Some investors prefer to use a top-down approach to find suitable investment candidates.
“Top-down” refers to the search for industries or sectors and then zooming in on the companies with them.
This method can be effective if your search drills down into beaten-down sectors that investors are pessimistic about.
By going through the stocks within such sectors, you may find attractive bargains that you can potentially add into your investment portfolio.
Here are three sectors where investors can sift through bargain stocks.
REITs
The REIT sector has been in turmoil since interest rates were raised at their fastest pace in history back in 2022.
Coupled with soaring inflation, many REITs came under pressure and saw their distributable income shrink because of higher operating and finance expenses.
Distributable income also declined in tandem, causing distribution per unit (DPU) to fall.
Investors started to shun the sector because of its persistent underperformance which has continued into 2025.
Several REITs such as Frasers Logistics & Commercial Trust (SGX: BUOU) and Mapletree Pan Asia Commercial Trust (SGX: N2IU) also saw their share prices hit their 52-week lows last month.
The good news is that inflation in the US is cooling, which may pave the way for further interest rate cuts by the US Federal Reserve after last year’s one-percentage-point reduction.
Several REITs also turned in resilient performances by reporting a year-on-year rise in DPU.
CapitaLand Integrated Commercial Trust (SGX: C38U) saw its DPU rise 1.2% year on year to S$0.1088 for 2024 while Keppel DC REIT’s (SGX: AJBU) DPU inched up 0.7% year on year to S$0.09451.
The sector’s gradual recover and the presence of several REITs that continued to increase their distributions could make the sector a fertile hunting ground for bargains.
Semiconductors
Reading the news about the boom in artificial intelligence (AI) and seeing the success of GPU manufacturer Nvidia (NASDAQ: NVDA) may give the impression that the semiconductor industry is booming.
However, the truth is more nuanced.
The boom in generative AI only impacted a specific area of the semiconductor sector, namely higher-end chips used in graphics processing units (GPUs).
For 2023, the Semiconductor Industry Association (SIA) reported that global semiconductor industry sales fell by 8.2% year on year to US$526.8 billion.
This decline was because of the slowdown in demand as the COVID-19 surge tailed off post-2022.
As a result, many companies that support the semiconductor sector reported weaker earnings.
This trend may be about to reverse, though.
Micro-Mechanics (Holdings) (SGX: 5DD), a manufacturer of semiconductor parts and consumables, saw revenue rise 10.8% year on year to S$32.5 million for the first half of fiscal 2025 (1H FY2025) ending 31 December 2024.
Net profit for the period surged 46.6% year on year to S$6 million.
The World Semiconductor Trade Statistics (WSTS) has revised its 2024 projection for the semiconductor market and expects a 19% year-on-year growth.
For 2025, WSTS predicts broad-based growth for the semiconductor sector with an 11.2% year on year increase to US$697 billion.
Property brokerages
The third sector that is under pressure is the property brokerage industry.
The Singapore government has introduced four sets of property cooling measures since December 2021 to moderate the rise in housing prices.
The most recent round, implemented in August 2024, tightened the maximum loan that home buyers can take from the HDB.
The two listed property brokerages have borne the brunt of these measures.
PropNex (SGX: OYY) saw its revenue for 2024 dip 6.6% year on year to S$783 million while APAC Realty (SGX: CLN) saw revenue slip 0.7% year on year to S$561 million.
PropNex’s net profit fell by 14.4% year on year to S$40.9 million and APAC Realty’s net profit tumbled 38.8% year on year to S$7.2 million.
PropNex, however, has signalled a more favourable outlook for 2025.
There was a surge in private homes transacted in the fourth quarter of 2024 and developers are expected to launch around 13,000 new units (including executive condominiums), nearly doubling the supply from 2024.
This slate of new releases could be the catalyst for a recovery for the property brokerage sector.
APAC Realty also points to Singapore’s strong fundamentals which should support housing prices and attract more buyers to invest in investment properties.
Get Smart: An eye for quality
The above are three sectors that have fallen on tough times.
Investors can scour through these industries to look for gems that are trading at attractive valuations.
It’s crucial that you keep an eye out for quality so that when the rebound does occur, you can ride the wave to better results.
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Disclosure: Royston Yang owns shares of Keppel DC REIT, Micro-Mechanics, and Frasers Logistics & Commercial Trust.
