CIMB is back with its Alpha Picks and Strategy, identifying stocks that investors “must-own” as these are great stocks with attractive valuations and strong fundamentals.
Recent happenings in the stock market seem to best describe by the word “volatile”. As investors worry over the potential that US Federal Fund would raise interest rates due to higher-than-expected inflation, many have panicked-sell to result in the Dow’s recent plunge. As result, Singapore investors were also spooked as our market corrected about 6.5 percent from the peak of 3,611.69 before it began recovering.
However, analysts at CIMB opine that there are more earnings upgrades to be expected from various sectors and the recent sell-off provides investors a chance to accumulate stocks at lower prices. As we wait for the market to consolidate, we should be prepared with a list of stocks that we will want to buy.
For CIMB, the electronics sector which powered Singapore’s gross domestic product last year is bound to report commendable earnings in the coming quarters. Despite that, slower growth is expected as the manufacturing momentum in Singapore is diversified beyond the electronics sector.
That said, the purchasing manager’s index for electronics manufacturing still reported a strong 52.9 points in January. As such, CIMB recommends two stocks in the electronics sector that have strong fundamentals and hence could still continue to ride on the secular growth of the IT industry.
1. Venture Corp
Venture Corporation has been selected by CIMB as it is expected to perform better in the second half of the year due to seasonality. Its business momentum remains strong and it is able to constantly deliver the desired products to its customers.
Also, its client-base is very wide, instead of being concentrated in any one sector. This is matched with an equally diverse product portfolio to meet the different needs of its clients. Such diversification increases the firm’s ability to stay resilient, especially so during volatile times when overdependence on one sector can be detrimental.
CIMB has a Buy call on the firm with a target price of $24.74. Currently, Venture Corporation is trading at $23.60, allowing investors to collect shares of this great company on-the-cheap.
2. AEM Holdings
AEM Holdings’s (AEM) stellar performance is the reason to start taking position in this stock as it is expected to be able to “deliver 35 percent improvement on year-on-year earnings” for FY18. This is mainly dependent on sales to its major customer.
That said, CIMB set a target price of $6.62 for AEM, representing almost 20 percent potential upside from the current share price of $5.55. Justifying for their bullishness, CIMB believes that it is a rather achievable target, considering that AEM is at an 18-percent discount to sector’s average price-to-earnings ratio. Should earnings continue to surpass expectations, investors can expect AEM’s share price to see another bout of rally.