Picking ‘darling stocks’ for the long run
Written by Nadia S Hassan & Joy Lee
Monday, 20 April 2009 10:40
KUALA LUMPUR: While confidence has returned to the market as evidenced by the Kuala Lumpur Composite Index (KLCI) closing at a six-month high of 965.17 last Friday, many investors are wondering how long the rally would last and when a pullback would happen.
As it is, concerns are emerging about the start of a consolidation, which saw trading volume shrinking from nearly two billion units last Thursday to about one billion units the following day.
Over in the US, the Dow Jones Industrial Average rose a mere 5.9 points to 8,131.33 in positive and negative territory range trade last Friday.
Since April 1, the KLCI had risen over 9% from 884.18 points to 965.17 last Friday, up 80.99 points, with market capitalisation rising RM34.88 billion to RM734.88 billion from RM700 billion.
Despite the market volatility over the past few months, a few “darling” stocks had displayed their resilience, underpinned by strong cash flow, good dividend yield and good management (see table on Page 6).
As such, these stocks are expected to continue to deliver in the event of a pullback. Analysts’ top picks include familiar heavyweights such as IJM Corp Bhd, Tanjong plc and Malaysian Resources Corp Bhd (MRCB).
Top Glove Corp Bhd, Nestle (M) Bhd and KPJ Healthcare Bhd are also on the list due to the nature of their businesses in fast-moving consumer goods and essential services, especially healthcare.
On average, these stocks had substantially outperformed the KLCI over the past six months, with MRCB and Muhibbah Engineering (M) Bhd topping the list.
Using October as a base, the KLCI had risen 1.32%, based on Bloomberg data. MRCB’s share price rose 75% during that period while Muhibbah advanced 57.75%. MRCB closed unchanged at RM1.05 while Muhibbah rose four sen to RM1.12 last Friday.
Top Glove, a top pick for Hwang-DBS Vickers Research, has seen its share price go up 48.6% over the past six months. It closed five sen higher at RM5.50 last Friday.
An analyst at HwangDBS Vickers Research said other picks include Malaysia Airports Holdings Bhd (MAHB) and Lingkaran Trans Kota Holdings Bhd (Litrak).
“They have outperformed when the market was down and they would outperform when the market goes back up,” he said.
HwangDBS Vickers Research said MAHB offered robust earnings, with a fixed 50% dividend payout ratio, while Litrak’s business as a toll concessionaire ensured strong cash flow.
AmInvestment Bank regional head for equity research Benny Chew is bullish on plantation stocks — Kuala Lumpur Kepong Bhd and IOI Corporation Bhd.
“With a weakening US dollar, commodities would do better. These stocks are defensive on the downside and leverage on the upside,” he said.
His other picks are Proton Holdings Bhd, Axiata Group Bhd, IGB Corporation Bhd, RHB Capital Bhd, Ann Joo Resources Bhd and Puncak Niaga Holdings Bhd.
“Proton would be doing better now with the return of Tun Dr Mahathir Mohamad and Axiata is expected to also do well with its ex-rights. Valuation is cheap and their balance sheet is no longer dragged down,” said Chew.
While MIDF Asset Management Bhd chief executive officer and chief investment officer Scott Lim has his favourites, “there is no such thing as darling stocks because we have different reasons for investing in various stocks”.
“Good picks are those companies with good business models and management team,” he said, adding that stocks with healthy and growing cash flow would ensure good dividends even during bad times and “dividend yields would grow during good times”.
His favourites include PPB Group Bhd, Dialog Group Bhd, Nestle, DiGi.Com Bhd and British American Tobacco (M) Bhd.
“PPB has proven to have healthy cash flow in the long term and dividends are sustainable and Dialog is well managed. Consumer stocks such as Nestle, DiGi and BAT have always been defensive stocks,” he added.
Although banking stocks had been noted as likely leaders of a market rally, Lim cautioned that such stocks would not be spared from the effects of a recession.
“Invest in companies where the price offers good value and they have good, long-term growth potential, good dividend yield and a management team that is intact. These companies would be stronger than before when there is a recovery,” he said.
For OSK Research, small caps such as Hartalega Holdings Bhd and Wah Seong Corp Bhd are jewels as they have outperformed the underlying index since October.
Hartalega’s position as market leader for nitrile gloves used in the medical sector would ensure that the company would continue to perform while Wah Seong has a strong orderbook of about RM1.4 billion, the research house said.
An analyst from OSK Research said: “We have buy calls on MRCB, Tanjong, Public Bank, IJM and MMC. They have of course outperformed the KLCI by a fair measure with MMC and MRCB as situational plays.
“Defensive big-cap picks are Tanjong and Petronas Gas. The reasons are stock and sector-specific but generally their business models are recession-proof,” he said.
Strong cash flow from its power and gaming businesses is the reason for OSK Research picking Tanjong as one of its top defensive plays. While its share price has climbed 35.2% over the past six months, Tanjong’s good dividends make it a “darling” among long-term investors.
In IJM’s case, the research house believes the company could possibly bag some RM6.4 billion worth of jobs over the next two years. Public Bank Bhd also remains a top pick for the banking sector due to its solid track record, asset quality and dividend yields.
This article appeared in The Edge Financial Daily, April 20, 2009.
Written by Nadia S Hassan & Joy Lee
Monday, 20 April 2009 10:40
KUALA LUMPUR: While confidence has returned to the market as evidenced by the Kuala Lumpur Composite Index (KLCI) closing at a six-month high of 965.17 last Friday, many investors are wondering how long the rally would last and when a pullback would happen.
As it is, concerns are emerging about the start of a consolidation, which saw trading volume shrinking from nearly two billion units last Thursday to about one billion units the following day.
Over in the US, the Dow Jones Industrial Average rose a mere 5.9 points to 8,131.33 in positive and negative territory range trade last Friday.
Since April 1, the KLCI had risen over 9% from 884.18 points to 965.17 last Friday, up 80.99 points, with market capitalisation rising RM34.88 billion to RM734.88 billion from RM700 billion.
Despite the market volatility over the past few months, a few “darling” stocks had displayed their resilience, underpinned by strong cash flow, good dividend yield and good management (see table on Page 6).
As such, these stocks are expected to continue to deliver in the event of a pullback. Analysts’ top picks include familiar heavyweights such as IJM Corp Bhd, Tanjong plc and Malaysian Resources Corp Bhd (MRCB).
Top Glove Corp Bhd, Nestle (M) Bhd and KPJ Healthcare Bhd are also on the list due to the nature of their businesses in fast-moving consumer goods and essential services, especially healthcare.
On average, these stocks had substantially outperformed the KLCI over the past six months, with MRCB and Muhibbah Engineering (M) Bhd topping the list.
Using October as a base, the KLCI had risen 1.32%, based on Bloomberg data. MRCB’s share price rose 75% during that period while Muhibbah advanced 57.75%. MRCB closed unchanged at RM1.05 while Muhibbah rose four sen to RM1.12 last Friday.
Top Glove, a top pick for Hwang-DBS Vickers Research, has seen its share price go up 48.6% over the past six months. It closed five sen higher at RM5.50 last Friday.
An analyst at HwangDBS Vickers Research said other picks include Malaysia Airports Holdings Bhd (MAHB) and Lingkaran Trans Kota Holdings Bhd (Litrak).
“They have outperformed when the market was down and they would outperform when the market goes back up,” he said.
HwangDBS Vickers Research said MAHB offered robust earnings, with a fixed 50% dividend payout ratio, while Litrak’s business as a toll concessionaire ensured strong cash flow.
AmInvestment Bank regional head for equity research Benny Chew is bullish on plantation stocks — Kuala Lumpur Kepong Bhd and IOI Corporation Bhd.
“With a weakening US dollar, commodities would do better. These stocks are defensive on the downside and leverage on the upside,” he said.
His other picks are Proton Holdings Bhd, Axiata Group Bhd, IGB Corporation Bhd, RHB Capital Bhd, Ann Joo Resources Bhd and Puncak Niaga Holdings Bhd.
“Proton would be doing better now with the return of Tun Dr Mahathir Mohamad and Axiata is expected to also do well with its ex-rights. Valuation is cheap and their balance sheet is no longer dragged down,” said Chew.
While MIDF Asset Management Bhd chief executive officer and chief investment officer Scott Lim has his favourites, “there is no such thing as darling stocks because we have different reasons for investing in various stocks”.
“Good picks are those companies with good business models and management team,” he said, adding that stocks with healthy and growing cash flow would ensure good dividends even during bad times and “dividend yields would grow during good times”.
His favourites include PPB Group Bhd, Dialog Group Bhd, Nestle, DiGi.Com Bhd and British American Tobacco (M) Bhd.
“PPB has proven to have healthy cash flow in the long term and dividends are sustainable and Dialog is well managed. Consumer stocks such as Nestle, DiGi and BAT have always been defensive stocks,” he added.
Although banking stocks had been noted as likely leaders of a market rally, Lim cautioned that such stocks would not be spared from the effects of a recession.
“Invest in companies where the price offers good value and they have good, long-term growth potential, good dividend yield and a management team that is intact. These companies would be stronger than before when there is a recovery,” he said.
For OSK Research, small caps such as Hartalega Holdings Bhd and Wah Seong Corp Bhd are jewels as they have outperformed the underlying index since October.
Hartalega’s position as market leader for nitrile gloves used in the medical sector would ensure that the company would continue to perform while Wah Seong has a strong orderbook of about RM1.4 billion, the research house said.
An analyst from OSK Research said: “We have buy calls on MRCB, Tanjong, Public Bank, IJM and MMC. They have of course outperformed the KLCI by a fair measure with MMC and MRCB as situational plays.
“Defensive big-cap picks are Tanjong and Petronas Gas. The reasons are stock and sector-specific but generally their business models are recession-proof,” he said.
Strong cash flow from its power and gaming businesses is the reason for OSK Research picking Tanjong as one of its top defensive plays. While its share price has climbed 35.2% over the past six months, Tanjong’s good dividends make it a “darling” among long-term investors.
In IJM’s case, the research house believes the company could possibly bag some RM6.4 billion worth of jobs over the next two years. Public Bank Bhd also remains a top pick for the banking sector due to its solid track record, asset quality and dividend yields.
This article appeared in The Edge Financial Daily, April 20, 2009.