ComfortDelGro's stock price down. Should we BUY now?

This blog is going to be a bit more than just sharing the transcript for the video I made in response to ComfortDelgro's Q1 results.

I will also share my response to a reader's question in my YouTube channel at the end of this blog.

Anyway, to start, for readers who prefer reading to watching videos, here is the transcript of the said YouTube video first.

-------------------

I blogged about how re-allocating resources in an environment of higher inflation and rapidly increasing interest rates would be a prudent move many moons ago.

To that end, I reduced my investments in many investments in my portfolio, some of them drastically, using the freed-up capital to mostly increase my investments in OCBC and UOB.

Basically, if an investment paid very little in dividends or has shown that it could suspend dividends in a crisis, and had a very weak balance sheet, it would be a candidate for a haircut.

In the case of ComfortDelGro, I reduced my investment in the entity, but its strong balance sheet saved it from being reduced drastically to becoming a small investment in my portfolio, which was the case for Centurion Corporation.

I like to remind myself that Peter Lynch said all investments are good at the right price.

Very often, the market misprices stocks.

The common stock of ComfortDelGro has declined rather significantly in price in response to the latest newspaper headline.

Q1 profit falls 56.9%.

Although Q1 is usually seasonally weaker for the business, a 56.9% fall is screaming for attention.
ComfortDelGro mostly blamed higher cost pressure due to heightened inflation.

Labor shortage and a more competitive landscape were also contributory factors.

However, we want to keep things in perspective.

(Before I continue, if you changed your mind and decided you would like to listen to AK talking to himself, here is the video.)
 

ComfortDelGro has emerged from the pandemic with a stronger balance sheet.

In fact, its net cash position continues to grow.

Its net cash position has increased to $714 million from $653 million which we saw at the end of 2022.
ComfortDelGro is still a profitable business, although it saw a decline in profit in Q1.

All its business segments are showing improvement and with life going back to normal, things should continue to improve in all its markets, including China.

Since I brought up what Peter Lynch said, what is a good price to pay for the common stock of ComfortDelGro?

The last time I bought some was at $1.15 a share.

I thought that was a fair price to pay and I still feel that way now.

So, if we want to invest in ComfortDelGro for income, any price lower than $1.15 a share would be a pretty good price to me.

At $1.10, for example, without any special dividend, we would be looking at a dividend yield of about 4.2%.

Wait, didn't I say I reduced my investment in ComfortDelGro to increase my investments in OCBC and UOB last year?

Yes, I did but that does not mean the ComfortDelGro is no longer a decent investment for income, especially if the price is right.

Investing in ComfortDelGro today is to invest in a business that pays a 4% dividend yield even as it grows its cash position over time.

For sure, it doesn't have an exciting story to tell like the Singapore banks do.

Even to me, ComfortDelGro is pretty boring, but it isn't about to give me a heart attack either.

Investing in ComfortDelGro isn't all bad if we can get in at a good enough price, especially if all we want is decent passive income without having to worry about any equity fund raising by our investments.

All investments are good investments at the right price.

However, to be sure, it would also depend on what kind of an investor you are and what you want out of an investment.

Then, you would be able to decide whether ComfortDelGro would be a suitable addition to your investment portfolio.

I am sharing my response to a viewer's comment in my YouTube channel because I think some readers might have similar questions.

Question:

Why should we invest in businesses like ComfortDelGro and also REITs when banks look like better investments now?

My reply:

It would partly depend on a person's situation.

So, for a person who is already substantially invested in the banks and who is looking to diversify, investing in a non-cyclical business which pays a meaningful dividend and which has a strong balance sheet is not a bad idea.

This is especially when we remind ourselves that banking is a cyclical industry.

As for REITs, I also said in my blog that REITs which offer 5% or less in distribution yield are not attractive to me now especially when they are relatively highly leveraged.

Think north of 40% gearing level.

However, if we believe that a Fed pivot will happen by end of the year or in the new year, then, investing in REITs might not be a bad idea.

They will benefit if interest rates decline.

So, having some exposure to REITs isn't a bad thing per se.

Have some banks, some stocks like CDG and some REITs and we should win whichever way the wind blows. 😎

COMING SOON!

A YouTube Video on ST Engineering by AK Production House!

Related posts:
1. ComfortDelGro: Special dividend.

2. Reallocate as interest rate rises.