undervalued stocks singapore

Your Comprehensive Guide to Investing in Undervalued Stocks in Singapore

Is investing in stocks one of your resolutions this year? You have come to the right place. Investing in stocks is one of the easiest and the least expensive ways to start your investment journey. When you invest in stocks, you get a stake in the company’s profit in the future, depending on your shares.

Many stock investing strategies are currently being marketed by different self-proclaimed financial gurus, but you don’t need either. You do not need to master the complex investing technique and technical analysis.

You can open an account with a low-cost brokerage firm and start investing. Most of them have a vast range of investments that match your risk appetite and budget. Any person can quickly begin trading there. So do not second guess yourself; start trading as soon as possible.

What Are Stocks?

Also known as equities, stocks are security representing the ownership of part of a corporation. Stocks entitle the owner of the stocks to a proportion of the company’s assets and the profits based on the number of stocks they own. A unit of a stock is known as a share.

Stocks or equities are bought or sold on the stock exchanges, but there can be private buys and sells. They make up the primary foundation for most investor portfolios. Stock transactions have to follow the government guidelines and regulations meant to protect investors from fraudulent practices.

 

Should I Invest in Stocks?

The simple answer is yes.

Investing in stocks is one of the best ways to hedge your money against inflation rather than have it sitting idle in your bank account. Shares are the most common investment choice for most investors and generate higher returns than saving. Investing in shares comes with several advantages, including:

1. Increase In Value Over Time

Capital growth is one of the main advantages of investing in shares. When you buy shares in a company, you acquire part of the business. This means as the business grows, its revenue and decent returns grow too. When this happens, the value of your shares also increases as well. When the certain price of the share increase over time, that is the capital growth that you earn.

2. Dividend Yield from the Shares

Another way shares can generate high returns is through dividend yields. Some companies choose to re-invest their profits, while some distribute it among their shareholders as dividend payouts.

3. Shares Diversify Your Portfolio

Share lets you invest in different types of companies in small amounts. There are over 700 companies listed on the Singapore stock exchange, and you can easily invest in more than one company as long as you have the funds to. This allows you to spread your risks since you do not have all your money tied to one company.

4. Shares are Highly Liquid

You can quickly sell and buy shares in flexible amounts. If you need quick cash, you can quickly sell your shares through online trading platforms or call your representative.

What Do I Need to Consider in Investing in Stocks?

Investing in stocks can be pretty rewarding in the long run when you make the right choices. Here are some key factors to consider when you want to start investing in shares:

1. The Expected Return

Before investing in equities, you have to consider the expected return first. The expected return is in the interest, dividends, or capital gain or loss. To maximize your investment, you have first to understand the time frame of your investment and establish whether it is short-term or long-term.

Long-term and short-term investments are taxed differently. This way, you will know how long you will need for the investment to mature.

You must also monitor your investment portfolio often since the financial markets keep changing. Additionally, you will also need to quality the company’s management and track record since they will affect the nature of your returns.

2. Liquidity of the Shares

Liquidity refers to how fast your investment can be converted to money. Liquidity can be through the sale of the shares or maturity of your shares after a particular lock-in period.

3. Volatility

Volatility refers to the pace of fluctuations that your investment can endure. The higher the volatility, the higher risk on your investment hence the higher risk of profit or loss.

4. The Type of Stocks

Most people want to invest in blue-chip stocks since they already have a proven track record, but in some cases, they might be too expensive for a beginner investor. You might want to consider undervalued stocks.

There are several reasons why a stock might be considered undervalued. Some of the reasons a stock may be regarded as undervalued include changes in the market, cyclical fluctuations, sudden bad news, and misjudged results where it may be predicted not to perform.

Before buying your first stocks. Do check out a guide on how to invest in Singapore stocks.

What are Undervalued Stocks, and Should I Invest in Them?

Undervalued stocks are those stocks that have a lower price than their actual value. As we have mentioned earlier, stocks can be undervalued for different reasons, including market crashes, recognizability of the company, and negative press. Unlike blue-chip stocks that have consistent performance, undervalued shares have constant price fluctuations.

Undervalued stock rides on the fundamental assumption that the market prices will correct over time and reflect the asset’s actual value, hence creating an opportunity for an upward trend in profit. Finding an undervalued stock is not about spotting cheap stock; it is about finding quality stocks priced under their fair value. Quality stock will rise over time, unlike regular cheap stock and blue-chip stocks, whose prices are almost always predictable.

Reasons to Invest in an Undervalued Stock

Some of the reasons why you should consider value investing:

  • The share prices of the undervalued shares will return to their original value over time, and you will be assured of profits.
  • Undervalued shares are low risk, and they have the potential of attaining their intrinsic value.
  • It allows you to purchase shares from promising or well-established companies at a lower price.

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7 Best Undervalued Stocks in Singapore to Invest In

1. Jardine Cycle & Carriage Ltd (SGX: C07)

Listed on the Singapore exchange, Jardine Cycle & Carriage Ltd is a large corporation that aims to expand in Singapore through investments in the best-performing businesses that lean towards urbanization and new consumer trends. The corporation has a considerable stake in Siam City Cement from Thailand, Dairy Farm International, CDL Hospitality Trusts, Astra International, Vinamilk, and Indonesia’s most significant motor companies. Dairy Farm International was hit the hardest during the pandemic, which drove down its share price.

2. Keppel Corporation (SGX: BN4)

Keppel Corporation was founded in 1968 and is a blue-chip stocks company on the Straits Time Index. Its main lines of business include property investments, infrastructure, and the offshore and marine industry. The marine and offshore segment of the company is involved in construction, repair, and ship applications like shipbuilding and conversions and repair.

3. City Developments Limited (SGX: C09)

City Developments Limited is among the largest companies in Singapore with a vast network covering over 29 countries with over 106 locations. The corporation has stakes in shopping malls, residences, hotels, offices, and apartments. 48% of its business is from Singapore,16% from the US, 13% for the UK, 4% from China, and the rest from other countries.

4. Hongkong Land Holdings Ltd (SGX: H78)

Founded in 1889, Hongkong Land Holdings Ltd is a property investment management company with holdings in Asian countries. It is under Matheson Holdings Ltd (SGX: J36). Its revenue mainly comes from property sales, the services industry, and rental income. Honk Kong Land Holdings also has land investments and developmental properties.

5. UOL Group Limited (SGX: U14)

Listed in the Straits Times Index, UOL Group Limited currently has a share price of S$7.26 with a P/B ratio of 0.601, making it look like it is undervalued. With over 50 years in the service and hotel industry, the company is said to have a higher value than stated.

6. CapitaLand (SGX: C31)

Also listed on the Straits Times Index, Capital land is one of Asia’s largest real estate companies. The company also has shares in several REITs on the SGX. Some of the REITs include CapitaLand Mall Trust (SGX: C38U), Ascendas Real Investment Trust (SGX: A17U), and CapitaLand Commercial Trust (SGX: C61U).

7. Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6)

Founded in 1956, Yangzijiang Shipbuilding Holdings Ltd is one of the largest shipping companies with a significant stake in China. It has 5 essential shipyards located along the Yangtze River in Jiangsu province in China. The company makes large commercial vessels, including large counter ships and bulk carriers.

Here is a summary of the best-undervalued stocks on the Singapore exchange regulated by the monetary authority:

Stock Name Ticker Share Price Price-to-Book Ratio(P/B) Dividend Yield
Jardine Cycle & Carriage Ltd SGX: C07 S$21.18 0.86 3.30 %
Keppel Corporation SGX: BN4 S$5.90 0.80 5.59%
City Developments Limited SGX: C09 S$7.14 0.88 0.98%
HongKong Land Holdings Ltd  SGX: H78 S$5.59 0.37 3.99%
UOL Group Limited  SGX: U14 S$7.26 0.601 4.18%
CapitaLand SGX: C31 S$3.48 0.8299 5.18%
Yangzijiang Shipbuilding Holdings Ltd  SGX: BS6 S$1.32 0.7 3.41%

 

Related Questions

How Can You Spot Undervalued Shares?

Here are the different factors used by traders to spot undervalued shares:

1. Price-to-Earnings Ratio (P/E)

The P/E ratio is one of the best measures of a company’s value. This ratio shows how much you could spend to make $1 in profit. A company with a low P/E ratio could mean that it is undervalued since it is calculated by dividing the price per share by earnings per share (EPS). On the other hand, EPS is calculated by dividing the company’s profit by the number of shares issued.

2. Return on Equity (ROE)

The Return on Equity of a company is its profitability against its equity. It is calculated by dividing the net income by shareholder equity. If a company has a high ROE, it means that the company’s shares might be undervalued. It means that the company is generating a lot of income compared to the amount of shareholder investment.

3. Debt-Equity Ratio (D/E)

The debt-equity ratio of a company measures the debt against its assets. If a company has a high D/E ratio, it gets most of its funding from lending rather than its shareholders. It is important to note that this does not always mean undervaluing the company. The D/E ratio is calculated by dividing liabilities by stockholder equities.

4. Earnings Yield

Earnings Yield is the EPS divided by the share prices. Traders consider a stock undervalued if the earnings yield is higher than the average interest rate the government pays when borrowing money.

5. Current Ratio

The current ratio is a company’s measure to pay off its debts. It’s often calculated by dividing the assets by the company’s liabilities. If a company has a current ratio of 1, it can adequately cover its liabilities with the available assets. The lower the current ratio, the more the share price will drop, becoming undervalued.

6. Dividend Payout Ratio

Dividend Yield refers to the company’s annual portion of the profit paid out to its shareholders compared to its share prices. The dividend yield is calculated by dividing the annual dividend and the current share prices. Investors in Value investing prefer companies with solid yields since it means they are more stable and have substantial profits.

7. Price to Book Ratio (PB)

The PB ratio is used to assess the current market price against its book value. A company’s book value refers to the difference between the assets and liabilities divided by the number of shares issued. The market price per share calculates the P/B ratio by the book value per share. Stock is undervalued when the P/B ratio is lower than 1.

8. Price-Earnings to Growth Ratio (PEG)

The PEG ratio is the P/E ratio compared to the percentage growth in annual EPS. A company is considered undervalued if it has solid earnings and low PEG ratios. PEG ratio is calculated by dividing the P/E ratio by the percentage growth in annual EPS.

Why Are Some Company’s Stocks Undervalued?

Some of the reasons why stocks become undervalued include:

  • Bad News – Some stocks can become undervalued due to negative press or negative political, economic, and social changes.
  • Market Changes – Market corrections and crashes can cause a company’s share price to drop.
  • Misjudged Results – Share prices may drop if they do not perform as predicted by analysts.
  • Cyclical Fluctuations – Some stocks perform poorly in certain quarters, which affects the share prices.

That is about the undervalued stocks, now find out more on the best blue chip stocks that are worth investing in Singapore right now!

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Conclusion

Undervalued stocks are shares or equities lower than their actual market value. These stocks are undervalued for several reasons, including market crashes, fake news, and company recognizability. Investors prefer to invest in these stocks because their stock prices will increase in value in time, hence making a profit.

Key Takeaways

  • The share price of undervalued shares always returns to their intrinsic value hence why profits are always assured.
  • Undervalued shares are low-risk investments.
  • Investing in undervalued shares presents an opportunity to invest in well-established companies at a lower price.

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