Top 5 resilient Singapore stocks to buy amid COVID-19 uncertainty [July 2020 Update]

[This is an updated post for this article which was first written back in March 2020 at the peak of the COVID-19 pandemic. I will be evaluating how the 5 stocks that I have picked have performed and whether one should continue to stick with these 5 Singapore Stocks to buy. I have also added in 2 new counters for consideration.]

The COVID-19 virus has devasted the stock market worldwide, EXCEPT for the country where it originated. Ironic as it might be, the China Shanghai Composite Stock Market Index is only down 1% since the start of the year. Comparatively, the Singapore Straits Times Index (STI) is down 4.4% YTD while the S&P500 Index is down 7% YTD.

[Update: The situation has dramatically changed. While the world continues to struggle against a possible second-wave of COVID-19 outbreak as economies re-opened, global stock markets have defied all-odds and staged an incredulous rebound, with the US market now a fraction away from its ALL-TIME high achieve back in Feb 2020. The China market has also rallied strongly in the last few days, propelling global stock markets along with it. There are concerns that current China’s stock market surge is fuelled by liquidity and not fundamentals, which can potentially end in tears, just like what happened in 2015. For now, the music continues to play and the world continues to jiggle along with it.]

Amid the COVID-19 uncertainty, which are the best COVID-19 resilient Singapore stocks to buy? We identified 5 counters which we believe are generally resilient to the current economic fall-out and should be kept on one’s watch-list for potential price weakness.

But before we get into stock-specific details, let me rant about the COVID-19 issue, using examples from notable firms/personnel. I also give my personal take, ending it off with an eerily accurate forecast by an American psychic named Sylvia Browne who foresaw this event 12 years ago.  

If you like what you read, do remember to share the article with your friends and families.

Sequoia Capital: A 2020 black swan event  

COVID-19 has been a major talking point, a 2020 black swan event, according to Sequoia Capital, where the team wrote a note urging their founders and CEO to brace for coming economic shocks. The last time they did that was back in 2008.  

A key takeaway:

“Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.”

Team Sequoia

Ray Dalio: Once in 100 years catastrophic events

We have got Ray Dalio chipping in, saying that “This is one of those once in 100 years catastrophic events”.

He believes that leveraged companies will be hit the hardest, causing substantial market dislocations and potentially leading to a significant downturn.

This is also the same man, who not too long ago, commented that “Cash is Trash” when the US indexes were trading close to record high. How quickly the tide has turned.

[Update: Ray Dalio was in the news recently, highlighting the fact that capital markets are no longer “free”. What he meant was that resources in the stock market are no longer allocated in the traditional way, one where strong companies continue to attract capital while weak companies face the prospect of insolvency. Due to central banks’ intervention, the rising “liquidity” tide has lifted all boats and they will need to continue to pump money into the economy, if not they risk a sinking ship scenario.]

Harvard Business Review: Expect major supply chain disruption in Mid-march

There was also a Harvard Business Review article, detailing that the worst is not over and how the coronavirus (COVID-19) spread could impact the global supply chain by mid-March.

The article discussed the significant impact CURRENT China has on the global market, representing approx. 16% of the world GDP, an almost four-fold increase compared to the SARS epidemic period in 2003 where the GDP of China then only represented 4.31% of the world GDP.

Not only does China account for a significantly larger pie of global GDP, but it is also the No. 1 outsourced HUB for companies looking to reduce supply chain costs, i.e. Apple.

According to the article analysis, most companies would have stocked up additional inventory for between two to five weeks prior to the onset of the Chinese New Year on January 25, allowing their inventory supply to last them until end-Feb/Mid-March at the most.  

Without additional supplies from China plants, the article suggests that there will be a spike in the temporary closures of assembly and manufacturing facilities in mid-March. One should, therefore, brace for a major effect on manufacturing worldwide, with the full-force to hit in two to three weeks- time and the downside impact could last for months.

Howard Marks Oaktree Capital: “If I said anything about the coronavirus, it would be nothing but a guess”

In his memo, re-known fund manager Howard Marks of Oaktree Capital said the above sentence that basically sums up the reality of the current situation. Nobody really knows how bad it is going to be.

He cited a couple of important lessons from this event. First, the catalyst for a recession or correction isn’t always foreseeable. Second, it can seemingly appear out of thin air, as this virus seems to have done, and third, the negative effect of an unforeseeable catalyst is likely greater when it collides with a market that reflects so much optimism that it is “priced for perfection”.

The third point seems to describe the US market prior to the fallout.

Howard Marks also highlighted some “illogicalities” which I summarized below:

1. Not appropriate to compare this event with 9/11
2. Carnage has been indiscriminate, with stocks like Amazon and Google, potential beneficiaries of the virus issue being hit equally hard as the overall market.
3. No reason why Gold should take a beating like it did when it corrected alongside the market
4. Absolutely no sense to buy 10-year yields trading at 1.1%

He also commented about the “limited ammunitions” that the Fed is left with a rate at 150 bps.

So what to do?

His suggestion: Buy some but don’t go ALL-IN on stocks.  

[Update: Howard Marks has been right and wrong. Right when he highlighted to buy some stocks, Wrong when he suggested not to go ALL-IN. Just joking. This is a subjective issue and I believe that for the greater part, he is right to say that one should be buying stocks when they are undervalued or unfairly punished. Just like in the case of Amazon which just a couple of days back has breached the US$3,000 level. Like what Howard Marks has said, it is illogical that Amazon is punished alongside the market sell-down as a result of COVID-19 because it is actually one of the key beneficiaries of the accelerated transition towards e-commerce as citizens only route of purchase is through the online medium.

He also highlighted that he sees no reason why Gold should take a beating alongside the market. Again, Gold has almost hit the US$1,800 mark and is seen as one of the safe-haven assets amid central banks’ money printing galore.]

My own personal opinion         

Let me chip in with my own personal view but as Howard Marks put it, it will be nothing but a guess. So read with some discretion as always.

The COVID-19 issue, as serious as it might currently be in terms of global infection rate and its potential spread, is not going to be a “zombie-like” apocalyptic event for sure.

We have close to 100,000 cases now, with a death rate of about 3,400 which puts the mortality rate at approx. 3.4%. Is this going to spread to millions? Well, possibly. But given how a supposed “second-world” nation, China, with a total population of 1.5bn, has effectively and rapidly curtailed the spread of the virus at its source (now falling rapidly), there is HOPE that the world (global population of 7.8bn) can do so with the same tenacity when it matters.

At the same rate of infection, the total global cases might peak at 0.5m cases and with a mortality rate of 3.4%, which could imply a total death rate of 17k people.

According to Wikipedia, the global death rate EACH DAY is 150k.

This is all just my own guestimate with an extremely high degree of error. The global infected cases might, in fact, be way more than 0.5m in a bearish case. Why so?

First world nations like the US are unlikely to implement a “communist-style” full lockdown of cities just like what China has done to effectively curb the spread of the virus while third world nations just do not have the necessary medical resources to bring the virus spread under control.

Hence, if the virus is as virulent as what some experts caution it to be, then my “best guess” scenario will probably be thrown out of the window. But even then, with a mortality rate of 3.4% and possibly a much lower ratio due to many unreported cases, the final death count is likely “manageable”.   

What I am trying to say is that COVID-19 isn’t going to be an End of the World apocalypse. At the end of the day, when it comes to quantifying the mortality number caused by COVID-19, it might be a drop in the ocean.

SO, STOP SNATCHING UP FACE MASKS ALREADY!

[Nov 2020 Update: I was absolutely wrong in saying that the total global cases might peak at 0.5m cases. The current COVID-19 cases, according to worldometers, is almost hitting the 60m level as I write this update, with the mortality rate at around 1.4m, representing approx. 2.3% of the total cases. The spread has been more virulent than I originally expected back in March. The US leads the pack in terms of infection rate and the Trump administration has been criticized for being slow to react to the crisis, with states re-opening their economies early now risk a second-wave of COVID-19 infection. Developing countries such as Brazil and India are beginning to rack up the cases as well.

A second-wave is already happening and while it is not yet as deadly as the first wave, we really shouldn’t be over-complacent in dismissing that this economic crisis will be over in a blink, just like what the stock market seems to be implying at the moment.]

What I am more concerned about is the economic impact.

We are in an almost unprecedented scenario where we are hit by a rare twin supply-demand shock.

We know that global factories are not back at full capacity and if we are to believe the analysis of the Harvard Business Review article I highlighted earlier, the worst is likely yet to come in terms of global factory closures. It could take many months before factories are back up running at full capacity or it might never will. The V-shape recovery trajectory might be thrown out of the window.

If the population cuts back on demand, alongside supply, that might be the “best case” scenario. Why so? Undoubtedly global growth will turn south but at least demand and supply will still be in “balanced”.

A more pressing concern is, however, if the global supply chain is negatively impacted to such a rate whereby there is a 1970s style supply-shortage-induced inflation.

On 18 February, one day prior to the peak of the S&P500 on 19 February, I wrote this article, “Bear Market: We could be getting close”.

I highlighted that the Fed will take the excuse of COVID-19 to lower interest rates. This will give a short-term boost to the market.

The Fed indeed cut rates by 50bps in a surprise meeting. What I got “wrong” was that the short-term boost only lasted ONE DAY. At least for now, it seems.

Ultimately, my concerns are that a rise in inflation will force the hands of the Fed to stop its tapering actions and turn hawkish instead. That will be the final nail in the coffin for the stock market.

But who knows, we might be back into our usual bullish mood next week?

[Update: Yup, the world got back to its bullish mode just two weeks after I wrote this original article, with the market bottoming on/around 20th March. The Fed’s aggressive rate-cutting and unprecedented scale in terms of flushing the economy with liquidity has resulted in a swift and I would say the violent rebound in the stock market. The US economy might have been boosted by some positive news of late pertaining to jobs rebound in June etc, however, caution is definitely still warranted with Goldman Sachs a couple of days back cutting its US GDP forecast down for 2H20 as well as this Bloomberg article citing a number of articles why the latest rise in COVID-19 cases is a cause for concern.

An eerily accurate forecast by an American Psychic

An American Psychic by the name of Sylvia Browne seems to have predicted the virus which she depicted in her book End of Days (published back in 2008). Here are her own words:

“In around 2020 a severe pneumonia-like illness will spread throughout the globe, attacking the lungs and the bronchial tubes and resisting all known treatments. Almost more baffling than the illness itself will be the fact that it will suddenly vanish as quickly as it arrived, attack again ten years later, and then disappear completely”.

Sylvia Browne

As always, take such a prophecy with a pinch of salt.

[Update: Didn’t seem like the vanishing act is happening as quickly as expected by Sylvia]

With that, I wrap up the commentary on COVID-19 and hopefully leave readers of NAOF with some food for thought.

I am neither a BEAR nor a BULL, I am just a CAUTIOUS person. So, which are the best Singapore stocks to buy amid this COVID-19 uncertainty for a cautious person’s portfolio? Or at least to put in one’s watch-list for monitoring and consideration when their prices do correct.

IG market, in an article on 4 March, highlighted the Top 5 Singapore stocks to buy now, based on recommendations provided by Singapore bank DBS’ equity research team. They are:

1. CapitaLand Limited
2. Thai Beverage
3. Yangzijiang Shipbuilding
4. UOB
5. Koufu Group     

I respectfully beg to disagree with most of the above stock selections. But to be fair, the DBS research team did put together a COVID-19 resilience list, some of the selections I totally concur with.

[Update: Not looking to dis DBS’s top selection but those counters did not really perform up to expectations. CapitaLand’s share price got sold off significantly when it recently highlighted that its 1H20 financial performance will be significantly impacted. With the exception of Yangzijiang (which was sold off heavily prior to the Covid-19 news), the 5 stocks above remained underwater since the recommendation made on 4 March]

In my selection process, I look to avoid banks no matter how attractive they might be on a yield basis or forward multiple valuation basis. Look at the big US banks as an example, trading at single-digit forward PER multiples with yields breaching the 5% level (Wells Fargo).

It is easy to recommend the banks as long-term holds, but with rates expected to be in a downward trend and bank NIMS being pressured, forward earnings will hence be impacted and I see no reason to hold Singapore bank stocks now.

REITs remain a preferred choice for many, given their obvious benefit from lower rates. However, not all REITs should be treated with the same level of resilience pertaining to COVID-19. Industrial REITs are likely more resilient, so are heartland retail REITs. Hospitality and the high-end retail industry servicing the “wealthy” Chinese tourists will witness a larger negative impact on their tenants’ operations. Just look at ARA US Hospitality Trust and Eagle Hospitality Trust (the REIT just got a notice of default (announcement on 24 March 2020) and distribution payments will be halted)!

Amid the recent REIT sell-off, I have written two articles on How to Buy REITs in Singapore, introducing a 10-factor quantitative screener for easy filtering of the “Best REITs” available now as well as a second-level analysis based on 8 less-quantitative factors.

HOW TO BUY REITS IN SINGAPORE. 10-KEY S-REIT QUANTITATIVE FILTER (PART 1)

HOW TO BUY REITS IN SINGAPORE. 8 ADDITIONAL FACTORS TO CONSIDER (PART 2)

In addition, I have also previously written this REIT article which has been quite popular among my readers: Why I am still buying REITs even when they look expensive. I believe the context are still very much relevant today.

The aviation/tourism-linked industry will also be significantly impacted and as much as I like some of these plays such as SATS Ltd and Straco (not so much now after their dividend cut), I see ZERO forward earnings visibility ahead for these counters.

My selections are on the premise that forward earnings of these stocks will remain resilient coupled with a yield angle. Investors are hence paid to wait for the COVID-19 crisis to blow-over. There is, however, that one particular special situation stock.

Do note that the content here is for informational purposes and reading pleasure and should NOT be taken as investment advice. It DOES NOT constitute an offer or solicitation to purchase any investment or a recommendation to BUY or SELL any security.

Top 5 Singapore Stocks to buy (or at least put in your watchlist).    

1. Netlink Trust (earnings resilience. Yield of 4.9% still attractive in today’s context)

A stock that is currently trading at its 52-week high, Netlink Trust does have the potential to trend even higher if there is a 1) flight to defensive stocks amid increasing market volatility and 2) downward trend in interest rates which will increase its interest coverage ratio and give a boost to its margins.

In some way, Netlink is also a play on 5G. In a Straits Times article published on 12 Nov, It was highlighted that Netlink Trust will support TPG Telecom’s 5G trial network across Singapore Science parks 1 and 2. Netlink trust will provide the fiber network infrastructure to connect TPG Telecom’s 5G mobile base stations.

With 5G development starting to take flight in 2020 globally, Netlink trust will be counting on this exciting structural trend to propel its growth ahead.

Unlike Capitaland which will be giving 1,000 tenants rental rebates, I doubt that Netlink will be giving any rebates to us, not without government subsidies. I hope I am wrong on this count.   

[Update: Netlink’s share price has been essentially flat since I wrote this article. The sell-down to $0.80/share in March was a good opportunity to accumulate the counter on the cheap which I believe is still a very resilient dividend play. If there is going to be a next COVID-19 driven market sell-off in Singapore, I believe the counter will be significantly less impacted compared to the first wave. For those looking for a stable 5% yielder without too much of a concern for capital appreciation (giving priority to downside risk management), then this counter should be one of your key considerations, in today’s context. I would continue to recommend Netlink as a stable yield play to consider.]

2. Sheng Siong (earnings resilience with COVID-19 boost)

Sheng Siong is one of the most defensive plays on the Singapore bourse. My main grouse and potential risk when selecting this counter is its valuation, one which is trading at c.25x PER when its forward earnings growth potential is nowhere near that level.

However, as demonstrated by the “Kiasu” mentality of Singaporeans, Sheng Siong might actually turn out to be a beneficiary of the current COVID-19 issue as Singaporeans rush to stock up on necessities and other daily essentials. Unless its supply chain is negatively impacted, Sheng Siong should benefit from the steady demand for supermarket offerings.

While its latest 4Q19 results fail to impress with YoY net profit decline of 0.4%, Sheng Siong is likely a household name that investors attribute a high degree of defensiveness in its business.

A retracement back to the S$1.20 level might make for an attractive initial entry.

[Update: Sheng Siong has been one of the key out-performers in the COVID-19 driven market sell-off, as illustrated by its strong 1Q20 earnings performance. The counter will continue to announce a very strong set of results for 2Q20, given that it will fully benefit from the CB lockdown for the entire quarter. There is no doubt that Sheng Siong is a well-run organization with a passion and commitment to give back to society and the needy. While the company will again be a beneficiary if we head back to a Phase 1 lockdown due to the threat of a second wave resurgent in Singapore, that is currently not my base case assumption.

While the company remains as a defensive counter, I believe the current share price upside might be quite limited if there is a progressive opening of the economy. At S$1.62/share as of this writing, the counter is valued at 27x PER on normalized 2021 earnings. That is a pretty hefty re-valuation from its average of 21x forward PER. I will be removing the stock and replacing it with another counter which I will highlight later.]

3. ST Engineering (earnings visibility with strong order backlog)

ST Engineering is one of the blue-chip conglomerates that likely has a high degree of earnings visibility in 2020, thanks to its record order backlog.

The company operates in 4 key divisions: Aerospace, Electronics, Land Systems, and Marine. All 4 divisions have their own short to medium-term catalysts that might excite investors.

Its Aerospace division recently clinches a 5-years contract with Qantas for the maintenance of their nacelle system for the Boeing 737-800 and Airbus A330 fleet. This further validates their recent MRAS acquisition as being the right one to drive future profitability in this division.

Its Electronics division is currently spearheading Singapore’s smart city development and with the gradual adoption of 5G nationwide, we should expect its smart city business unit to be a key revenue growth driver.

ST Engineering’s Land system is the market leader in terms of autonomous vehicle development here in Singapore. ST Engineering is expected to be the first company to fully commercialized and bring into adoption the mass usage of autonomous buses in the next few years.

Lastly, its Marine division, a problem child in the past, has recently garnered strong order wins to boost revenue visibility for this division over the coming 2-3 years.

All in all, this is one company that seems to have all its cylinders firing and could see strong appreciation gains if all these growth initiatives are executed well.

[Nov 2020 Update: I removed ST Engineering from the list in July but wrote another article: 5 Undervalued SG Stocks to buy now back in October, identifying ST Engineering as one of the undervalued stocks to purchase at a price of around S$3.40. The price has since appreciated to the S$4 level. The counter remains one of the more resilient blue-chip stocks to consider as a long-term holding, with its dividend yield relatively secure.]

4. Keppel Corp (special situation)

Keppel is a special situation company, one which I am not positive about its earnings outlook, but am willing to bet on the partial offering by Temasek going through at an offer price of S$7.31 which should provide some share price resilience once completed, in my view.

Temasek will own 51% of Keppel but has no intention of taking the company private.

What I believe is Temasek’s intent for that majority ownership is to ensure the smooth privatization of Keppel’s O&M division and subsequent privatization and merger with Sembcorp Marine. This will likely be a complicated process and without Temasek as the common major shareholder between Keppel and Sembcorp Industries to facilitate the transition, the merger will likely not be possible.

The offer for the majority stake in Keppel will have a long-stop date of 21 October 2020 and unless something drastic happens to the performance of Keppel, Temasek is unlikely to pull the deal.

Once completed, Keppel’s shareholders could get a “second windfall” when the company divests its O&M stake to Temasek, likely at a premium to book.

While there is no certainty that the deal will go through, I believe it will look extremely bad on the part of Temasek if they decide to pull the deal. Both Keppel and Sembcorp Marine as standalone yard entities are unlikely to compete efficiently and well against larger yard players in Korean and China, themselves undergoing a consolidation phase to ensure their relevancy ahead.   

This is a special situation play, one which is worth monitoring first for further downside price pressure. OPEC has just failed to secure a deal with Russia to cut production, leading to a 10% decline in oil prices on Friday. This is going to negatively impact oil counters and I believe the ones most at risk are the shale players.

We are probably going to see more than a handful of bankruptcies in this sector over the coming quarters which will ultimately derail the US’s ambition to be the largest oil exporter in the world. Driving weak shale players out of the equation could be Russia’s intent, given that OPEC+ production cuts over the last 2-3 years have only fuelled greater market share gain for the US. With the bulk of shale players gone, supply will reduce with a sustainable rise in price over the medium-long-term horizon.

[Update: When I first highlighted Keppel as a special situation play, the stock was trading at S$5.60. The current price is S$6.08 as of this writing. Much has happened since then, with the announcement that Sembcorp Industries will be divesting its stake in Sembcorp Marine. If the demerger is successful, I highlighted in this article: SEMBCORP INDUSTRIES AND MARINE DEMERGER: WHAT YOU NEED TO KNOW AND WHAT TO DO that it will likely be a prelude towards the ultimate consolidation of Sembcorp Marine and Keppel’s O&M division spearheaded by Temasek (which will become the key shareholder in both entities). This will be positive to Keppel as there will likely be a divestment premium to Temasek.

However, there are since updates that Temasek might pull the deal pertaining to it taking a 51% stake in Keppel. However, I believe it is only a matter of time before the consolidation of Keppel and Sembcorp Marine happens. Hence, as such, for now, I am comfortable with sticking to this special situation play.

[Update 2: Temasek announced that it will not be following through with the partial offer for Keppel in an announcement on 10 August 2020. Without this near term catalyst, we are hence removing the stock from this list. For more thoughts pertaining to this issue, one can refer to this article: Keppel Corp deal abandoned. What to do next?]

[Nov 2020 Update 3: Keppel is back on my radar when I wrote about the 5 undervalued stocks in Singapore to consider back in October. The counter has since been quietly appreciating, with the next catalyst being the announcement of its restructuring conclusion, expected to be heard sometime by end-Dec 2020]

5. Gold ETF (a hedge against recession and inflation risk)

Not really a stock per se but one should look to have some gold stocks in their portfolio, both as inflation and recession hedge, as we have seen its importance in recent days.

I have written in this article: Best ETFs in Singapore to structure your passive portfolio, where I have introduced the 4 best ETFs traded on the SGX that a retail investor can purchase to structure a passive portfolio capable of withstanding a market downturn.

Having some gold ETF (20% of the portfolio), in this case, the SPDR Gold Shares ETF (ticker: O87) makes for a perfect volatility hedge. On a YTD basis (as of 4 March 2020), Gold has been the strongest performer among the 4 ETFs, with YTD returns of 8.47%. This ratio is likely higher now after the last two days of strong asset-class outperformance.

[Update: Gold is now breaching the US$1,800/ounce level and I would continue to hold onto this asset class as a hedge against widespread fiat currency printing.]

6. Wilmar International (NEW) (playing the China-listing catalyst)

I have written about Wilmar recently in this article: WILMAR CHINA IPO: LISTING IMMINENT? In that article, I highlighted that the IPO of its China entity, Yihai Kerry (YKA) seems to be finally taking shape with an expected valuation of US$1.96bn. This has been a long-awaited IPO that serves as a catalyst to monetize and crystallize its stake in YKA.

I followed up with a second article: Is Wilmar Substantially Undervalued? following the company’s disclosure that its YKA’s IPO is oversubscribed by 600x by offline investors and more than 1700x by retail online investors.

The street has generally been rather positive on Wilmar and DBS has since upgraded the counter with a higher TP of S$4.60 while RHB has also marginally shifted its TP up to S$4.87. [Update Sep 2020] All the major brokerage houses have a TP in excess of SGD$5 for Wilmar. Average TP at SGD$5.30

The listing of YKA still requires the final approval from the IPO committee. The final confirmation could finally put an end to the long-awaited IPO of its China business, one that has been 2-years late. [Update Sep 2020] YKA has gotten all approval from the relevant parties and is awaiting the listing scheduled in mid-October.

While the commodity business is not typically my cup of tea, I do see Wilmar as relatively undervalued, trading in the low-teens earnings multiple while having a strong forward catalyst.

The street will likely be looking to revalue the counter substantially higher if it is confirmed that YKA will in fact be listed at a higher PER multiple vs their expectations.

I have a stake in Wilmar which I entered when the counter rebounded from the recent price low due to COVID-19 and there was a BUY entry at around the S$3.83 level based on the proprietary trading system that I am using. I have since entered another position at around the $4.20 level which is where the stock is currently trading.

For those interested in taking a look at the trading program, it is a proprietary platform that is run by Collin Seow and his team which I personally feel has helped improve my selection process for entering the good fundamental stocks that I have in mind at the RIGHT time using technicals as a supporting criterion. The selection process is pretty simple, using the arrows as a possible indication. However, the maths behind generating that “simple” arrow is all proprietary info.

Do check out his online preview if you think it might fit what you are looking for in an intuitive trading system.

7. iFAST Corporation (NEW) (undervalued growth stock)

I have written about iFast in this article: TOP 10 SINGAPORE GROWTH STOCKS FOR 2020 [PART 2] where I identified iFAST as one of the top 10 Singapore growth stocks for 2020 according to the street’s forecast.

The company achieved a record-high net profit of S$3.64m in 1Q20 despite a major sell-off in financial markets during the quarter. In the medium to long term, DBS expects the COVID-19 crisis to lead to an acceleration in the pace of digitalization of financial services and the pace of adoption of Fintech services by consumers.

The company generates the bulk of its revenue from recurring fees derived from its AUA, mainly trailer fees which funds pay iFast for having their products being marketed on the iFast site. At present (1Q20), recurring revenue represents approximately 75% of iFast total revenue, a slight decline from the historical level of about 80%.

This is likely due to some weakness in 1Q20 as AUA decline from the COVID-19 situation. Nonetheless, non-recurring revenue has shown strong growth and should significantly outperform in 2020. Non-recurring revenue covers transaction fees from various products, forex conversion fees, and insurance commission.

With a substantial amount of recurring revenue that has not declined since the GFC period, I believe that iFast can continue to grow its earnings in 2020 and beyond, as investors increasingly transition towards their low-cost platform.

I have also identified iFAST as an undervalued stock in this article: VALUE INVESTING IN SINGAPORE: 10 SG VALUE STOCKS THAT MIGHT MAKE SENSE.

I first bought into the counter at around the S$1.1/share level which I thought was a rather reasonable share price which was supported by the proprietary trading platform i was using called TGPS. The share price got a nice lift when it was confirmed that iFast will be one of the short-listed candidates for the digital banking license here in Singapore. I like the long-term fundamental potential of iFAST but since I already have got a position in iFAST, I will not be too hasty in adding on until there is a lift in momentum as indicated by the platform.

A second wave of COVID-19 will likely drive more investors to use online trading platforms which iFAST is one of the market leaders in terms of providing a low-cost trading platform for investors. i have written numerous times on FSMOne (under iFAST) and how it is really a cheap platform for newbie investors to start their investment journey using DCA.

These 5 stocks (2 additions, 2 removals) are my current selection of best Singapore stocks to buy amid COVID-19 uncertainty, or at least it is worth putting it in your watchlist to capitalize on their potential share price weakness.

Conclusion

No one can be certain when the COVID-19 issue might end. It could be done and dusted over the next couple of months or it can really turn into a global pandemic issue that results in a global recession scenario.

There is no way to be certain unless one has got a magical crystal ball.

I don’t. Maybe Sylvia Browne does (alas she has passed on, inaccurately forecasting her own death 10 years early)

However, recession or no recession, the above 5 stocks in this list are probably one of the best Singapore stocks to buy/consider in the current environment.

Again, just to reiterate that the content here is for informational purposes and reading pleasure and should NOT be taken as investment advice. It DOES NOT constitute an offer or solicitation to purchase any investment or a recommendation to BUY or SELL any security.

Just like what every stock recommender will say: Please do your own due diligence.    

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Disclosure: The accuracy of the material found in this article cannot be guaranteed. Past performance is not an assurance of future results. This article is not to be construed as a recommendation to Buy or Sell any shares or derivative products and is solely for reference only.