The latest earnings season was a disappointment, to say the least. Multiple sectors such as banks, property, telco and O&G saw earnings cut due to slowing global growth and US-China trade war. As a result, earnings growth was slashed for FY19. This contributed to the fall in STI from its February high of 3,286. Going forward, DBS is expecting STI to stay around the support area of 3,180 with a bull-case forecast of 3,500 by end of the year.
Investors Takeaway: 3 Strategies After A Disappointing Quarter By DBS
For investors, the deepening cuts point to a worrying sign of things to come in the upcoming quarters. So, how should investors adjust their investment strategy to avoid underperformance in the upcoming month? According to DBS, there are three strategies that investors should consider.
- Gunning For Large-Cap Dividend Plays
According to DBS, the stock market is likely to consolidate its year-to-date gains in the near term following the strong run up in January and February. With this backdrop, DBS recommends paying close attention to strong dividend plays.
DBS believes that the ex-dividend season in April and May will attract bargain hunters and find support on pullback. Among the large cap stocks with upcoming dividend, DBS recommends Venture Corp, UOB, ST Engineering and ComfortDelgro. These large caps have a dividend per share price ratio of at least 2.5 percent.
Venture Corp: BUY, TP $21.70
UOB: BUY, TP $29.20
ST Engineering: BUY, TP $4.15
ComfortDelgro: BUY, TP $2.57
- Under/Outperformer In The Recent Earnings Season
With the latest earnings season done and dusted, multiple companies have found themselves being impacted by their latest earnings result.
One of the companies that turned in a good performance this earnings season was APAC Realty. APAC Realty’s positive earnings this quarter saw its FY19F and FY20F earnings upgraded. DBS estimates a potential for 23 percent upside for the real estate agency, with a high FY19 yield of 7.3 percent.
APAC Realty: BUY, TP $0.70
However, there were stocks that underperformed and saw their TP and earnings being slashed. iFAST, Starhub and mm2 Asia are among these stocks that underperformed that DBS recommends avoiding.
iFAST: HOLD, TP $1.19
mm2: HOLD, TP $0.33
Starhub: HOLD, TP $1.92
- Overbought Stocks That Are Ripe For Profit Taking
While the earnings season was a disappointment, DBS notes that there are still a number of stocks that managed to put in a strong performance. However, given the worsening outlook going forward, DBS recommends investors to take profit on these overbought stocks.
To identify these stocks, DBS used two criteria: strongest 3-month performance relative to STI and less than ten percent upside to TP. Amongst the Singapore stocks, DBS identified Hi-P International, Silverlake Axis, Thai Beverage and UMS Holdings as overbought stocks that are ripe for profit taking.
Hi-P: HOLD, TP $1.12
Silverlake: BUY, TP $0.62
ThaiBev: BUY, TP $0.87