Deep value stocks occasionally arise out of markets such as Singapore. Comparatively, I would say that the Straits Times Index is cheaper than the US at the time of this writing. That is also the reason why I have mentioned before that US investors really should look beyond their domestic market. The Straits Times Index has a price to earnings ratio of 10.79 as this article is being written. On the other hand, the S&P 500 has a price to earnings ratio of 22.13. Based on a bird’s eye view of the valuation metrics that we speak about here, it stands to reason that you can find some attractive small and mid cap stocks that you may not find in your home country.
So following the line of reasoning, why not invest in a market that has a valuation that implies greater returns in the future? And at the same time, avoid home country bias towards investing. According to Meb Faber, most US investors have 80% of their portfolio in the US market. The expected annualised returns for Singapore going forward is 18.2% while it is negative 0.1% for the US. These numbers were gotten from Gurufocus. And they are based on the reversal to mean valuation, the dividend yield and the economic growth.
Again, another reason to consider international investing. But in this article, I want to provide a case study of a company in which I cashed out of in a small way. Not overly great in terms of returns but nonetheless provided me with some returns in a falling market. The company in question is a company from Singapore called Sin Ghee Huat.
Sin Ghee Huat Corp Ltd was a steel supplier listed on the Singapore stock exchange. With cash on hand of $19 million and a market capitalisation of $41.07 million, this prompted a further look. For one, I know that the industry it was in was affected by the fall in oil prices. Opportunities arise when investors sense danger and cause a stock sell off. As I have mentioned before, the sell offs are usually exaggerated to the downside. But in the case of Sin Ghee Huat, its stock price was a bit of a slow mover. There was little analyst coverage and the company had low liquidity. For the record, I invested in Sin Ghee Huat and others like Sin Ghee Huat as placeholders for cash. On a basket basis, I was likely to get more than my money’s worth back, even though the liquidity was low.
The company had a net current asset value of $75 million and paid consistent dividends. The current ratio was 26, had no debt and the price to net current asset value was 55%.
The average income over the last 6 years was $3.73 million and after netting off cash, the price paid for the company at a market capitalisation of $41.07 million was 3.23 times the average net earnings for the last 6 years. I thought that was great. But the problem with such stocks is that the liquidity was low and I didn’t expect much to happen in terms of stock price movement. I saw only a 20% – 30% upside. In order for it to trade at levels significantly at 18 cents, which was my purchase price, the company would have to hike its dividend payout which was unlikely in my opinion at that time. The company had a policy of paying out 50% of its profits as dividends. In 2015 alone, the company paid out 90% of its profits and hence, the dividend cover was low.
Considering that oil prices had recovered slightly, the worse may be over for Sin Ghee Huat. At 18 cents per share, the company was trading near an all time low.
|Dividend per share in cents||2||2||1.8||1.5||1.5|
I thought at 46% of book value with some dividends being paid potentially soon enough, the company may be paying me to wait to hold onto it. In any case, it was not a hard decision. I was ready to sell when I could recycle my capital.
Source : Google
Eventually, the stock price recovered to around 25 cents and I promptly sold out at 25.5 cents. If you are interested in better in depth case studies, my books have numerous case studies written about net current asset value investing and/or deep value investing. When I was starting out investing, personally, I wanted to look up as many case studies as possible. Case studies and reverse engineering some of the investments of the best investors have helped me to make sense of investing. That is one of the reasons why I decided to write a few books on net current asset value investing. They are case study rich and I hope it will shed some light in your investing journey.
Thank you for reading! Be blessed with prosperity , health and happiness!
These books which I have written are case study driven and discuss strategies, mindsets and situational approaches to employing the net current asset value strategy.
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- Investing research of deep value stocks