Investing can sometimes be challenging, especially when there is a multitude of variables to consider, ranging from personal finances to macroeconomic issues. The Edge Singapore started its recommendation of stock picks to help readers better understand the various type of stocks that investors of varying profiles can buy, hold and sell.
In 2020, our portfolio of 10 stocks outperformed all benchmarks with a total return of 98.1%. This year, we recommended 10 stocks, consisting of new stock picks and some from the previous year’s portfolio. To recap, our 2021 portfolio started with returns from the previous year’s portfolio. The initial quantity purchased for each of the 10 stocks is shown in Table 1, where the allocation is as close to 10% per stock wherever possible. The portfolio inception date was on Jan 24, 2020, while the start date for the 2021 portfolio was on Feb 18.
Accounting for capital changes and dividends, and excluding exchange rate fluctuations, our 2021 portfolio has performed reasonably well for the two-and-a-half-month period of Feb 18 to April 30. Chart 1 shows the individual performance of each of the stocks for the 2021 portfolio.
The top performer was Ted Baker with a whopping 74.9% gain while the worst performer was CrowdStrike Holdings with a 12.8% loss. Despite having four losers in the portfolio, the overall portfolio was up 10.2% for this period. Chart 2 shows the overall performance of the portfolio against other benchmarks, where it surpassed all except our very own Straits Times Index.
However, due to a low-base effect, the Straits Times Index, which underperformed in 2020, appears to be the top performer for this period. Chart 3 shows the portfolio’s performance against other benchmarks since the inception date of Jan 24 2020, where it is comfortably outperforming every other benchmark with an overall return of 117.1%.
Every stock in our portfolio has undergone rigorous research to fit the model of a balanced portfolio that caters to the different type of investors ranging from risk-averse investors to risk-loving investors. To reiterate, we previously mentioned that we would add, reduce, buy, sell or hold stocks based on our view of each of the companies and market conditions.
As it stands, we think this portfolio does not require tweaking, or at least for the time being. Hence, we will maintain the holdings of stocks as illustrated in Table 1. We will update readers if the allocation of the portfolio is to be modified in any way.
Briefly, the individual updates for the stocks are explained in the paragraphs below, from 2021’s worst performer to the best performer for the two-and-a-half-month period of Feb 18 to April 30.
CrowdStrike Holdings
CrowdStrike Holdings was the worst performer with a total return of –12.8% for the period. CrowdStrike is a leader in the cloud cybersecurity space that provides endpoint security, threat intelligence, workload protection, and cyber-attack response services. The company performed well for its most recent 4QFY2021 Jan 31 with record operating and free cash flow. The company’s annual recurring revenue, which is a gauge for the company’s business value, reached a new record high, with a significant increase in revenue from the previous year. Net losses were also reduced, and the company beat most analyst expectations for the period. Our case for CrowdStrike remains, as we think the company has much room for growth in value and price in a burgeoning industry. We would like to reiterate our in-house valuation for this counter of having the potential to offer over 25% returns from our purchase price, over the next nine to 12 months.
Tianneng Power International
Tianneng Power International was the second-largest loser with a total return of –10.8% for the period. Tianneng is a leader in the Chinese new energy battery industry that focuses on the manufacturing and provision of services of environmentally-friendly products, particularly batteries for electric vehicles. The company reported good results for its FY2020 financial period as revenue and net profits increased by double digits from FY2019. The company also beat most analyst expectations and has been executing its strategy of digitalising its manufacturing and is supported by momentum from the government’s push for becoming more environmentally friendly. Our case for Tianneng is further reinforced with its recent good set of results, as we think the company is in the right industry manufacturing the right products for the right geographical segment. We would like to reiterate our in-house valuation for this company, as we think it is a high-growth company worth at least 30% above its current trading price.
SAN Holdings
SAN Holdings was among the four losers in the portfolio with a total return of –5.8% for the period. SAN is the largest funeral services provider in Japan and leases real estate, office spaces and parking lots apart from its main business of providing bereavement services. SAN will be reporting its FY2021 ended March results soon and we expect it to perform relatively well compared to the previous period, which was poor due to the pandemic. Social movement restriction measures were one of the key problems pointed out by the company in its previous financial report, and the company has introduced new efforts such as remote funeral participation services and ramped up its online services for funerals to tackle the problem. Our case for the company remains despite the drop in share price, which is that SAN is an undervalued company that will recover over the short term and see stable growth over the long term. We would like to reiterate our in-house valuation of the company, that it has the potential to offer over 30% returns from our purchase price, over the next nine to 12 months.
Electronic Arts
Electronic Arts (EA) was the last of our losers in our 2021 portfolio with a total return of –3.5% for the period. Electronic Arts is a gaming bellwether stock that develops, publishes and distributes branded games and software for consoles, mobile devices and personal computers. EA will be reporting its full FY2021 results ended March, with management and analysts expecting the company to perform well relative to preceding periods for its full financial year and 4QFY2021. We think the impact of vaccination will not hinder the growth of the gaming industry which has shown strong growth even before the pandemic. Our case for the company remains as it is a company with strong financials that has a business model with low downside risks and high margins. We would like to reiterate our in-house valuation for this company as we think it is a growth company with the potential to appreciate at least 15% above our purchase price over the next nine to 12 months.
Vertex Pharmaceuticals
Vertex Pharmaceuticals was the smallest of our gainers in the 2021 portfolio with a total return of 4.0% for the period. Vertex is a biotechnology company that innovates and creates transformative medicines for people with serious diseases, where its area of expertise is cystic fibrosis. Vertex reported a solid set of results for its 1QFY2021 period ended March as it beat most analyst expectations. Revenue and diluted net income were up by double digits compared to 1QFY2020 as the company was able to perform well for its cystic fibrosis products despite tailwinds from the pandemic. The pipeline for Vertex remains promising, and as such our thesis for the company remains — that Vertex is a healthcare play with a dominant moat and strong pipeline. We would like to reiterate our in-house valuation for this company as we think it is a company with a lot of potential to grow in value and is worth at least 20% above its current trading price.
Altria Group
Altria Group performed well in the 2021 portfolio for the period with a total return of 11.3%. Altria is a holding company of many wholly-owned large subsidiaries that manufacture and sell cigarettes, cigars, smokeless tobacco products and has significant stakes in companies that manufacture oral nicotine products and cannabis-related products. Though Altria’s revenue and earnings for 1QFY2021 ended March were down, management remains optimistic and believes the company is on track to deliver its business plans for the year. Our thesis for Altria is that it is a dividend player with the ability to pay attractive and consistent dividends over the medium term and its annualised dividend yield as at the latest reported quarter is a strong 7.2%. Though the company is close to its fair value based on our in-house valuations, it is still a great company to hold because its dividends are much more lucrative than the risk-free rate.
Intuitive Surgical
Intuitive Surgical was one of the better performers in the portfolio for the period with a total return of 12.7%. Intuitive Surgical is a healthcare company that develops, manufactures and offers robot-assisted surgical technology systems and solutions. Intuitive comfortably beat analyst expectations for its most recent 1QFY2021 ended March, where revenue and net income was up by double digits compared to the same period for the previous year. The company was able to sell more of its flagship product, as global demand for surgeries and procedures rose for the period. Our case for the company remains, as it a company with a profitable business model and strong competitive advantage. Over the long run, we believe Intuitive has much to gain from the shift of traditional manual surgeries to robot-assisted surgeries. We would like to reiterate our in-house valuation for this company as we think it is a solid growth company with the potential to appreciate over 15% from its current trading price over the next nine to 12 months.
Kier Group
Kier Group was one of the top three performers in our 2021 portfolio with a total return of 16.0% for the period. Kier Group is a leading construction and infrastructure services company in the United Kingdom. To recap, Kier Group is a turnaround play that we think has the potential to recover from its debt problem. The most recent 1HFY2021 ended December 2020 results showed that the company is progressing well despite pandemic-related problems. The company has returned to profitability for the period, compared to significant losses from the previous year’s comparable period. The company also is free cash flow positive, even after accounting for Covid-19-related impact. Kier is on track to achieve its revenue, margin and cash flow targets within the next two to three years and appears to be poised for a turnaround. We would like to reiterate that the company has the potential to give upwards of 30% from its current trading price over the next four to six fiscal quarters.
Deutsche Post
Deutsche Post was the second-best performer in the 2021 portfolio with a total return of 16.1% for the period. Deutsche Post which operates under the trade name Deutsche Post DHL Group (DPDHL) is a global logistics company that provides parcel and postal services, freight transport, supply chain management services and ecommerce logistics solutions. Deutsche Post reported its strongest ever first-quarter results in 1QFY2021 ended March and handily beat analyst expectations. Revenue and earnings grew significantly, while the company turned free cash flow positive from the previous year’s comparable period. Demand for logistics remains stronger than ever with the pandemic, and our thesis for the company remains. We think Deutsche Post is a well-established company with solid fundamentals in an industry that is expected to have high demand over the short and medium term. We would like to reiterate our in-house valuations for this company, and with the latest set of results, we think the company has the potential to offer at least 10% upside from its current trading price over the next nine to 12 months.
Ted Baker
Ted Baker was the top performer for our 2021 portfolio with a total return of 74.9% for the period. Ted Baker is a global lifestyle brand offering products in the fashion retail space. To recap, Ted Baker is a turnaround play that we believe can recover from significant tailwinds arising from the pandemic. Fashion retail is one of the more sensitive industries to the pandemic as it is a consumer discretionary industry. Ted Baker was adversely affected by this and thus changed its management and business approach to tackle the pandemic. The company will be reporting its earnings soon and has seen much progress over the past two months. The company appears to be on track to achieve its strategic goals, for example through the signing of new territory licence agreements with partners which ought to strengthen the brand. We would like to reiterate our view on this company, that it if can successfully turn around and tackle pandemic-related problems, which seems likely, it should have a further upside of over 25% from its current trading price.
Disclaimer: This is a private portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/ sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
