Defensive stocks pertain to those companies whose operations are not subjected by cyclicality. Here are three defensive stock picks are value plays with undemanding valuation.
Investors Takeaway: 3 Defensive Stock Picks With Undemanding Valuation
- Raffles Medical Group
Raffles Medical Group announced that it will be launching Raffles Shield, a Medisave-approved Integrated Shield Plan (IP). The entry of Raffles Medical Group will make it the seventh IP provider to enter the industry, joining other providers such as AIA, Aviva, Income and Prudential.
At its current share price, KGI believes that it is attractive to accumulate Raffles Medical Group as part of a defensive portfolio. KGI notes that Raffles Medical Group’s current valuation is undemanding with limited downside. Although start-up costs from the opening of its Chongqing and Shanghai hospitals are expected to weigh on earnings in 2019 and 2020, it is a necessary evil for the group to build a solid and sustainable foundation for long-term growth when both its China hospitals are operational by 2020.
- Sheng Siong Group
With 48 stores located across the island, Sheng Siong Group (Sheng Siong) operates the third largest supermarket chain in Singapore that caters to the country’s mass market. Since its IPO listing in 2011, bottom line growth has continued to remain steady, driven by margin expansion from efficiency gains in the supply chain. Given its defensive business model and almost no foreign exposure, Sheng Siong’s business is relatively sheltered from global economic uncertainty.
Sheng Siong currently trades around a price-to-earnings multiple of 22.5 times, which is just slightly above its 7‐year average of 22.3 times. At its current valuation, KGI finds that it offers a good entry point given Sheng Siong’s resilience amid an uncertain economic environment. It also offers a dividend yield of about 3.3 percent.
- ComfortDelGro Corporation
ComfortDelGro Corporation (ComfortDelGro) managed to close 2Q18 with a set of decent results. Moving forward, KGI expects to see improvements compared to 1H18, mainly from the full contribution from the Seletar bus package, the increase in the Downtown Line (DTL) ridership and new overseas acquisitions in the UK and Australia. KGI foresees the earnings improvement from 2018 onwards to lead to an expansion in valuation multiples for ComfortDelGro.
ComfortDelGro has been aggressively expanding its overseas footprint via acquisitions. The amount of acquisitions has totaled more than $280 million to date. Despite that, ComfortDelGro still has $220 million in net cash as at end 2Q18 to deploy for further inorganic growth. This could point to more acquisitions in the following months for ComfortDelGro.
ComfortDelGro maintained its $0.0435 interim dividend, unchanged from the prior year period. Given the decent results, positive outlook and a dividend yield of 4.5–5.0 percent over the next three years, KGI recommends holding ComfortDelGro as a defensive pick.