31 March 2017 [Motley] These Are Some of The Cheapest Stocks in Singapore Currently
I have a habit of looking at how cheap or expensive the stock market is at the start of every month. One way I do so is to determine the number of net-net stocks there are in Singapore’s market.
A net-net stock is a stock with a market capitalisation that is lower than its net current asset value. The net current asset value is a simple financial number that can be calculated with the following formula:
Net current asset value = Total current assets minus total liabilities
Theoretically, a net-net stock is a fantastic bargain. That’s because investors can get a discount on the company’s current assets (assets such as cash and inventory) net of all its liabilities. Moreover, the company’s fixed assets (assets such as properties, factories, and equipment etc.) are thrown into the fray for free.
The logic follows that if a large number of net-net stocks can be found in Singapore’s market, then stocks would likely be really cheap at that point in time.
Now, I had stressed the word “theoretically” earlier because net-net stocks are often companies that are in serious trouble and/or have horrible business economics. This means that investors in them are also at risk of seeing their capital evaporate if things continue heading south.
That’s one reason why diversification is important. The legendary Benjamin Graham, who liked to invest in net-net stocks when he was investing professionally, tried to mitigate risks by diversifying widely amongst net-net stocks.
I thought it would be interesting and useful to share a list of some of the net-net stocks that popped up when I did my latest exercise of assessing the state of the market.
I decided to come up with three lists: 1) the 10 net-net stocks that have the lowest market-cap-to-net-current-asset-value ratio; 2) the 10 net-net stocks with the largest market caps, and 3) the 10 largest net-net stocks that have positive net income over the last 12 months as well as more cash than debt on their balance sheets.
Here are the 10 stocks in the first list: Universal Resource and Services Ltd (SGX: BGO), China Haida Ltd (SGX: C92), China Taisan Tech Group Holdings Ltd (SGX: AZW), Ace Achieve Infocom Limited (SGX: A75), Full Apex (Holdings) Ltd (SGX: BTY), Matex International Ltd (SGX: M15), China Sports International Limited (SGX: FQ8), C&G Environmental Protection Holdings Ltd (SGX: D79), Nam Cheong Ltd (SGX: N4E), and Cacola Furniture International Limited (SGX: D2U).
Source: S&P Global Market Intelligence
Here are the 10 stocks in the second list: Noble Group Limited (SGX: N21), UOB-Kay Hian Holdings Limited (SGX: U10), Hong Leong Asia Ltd (SGX: H22), Kingboard Copper Foil Holdings Limited (SGX: K14), Hanwell Holdings Ltd (SGX: DM0), Baker Technology Ltd (SGX: BTP), Sing Holdings Limited (SGX: 5IC), Cortina Holdings Limited (SGX: C41), Hengxin Technology Ltd (SGX: I85), and Tiong Seng Holdings Limited (SGX: BFI)
Source: S&P Global Market Intelligence
And finally, here are the stocks in the third list: Noble, Kingboard Copper Foil, Hanwell, Hengxin, Nobel Deisgn (SGX: 547), Memtech International (SGX: BOL), Nam Lee (SGX: G0I), Asia Enterprise (SGX: A55), CDW Holding (SGX: BXE), and mDR Limited (SGX: A27).
Source: S&P Global Market Intelligence
I have to be clear that I’m not recommending that investors buy or sell any of the stocks seen here. My purpose here is simply to share the identities of some of Singapore’s cheapest stocks right now. Make of them what you will.