With a viable Covid-19 vaccine seemingly just around the corner, global investors are increasingly switching out of growth plays towards value stocks. Despite signs of optimism in market laggards, UOB KayHian analyst Adrian Loh urges investors to buy into blue chips with strong financials and dividend-paying ability.
The worst performing stocks on the Straits Times Index (STI) experienced an average 13% w-o-w gain return in the past week, beating the STI’s 4% gain. These are Sembcorp Marine (SMM), ARA Hospitality Trust (ARA HTrust), Singapore Press Holdings (SPH), Frasers Hospitality Trust and Bumitama. Loh notes that their improved share prices mask the fact that a number of these counters will likely remain in the financial doldrums even if a substantive economic recovery takes hold in 2021.
SEE:STI up 0.71% following better-than-expected FY2020 GDP growth
“As shown on the RHS chart, some of the share price movements in the past few weeks have resulted in a number of stocks being firmly embedded in the overbought territory - “overbought” being defined as current share prices being at a premium to our fair value or target price,” says UOB KayHian analyst Adrian Loh. He sees the main culprits as being SMM, SIA Engineering (SIAEC), SATS, CDL Hospitality Trust (CDLHT) and ARA HTrust.
All these counters are from sectors badly hit by the Covid-19 pandemic, with signs of future normalcy considered an upside for their future prospects. Loh therefore sees them as potentially benefiting the most from a “faster-than-expected economic recovery”.
Outperformance by market stragglers has not meant that the best performing stocks since March 20 have given up their gains. Sembcorp Industries, CDL Hospitality Trust, Far East Hospitality Trust, SATS and Genting remain in the lead, averaging a 96% return against the STI’s 31% return over the same period. REITs have been especially successful, taking up 22 out of the top 20 stocks on the STI.
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“There are less overbought stocks in the small/mid-cap sector with only seven stocks trading at a premium to our fair value or target price. These are Jumbo, Micro Mechanics, UnUsUal, Penguin International, BRC Asia, iFAST and Valuetronics,” Loh observes.
The UOB KayHian analyst highlights ten stocks in the broker’s large-cap coverage universe with the highest upside to target prices. The list is diversified across REITs, financials, healthcare, plantations and tech sectors. These are Frasers Capital Trust, Keppel REIT, OCBC, First Resources, Wilmar International, Yangzijiang, Venture Corp, Raffles Medical, Ascendas REIT and Keppel Corp.
As of 2.12pm, the Straits Times Index is trading 0.18% higher at $2,862.55.
