One effective method for making money in the stock market is to look for and buy undervalued stocks.
After you do so, all you need is patience as time allows the quality of the business to shine through.
The problem, however, lies with determining whether a stock is undervalued, or if it may represent a value trap.
Scouring through a list of 52-week lows is one helpful method, while another is to look at the company’s recent earnings and sentiment surrounding its stock.
Here is a look at three blue-chip businesses that could be undervalued.
DBS Group (SGX: D05)
DBS needs no introduction, being Singapore’s largest bank.
The group provides a comprehensive range of banking and investment services to both individuals and corporates.
Shares of the lender are trading 7% above their 52-week low as investors fret over a possible recession that will crimp lending activity.
The group has reported a robust set of numbers for its fiscal 2022’s first quarter, logging its second-highest net profit on record.
Higher interest rates translate to a better net interest margin for the bank and will help to lift its net interest income.
Apart from this tailwind, DBS’ Taiwan division should also receive a boost from the bank’s acquisition of Citigroup’s (NYSE: C) Taiwan consumer banking business earlier this year.
Investors can also look forward to the lender enjoying multiple streams of income from various business initiatives it took up.
One of these is Climate Impact X, a collaboration with Temasek Holdings, Standard Chartered Bank (LON: STAN) and Singapore Exchange Limited (SGX: S68) to set up a carbon exchange and marketplace to provide corporations with high-quality carbon credits.
The bank had also set up a digital exchange in late 2020 that has seen trading value topping S$1 billion in 2021.
These business initiatives and tailwinds should stand the bank in good stead even if the economy runs into turbulence in the coming quarters.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, is an industrial REIT with total assets under management (AUM) of S$8.8 billion as of 30 June 2022.
More than half of its AUM comprise data centres, while the remainder is made up of Hi-Tech buildings, business parks, and flatted factories.
MIT has demonstrated its resilience with its latest fiscal 2023’s first quarter (1Q2023) results.
Gross revenue surged 31% year on year to S$167.8 million while net property income (NPI) rose 24% year on year to S$129.9 million.
Distribution per unit crept up 4.2% year on year to S$0.0349.
The trailing 12-month distribution yield stands at 5.3% for the REIT.
Just a year ago, MIT was trading at a trailing distribution yield of 4.3% with its unit price close to a 52-week high.
The industrial REIT has a strong balance sheet that positions it well to pursue acquisition opportunities, with gearing at 38.4% with a low cost of debt of 2.5%.
The redevelopment of Kolam Ayer 2 cluster of three buildings is proceeding smoothly, with expected completions for the second half of this year and the first half of 2023.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT that owns 21 data centres across nine countries with an AUM of S$3.5 billion as of 30 June 2022.
The REIT is trading just a tad above its 52-week low of S$1.87 but has turned in a healthy financial report card for its fiscal 2022’s first half (1H2022).
Gross revenue inched up 0.3% year on year to S$135.5 million while NPI remained flat at S$123.2 million.
DPU, however, increased by 2.5% year on year to S$0.05049.
Keppel DC REIT had just strengthened its portfolio with the acquisition of a London data centre in the UK and followed this up with a DPU-accretive acquisition of two data centres in Guangdong, China.
Portfolio occupancy remains high at 98.2% and the REIT’s portfolio has a long weighted average lease expiry of 7.6 years, providing stability to rental income.
Aggregate leverage stood at 35.3% as of 30 June 2022, opening the REIT up for further yield-accretive acquisitions.
The data centre REIT still has more than S$2 billion worth of potential data centre acquisitions from its sponsor Keppel Corporation Limited (SGX: BN4).
In a recession…should you buy blue chip companies? Or will REITs be a better investment vehicle? These are questions every investor might ask today. And these are what we’ll be answering in our upcoming webinar “How to make money during a recession”. Come prepared as you migh walk away with insights that could make you even more money than during a bull market. Reserve a FREE seat here!
Disclaimer: Royston Yang owns shares of DBS Group, Singapore Exchange Limited, Mapletree Industrial Trust and Keppel DC REIT.