuations approach crisis levels and if that should happen, we want to be able to take advantage of the much cheaper valuations.
Related posts:
1. SembCorp Industries: A safe price.
2. SembCorp Marine: A nibble.
3. Mystical art of wealth accumulation.
Bloggy Award
59 comments:
Hi AK, ST engineering is in my year end shopping list too.
Mr market is selectively depressed this time...O and G and aerospace in particularly.
A few on my shopping list too, but still waiting for the sales to come, since STi and Dow are on a roll ....
Hi Mike,
Selectively depressed. I like that phrase. ;)
I have an inkling that there is more weakness to come. However, knowing that I don't really know, I decided to nibble. ;p
Hi AK,
I'm looking at the three too. SCI I just got in, so it got to be lower before I enter another tranche. For ST engineering, I'll wait a wait while. SMB I don't dare to enter, at least not until I see a little more certainty in the charts for a reversal. It's fast and furious and I don't have crates full of ammo to flush out the enemy lol!
Hi AK , small point here that the current market rout is selectively in oil and gas companies and companies that have to do with any part of the oil chain (like building rigs). OPEC has not cut oil production and with marginal cost of production as low as 4$ per barrel for Saudi Arabia, they are making enough profits that they don't need to cut supplies for oil prices to hold here at 70$. Infact oil producers have the reason to increase production to maintain revenues and balance their budgets (like sanctions-hit Russia). So this depression in oil prices may well continue for a long time in which case higher cost shale oil producers wind up and fresh oil exploration and such do not happen and hence oil rig makers/suppliers/installers dont do well. Look at Swiber,Ezra,Ezion and their stocks hav been badly hit. Their bonds well owned by the private banking clientele are also down a fair bit with people looking for exit.
http://www.bloomberg.com/news/2014-11-27/singapore-wealthy-stung-as-crude-rout-sinks-bonds-asean-credit.html
Hi LP,
Hey, thanks for sharing your strategy here. I should take a leaf from your book since despite what some might think, I do not have "crates full of ammo" either.
Looking forward to your next update here or in your blog. ;)
Hi Rahul,
Thanks for weighing in on the matter. The big picture does look rather bleak, doesn't it?
Adopting a wait and see attitude is probably not a bad thing. However, I cannot help but wonder if Mr. Market is being too pessimistic. Hence, the nibbles. ;p
Hi AK. I have all these three shares.
Well. Some i bought quite early and have received some dividend (STE)
But now sitting on 9% paper loss :(.
Maybe will soon to buy more.
I just buy 3 more lot SM@3.14 last friday.
Mike,
I am waiting for the stars to align :-p.
Waiting n Waiting for STI/DOW to come down together w the selected stocks.
I just exited some of my REITS with about 7+% yield to ready my war chest in view of interest to rise sometime next year.
Good going mr ak.
I'm waiting for:-
1. SembCorp Marine $2.80
2. SembCorp Industries $4.38
3. ST Engineering $2.88
I read a book that mentioned diversification will lower your risk, but by holding more than 5 stocks, the risk reduction benefit quickly tapers off. Thus it recommend focusing on 5-10 stocks.
For long term investment, I currently have SPH, ST Eng, Semb Mar & Semb Ind.
AK, do you think SIA Eng is worth looking into?
Hi yeh,
If we had bought into a great company at a fair price, we would do OK in the longer run. :)
ST Engineering is a great company and has been a very rewarding investment for me. Of course, I have been a shareholder for almost 20 years, getting my first lot of shares at $1.55 a share. ;p
Hi Rebel,
I would be a buyer at those prices too. Please give me a nudge if the time comes in case I forget. ;p
Hi Chia,
I don't see why risk reduction becomes less palpable with more than 5 or 10 stocks in a portfolio.
I know fund managers who hold 100 different stocks. So, if any one stock goes kaput, that is only 1% of the portfolio. ;p
I am more interested in ST Engineering which also has exposure to the aerospace industry because I think it is more resilient than SIA Engineering, for obvious reasons. :)
It wrote abt law of diminishing returns. There is still benefit of holding more stocks; just that the benefit is not as significant. It further states there is risk reduction of 47% if your stocks holding increases from 1 to 5, but merely 3% additional risk reduction if holding more. But it does not explain how the figures were derived though.
Hi AK71:)
As a housewife, I cannot go shopping and just 'window' shop……where got fun?
I also bought STE@$3.33. Hope it will bring us some rewards.
Hi Chia,
Ah, yes. Diminishing returns. I understand this. :)
It is just like someone who managed to save $50,000 every year. The feeling of satisfaction from seeing the first $50,000 saved is probably going to be much more than from seeing the twentieth $50,000 saved 19 years later, for example, because to add $50,000 to $0 is a bigger deal than to add $50,000 to $950,000. ;p
Hi dorshii,
Housewife? Time to ask for more housekeeping money from your hubby. Inflation and all that kind of stuff, you know? ;p
The market will price in the oil/gas related companies with the recent news.
I feel we need to give them a chance to play out next week.
Sorry for those folks who already have their skins in but if this down trend to last a year, we may have to play extrapolation before nibbling.
Chia, interesting finds but 3% is significant imo. Is down to 1% when you have more than 10 stocks. One thing to looks at is the risk hitting all stocks and not just the additional stock.
Hi Cory,
Waiting for a clearer picture is a good idea. :)
Don't have to feel sorry for the folks who are already vested (like me) as they should have been mentally prepared for any possible downside in their investments. -.-"
Hi Rebel
Semb corp reach your target entry price.
Are you buying? Hehehe.
Yes of cos!
Join me?
How to nudge mr ak? Put a can of baked beans on his car?
Hi Ak,
I, too, got hit by the downtrending price of Sembmar. But knowing its strong fundamentals, such a pessimistic price is just temporary. My guess is that the recent tug-of-war in oil prices between Mid-east and US have caused ppl to sell down on Sembmar. This oil war is expected to persist until half of 2015. But like you said, Sembmar won't return back to the GFC levels but somewhere at $2.50. I am looking at those range of prices. ;)
Hi Rebel,
A can of baked beans to tempt me? How could you say that? You see me no up! -.-"
Try putting a big box filled with cans of baked beans in my car. That might work. ;p
I am already in the buy queue. ;)
Hi INVS 2.0,
$2.50 a share for SembCorp Marine would be a most irresistible offer, I feel. Whether it would be tested or not, I have absolutely no idea.
However, coincidentally, $2.50 is also where we find an important technical support level for its share price. ;)
Hi AK,
Sembcorp Ind now $4.36... Big Sale is here i guess...
The oil prices really impact Sembcorp ind prices...
Best Regards,
Steven
If the oil prices has not bottomed out, why do you choose to go into stocks into the oil and gas sector?
Hi Rebel
My average price for semb corp is 4.67
As for semb marine is 3.43.
Well. I have 6 lot semb corp n 8 lot semb marine.
Left with little bullets now, probably will join you to buy more later. Wait for the price to drop further.
Hahaha
Hi Dexter,
I will answer with a question.
Is the price of oil the only reason for buying or selling the stocks of SembCorp or even KepCorp, for that matter? ;)
Yeh,
We cannot buy all the candy in the candy store with our limited pocket money.
Given your existing stash of candy, there is no need to rush to the store. Waiting and careful consideration is important at times.
dear Ak,
No, oil prices is not the sole reason for buying SCI, SembMar and KepCorp. However, Mr Market does react VERY strongly the oil prices......
pansy
Hi pansy,
Definitely, market sentiments affect prices very much. The ability to read market sentiments accurately is a skill which not many people have. Well, at least I don't think I have it. -.-"
I can only hope that I have not overpaid for my purchases and that the prices I got in at are fair or undervalued. -.-"
Well. I also make sure I did not buy at highest price.
Just like how I bought for singtel. Ocbc. STE. Semb marine n semb corp.
Although now sitting on paper loss:(
anyway semb marine look cheap now.
Thinking to buy more.
Ak,
How much I hope that all people stop buying the SCI and SMM, if everyone of us stop buying SMM and SCI, and let the deliberate sellers to push the price even lower to 3:50 and 2.50. That will be my day.
Anyway, the result of buying SCI and SMM at any prices would be still a better decision compare with buying Jaguar, LV or PP. the former give you income, the later give you expenses.
Haha, wish us luck and wish the prices continue to sink.
Casey.
Hi Casey,
At $3.50 and $2.50 a share, I will definitely be buying much more than what I have been buying so far. ;p
The long-term outlook for the oil and gas industry remains positive, despite volatile oil prices and global uncertainties, said Second Minister for Trade and Industry S Iswaran on Tuesday (Dec 2).
Mr Iswaran said strong economic fundamentals in the Asia Pacific, along with rapid population growth and economic development, will continue to drive energy demand. This will, in turn, spur expenditure on exploration and production activities.
Speaking at the opening of the International Oil and Gas Industry Conference at Marina Bay Sands, the minister said Singapore offers an attractive value-proposition to firms seeking to serve growing offshore exploration and production activities in the region. The continued growth of such activities is expected to support the growth of Singapore's marine and offshore industry, he added.
Source:
http://www.channelnewsasia.com/news/business/singapore/long-term-outlook-for-oil/1505350.html
Hi AK,
Have not posted on your website for a while. Hope you're well.
I have been looking at Keppel Corp recently. Seems like a good quality blue chip on sale. I wonder what you think about it, in comparison to SembCorp Industry?
Best regards,
Victor from HK
Hi Victor,
Good to hear from you. Hope you are doing well. :)
I have a preference for SCI as it derives about 50% of its income from utilities which is a growing business for them. The other 50% is mostly from its marine business.
Keppel Corp derives about 60% of its income from its marine business and the balance is mostly from its real estate arm.
I expect Keppel Corp's property business to face headwinds in the years ahead although they have been trying to grow their recurring income which is still a small percentage of their total income now.
Having said this, Keppel Corp's strong balance sheet will still give investors some peace of mind. :)
Thanks as always. I am very very tempted for a nibble :)
Victor
SCI touched 4,12 today! Very appealing to nibble more, or perhaps get ready to gobble? ;)
Hi boonchin,
I am in the queue to buy more. ;)
As I conservatively estimate the EPS to be 40c, at $4 a share, it translates to a PE ratio of 10x. That is pretty cheap, I feel. :)
Hi AK,
I chopped a seat this morning @ $4.15, but not much luck today to nibble? ;)
Hi boonchin,
Seems like a good choice as that is a support I saw too. ;)
Now, you are playing a game of "Who will blink first?" with Mr. Market. ;p
Hi AK,
Mr. Market didn't blink at SCI today :( Nevertheless, he might tomorrow ;)
(MarketWatch) — Crude-oil futures stumble as OPEC cuts 2015 demand outlook
Hi boonchin,
"Who will blink first?" is a game that tests our patience. Some are better at it than others. ;)
If SCI and SMMs' stocks should see much lower prices tomorrow, I am buying. :)
I'm waiting for $3.98
Hi Rebel,
Yikes! I just bought some SembCorp Industries at $4.14 yesterday...
Mr AK,
Keep calm.
Stay on track.
(If it does not get to $3.98, there are other candies in the candy store.)
Hi Rebel,
Oh, absolutely. We must not forget that there is a forest out there. This is only one tree. ;p
Hi AK,
Mr. Market finally blink but I blink first @ $4.15, lol
Hi boonchin,
And I blinked shortly after you did. ;p
Property developer Keppel Land has posted a full-year net profit of S$752.5 million.
This is 15 per cent lower than a year ago, mainly due to lower fair value gains on investment properties. Meanwhile, revenue came in at almost S$1.5 billion, a 2.5 per cent increase from the previous year.
In terms of sectors, Keppel Land said net profit from property trading fell to S$188.9 million on lower contributions from Singapore and China projects.
The developer sold 304 residential units in Singapore last year, mainly from Highline Residences.
Looking ahead, Keppel Land expects 2015 to be a challenging year, saying it does not expect economic conditions in its core markets of Singapore and China to improve significantly. It has proposed a final dividend of 14 cents per share.
http://www.channelnewsasia.com/news/business/singapore/keppel-land-reports-15/1606446.html
Sembcorp Marine, the world's second largest builder of offshore rigs, said on Monday (Apr 27) it faced a challenging year as first quarter net profit fell 14 per cent from a year ago.
Sembcorp Marine earned S$106 million in the three months ended March, down from S$122 million in the same period a year ago. Group turnover for three months declined 2 per cent year-on-year to S$1.30 billion mainly to the decline in rig building and repair revenue recognised during the quarter.
Singapore's large offshore and marine industry has seen fewer orders since the plunge in oil prices last year which has led to cutbacks in global exploration and production. A corruption scandal in Brazil has worsened the problem as investigators examine contracts that had been awarded previously.
Source:
http://www.channelnewsasia.com/news/business/singapore/sembcorp-marine-says-it/1810278.html
Hi AK,
Any updates on SCI? SCI is now about 3.90. Previously many liked it for its utilities, but this area has since faced competition. Any thoughts?
Hi AB,
I still like SCI for its utilities business although I did not count on the local market being so competitive. Their efforts to build a bigger income stream in foreign markets such as India and China will only become more rewarding in future. The world still needs electricity and clean water. SCI has a good track record of successfully delivering on such projects. So, their future is bright although currently choppy due to challenges faced by SMM. I am waiting to buy more of SCI's stock on further weakness. :)
Hi AK,
Any target price in mind to get a little nibble?
Seems like most of the selling has been done, looking at 3.80 thereabouts. What do you think?
Hi AB,
Well, when I last talked to my bowling ball, it vaguely said something about technical supports at $3.85, $3.77 and $3.68. Bear in mind that supports could break. Of course, they might not even be tested. ;p
If they should be tested, I could nibble. I would only gobble if I see clear signs of a reversal from the down trend. :)
Hi AK,
3.68 would be quite a good price?.. SCI went down to about 3.3 during the panic in 2011; will a Greece exit do the trick? But so far they have bailed out Greece.
I am also looking at STE which is also in your list, but current PE seems quite high. My basketball mumbled that 3.00 or so could be good price; what would your bowling ball be saying?
:)
Hi AB,
Well, in my opinion, SCI even at current price level is not expensive. I believe that Mr. Market has turned overly pessimistic. So, if there is another 5% reduction in price to $3.68, I think I would buy some.
As for STE, it has never traded at a low PE ratio if, by low PE ratio, we are referring to a PE ratio of less than 12x. Even during the Global Financial Crisis, STE traded at a PE ratio of some 15x. I think current PE ratio is probably around 20x, off the top of my head.
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