With a bear market in full swing now, many stocks have been sold down to levels that may be considered cheap.
As earnings and cash flow have been impacted by an impending economic slowdown, valuations have also fallen in tandem, dragging share prices ever lower.
While the decline can be justified to an extent, there are many cases where investors have thrown out the baby along with the bathwater.
Blue-chip companies with long track records and strong franchises have tumbled, along with smaller, weaker companies. The onslaught has been merciless and has left almost no company untouched.
Amidst the carnage, we pick out three stocks that offer great value. These companies and businesses should be able to pick themselves back up after the crisis has passed. However, it is anybody’s guess as to how long this crisis might last.
Frasers Logistics and Industrial Trust, or FLT, is a real estate investment trust (REIT) with a portfolio of 93 logistics and industrial properties. FLT’s portfolio is worth around A$3.6 billion, with 62 properties located in Australia and the remaining 29 in both Germany (24) and The Netherlands (5).
The REIT has stable, income-generating properties with 100% occupancy and a weighted average lease expiry of 6.23 years (as of 31 December 2019). 93.2% of the properties are on either freehold or long-term leasehold tenure, offering strong certainty of rental income.
While Covid-19 may certainly cause financial stress among some of FLT’s tenants, note that these are all blue-chip clients such as BMW, Techtronic Industries (SEHK: 669) and Bosch.
The REIT paid out a distribution per unit (DPU) of S$0.07 in the fiscal year 2019 (ended 30 September 2019).
At a share price of S$0.68, this translates to a dividend yield of around 10.3%. FLT is also slated to conclude a merger with Frasers Commercial Trust (SGX: ND8U) that had been approved by unitholders last week.
Valuetronics is an electronic manufacturing service (EMS) provider that provides design and manufacturing services for electronic components to the consumer electronics and automobile industries.
The group had reported a decent set of earnings for its first-half fiscal year 2020 (it has a 31 March year-end), with revenue dipping slightly but net profit surging 26.3% year-on-year.
The Covid-19 outbreak has resulted in the closure of the group’s factories in Huizhou, China since January 2020, but they have since reopened and resumed production in an announcement posted on 19 February.
However, due to the implementation of lockdown and quarantine measures by the Chinese authorities, Valuetronics has reported that revenue for the half-year ended 31 March 2020 will decline year-on-year.
This is a temporary setback for the group, and it should be able to mitigate the impact of supply chain disruptions as it has shifted some manufacturing to Vietnam.
Furthermore, Valuetronics had HK$1.02 billion in cash as of 30 September 2019 and no debt. This should provide a strong war chest to see it through these tough times. The shares are trading at just 5.1 times price-earnings.
SATS Ltd is a leading provider of gateway services and food solutions. Its clientele includes major airlines as well as food chains such as Haidilao International Holding Ltd (SEHK: 6862).
With air travel severely disrupted due to lockdowns and travel restrictions imposed in light of Covid-19, SATS is poised to report a significant decline in both revenue and net profit.
Dividends may also get cut.
However, the group continues to have a leading market share in the airline catering market, and its structural advantage remains even though it may be facing short-term headwinds.
Shares of SATS have plunged 44% year to date, and investors are pricing in a scenario where air travel is negatively impacted for the foreseeable future.
But we believe SATS will be able to grow and thrive after the crisis has passed. SATS’ board of directors and executives have also announced a pay cut ranging from 5% to 15% to reduce overhead costs.
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Disclaimer: Royston Yang owns shares in SATS Ltd and Frasers Logistics and Industrial Trust.