Following successive periods of decline in core profit growth, the Straits Times Index (STI) managed to recover back to an inflexion point in the recent quarter.

According to MBKE Research, the downgrade cycle could also be nearing its end as consensus EPS expectations have been moderating.

Moving forward, MBKE Research is positive on the 12-month outlook for STI with the belief that valuations could see a further upgrade.

Add healthcare, property, REITs and commodities

MBKE._Sectors_To_Buy

Among the sectors, MBKE Research highlights three main sectors that it recommends to add to the portfolio. These sectors are healthcare, property and REITs and commodities.

MBKE Research believes that the healthy fresh fruit bunch (FFB) yield recovery in 2017 will drive performance of commodity-related stocks like First Resources. For the healthcare sector, there is strong tail wind from the secular industry growth.

Also, under-leveraged balance sheets provide healthcare companies with ample ammunition for further expansion.

In the property and REITs sector, improving sentiments in both the residential and office property market should support the stock price of both property stocks and REITs.

Furthermore, with office REITs trading at a significant discount to their underlying asset, office REIT valuation should recover in 2H17. Industrial REITs could also see price bottoming out as the supply of new industrial buildings peak and manufacturing growth resumes.

Avoid TMT, consumer sectors

On the other hand, MBKE Research recommends avoiding are the Tech, Media and Telecoms (TMT) and consumer sectors. While the telcos are trading cheaply in relation to their three-year historical earnings, the upcoming price war from the new telco entrant has yet to be factored in.

Factoring in the competition from the new telco entrant, MBKE Research views the current valuation of telcos as expensive. In the consumer sector, retail competition continues to be rising in the midst of lower consumer discretionary spending.

Here are six stocks MBKE Research particularly like:

1. UOL Group Limited

MBKE Research opines that UOL Group Limited provides investors with the largest exposure to Singapore’s property market among large cap developers.

In addition, UOL Group is also one of the best ways to gain exposure to a rebound in residential prices in Singapore.

However, MBKE Research warns that one key risk that UOL face is the risk of overpaying for land sites in its bid to replenish its land bank.

MBKE Research: UOL Group Limited (SGX: U14) – BUY; Target Price $9.05

2. Ho Bee Land Limited

Ho_Bee_Metropolis

With an expected recovery in the prime office market, sentiments surrounding the office property market has been improving.

Given that Ho Bee has a 40% portfolio exposure to the office property segment, MBKE Research views Ho Bee Land as a likely beneficiary of the improving sentiments.

Nevertheless, with the talks on Brexit still ongoing, Ho Bee Land’s UK office properties could see a fall in value should the talks go awry.

MBK Research: Ho Bee Land Limited (SGX: H13) – BUY; Target Price $3.00

3. Ascendas REIT

Ascendas REIT (A-REIT) has been building and strengthening its business park portfolio. It currently has a well-entrenched position in the business park space.

Furthermore, with a significant debt headroom still available, A-REIT could explore further inorganic or redevelopment growth opportunities to supplement its well-executed diversification strategy in Australia.

MBKE Research noted that A-REIT could face the possible risk of termination of long-term leases that might contribute to weaker retention rate among its current tenants.

MBKE Research: Ascendas REIT (SGX: A17U) – BUY; Target Price $2.85

4. Mapletree Industrial Trust

Similar to A-REIT, Mapletree Industrial Trust also has significant debt headroom to explore inorganic or redevelopment opportunities in the market.

Another reason for MBKE Research’s recommendation is the visible growth drivers from Mapletree Industrial Trust’s current ongoing redevelopment initiatives.

MBKE Research is confident that the initiatives will support its 3.6% distribution per unit (DPU) CAGR from FY17-20E.

MBKE Research: Mapletree Industrial Trust (SGX: ME8U) – BUY; Target Price $2.05

5. Health Management International Limited

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MBKE Research recommends Health Management International as an addition to investor portfolios for its unique operating model.

On top of offering independent practice for doctors, Health Management International also has a good operational track record.

MBKE Research: Health Management International Limited (SGX: 588) – BUY; Target Price $0.84

6. Singapore Medical Group Limited

Singapore Medical Group recently completed a major acquisition of two paediatric clinics.

With its strong track record in turning around loss-making businesses, the acquisition could prove to be a valuable addition to the services offered by Singapore Medical Group.

At an undemanding valuation of 27x FY18E earnings per share (EPS), MBKE Research values Singapore Medical Group at $0.78.

MBKE Research: Singapore Medical Group Limited (SGX: 5OT) – BUY; Target Price $0.78