Most investors love blue chips for its brand name and stability. But some do not know when is a good price to enter.
Here’s one method which I find it quite useful – looking at the historical ranges of financial metrics to determine the highs and the lows.
P/E ratio is perhaps the most commonly known metric and a stock can be considered cheap when it is trading below its average P/E.
But P/E doesn’t tell us the quality of a business or the ability of the management. It merely tells us if it is cheap or expensive relative to its past. Hence, please do more research and thinking instead of relying on just one metric to invest. No one does that, right?
I used Tiger Brokers charts to run through the P/E ranges for the 30 Straits Times Index (STI) components and found 6 of them were trading below their average P/Es.
Dairy Farm (SGX:D01)
- Average PE = 22.66
- Current PE = 21.55
- Discount from average PE = 5%
I did an analysis for Dairy Farm in this post. I believe it will take a longer time for Dairy Farm to turn around its supermarket business which has faltered for years. Its undervalued share price is probably justified by the uncertainty of turning the ship around.
Wilmar (SGX:F34)
- Average PE = 14.7
- Current PE = 13.94
- Discount from average PE = 5%
I have written about Wilmar prior to the spinning off of Yihai Kerry Arowana. The listing of the subsidiary has been successful and Wilmar has announced a special dividend amounting to 15% of the IPO proceeds to the shareholders. The final amount will be disclosed as part of the full year results next year.
It has been a great year for Wilmar as the pandemic boosted its sales – 12% revenue growth in the first half of 2020 and another 19% in 3Q, compared to the same period last year.
SGX (SGX:S68)
- Average PE = 22.88
- Current PE = 20.83
- Discount from average PE = 9%
SGX has managed to grow its derivative trading business for the past few years. Adding to the good news, the equity market was also boosted by the pandemic this year. The stock market crash in March drew in a lot of interest from investors and their transaction volume ballooned.
Even though SGX share price has rose from $8 to $9, it is still trading at a cheap P/E ratio simply because its earnings has improved. SGX grew its 2H2020 revenue by 20% and its net profit by 27%.
Venture (SGX:V03)
- Average PE = 22.87
- Current PE = 18.37
- Discount from average PE = 20%
Venture had a superb year in 2017 where its net profits more than doubled. Even the CEO’s pay was pushed up to $12m, surpassing DBS CEO’s pay for that year.
The share price of Venture was bid up due to the exceptional results to a high of $25.98 before it crashed 50% as the hype subsided. The share price has recovered after Covid-19 and it has been regaining some of its lost revenue.
Yangzijiang (SGX:BS6)
- Average PE = 9.39
- Current PE = 7.27
- Discount from average PE = 23%
Yangzijiang is a Chinese shipbuilder which had a scare in 2019 when the founder, Ren Yuanlin, was summoned to Beijing for a probe that lasted 4 months. He subsequently return to his post but only to announce his resignation in Apr 2020.
Yangzijiang was one of the better performing shipbuilder as it managed to grow its revenue every year in the last 5 years. But few could escape the Covid-19 carnage and Yangzijiang saw a 34% reduction in its net profit (but still profitable) for 1H2020. It is still commendable given that this is a tough industry to be in.
Jardine Cycle & Carriage (SGX:C07)
- Average PE = 13.87
- Current PE = 7.67
- Discount from average PE = 45%
Jardine C&C is the cheapest blue chip on this list, because it trades furthest from the average P/E. It is a major automotive dealer in Southeast Asia and the business has been adversely affected by Covid-19. Travelling is curtailed and demand for automotive fell drastically.
This makes a good value play if you believe that the economy would go back to normal once the vaccination has completed. Financial blogger, Brian Halim, has his largest portfolio position in Jardine C&C at the time of writing.
Blue Chips Cheap
Historical P/E ranges can be useful to determine if a stock is cheap or expensive relative to its trading ranges.
I have found 6 blue chip stocks trading below their average P/E. But I cautioned about the need to conduct more evaluation and analysis on these stocks because no one should just buy a stock based on one metric alone.
Moreover, not all of these stocks were cheap because their share prices have dipped. For example, Wilmar and SGX have seen strong earnings growth that has resulted in lower P/E ratios.
You can sign up for Tiger Brokers account here if you’d like to use their P/E ratio plots.