facebookHow do we find undervalued stocks in Singapore? - Seedly

Syed Omar

09 Dec 2019

โˆ™

Stocks

How do we find undervalued stocks in Singapore?

What are the criteria such as looking into p/l, income statements etc? Iโ€™m interested to trade Singapore stocks too but hesitant if I donโ€™t have sufficient knowledge in terms of looking for right Singapore stocks.

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Bjorn Ng

09 Dec 2019

Business Analyst at 10x Capital

As a start, P/B is a good gauge to find undervalued stock. However, please note that doesn't mean it's undervalued that it's good. This used to be the number 1 criteria for me - find an P/B<1 stock and that's the one I want to buy. Ended up all continued to drop. These are called value trap - they entice you by showing its @ a discount but there is honestly a specific reason why so, the market has kinda factored that in.

So always do your due diligence upon finding one - what industry is it in? Debt/Cash level, is it sustainable and can you see a long runway ahead for it?

I guess the real question here is...

There are a lot of cheap companies in Singapore, just put in the screener PE or P/B less than how much you want.

But the thing is.. chances are you will land into lousy companies. The market although sometimes can be irrational or dumb, it is pretty smart. So if you are buying something cheap, it likely is not a high quality company.

Think about it this way.. do you want to buy a super good apple from Japan at a higher price or a cheap apple but filled with worms inside? Same as investing..

Suggest you read 100 baggers and study why Warren Buffett decided to overpay and buy Sees Candy and Coke in the past, and how Charlie Munger shaped him from changing from cigarbutt investing to growth investing.

There are always undervalue stocks but before go into it, must make sure it is not a value trap.
As you say, you worried about do do not have sufficient knowledge in investing, why not learn more and gain more know 1st before buying.

Usually, a very high quality companies are not undervalued. If it is trading at fair value, you can just grab it. Some companies trading at undervalue for certain reasons.

Elijah Lee

05 Dec 2019

Senior Financial Services Manager at Phillip Securities (Jurong East)

To find an undervalued stock, you first need to know what the company should be valued at.

Use a stock screener or filter to find companies that you would like to invest in. Look at their PE ratio and compare that to their peers. Once you've singled out a company that you would like to invest in, calculate their intrinsic value. There are a number of methods you can use such as the Dividend Discount Model, or Discounted Cash Flow method.

When you have come up with an intrinsic value, throw in a margin of safety. This number will now be the price above which you won't buy the stock at, and below that, you can initiate a position.

As the company's metrics change over time, remember to update your figures.

Use the Stock Screen function on Bloomberg! Check on this article for an example on how to use the e...

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