According to UOBKH, the investment climate is generally in a risk aversion mode due to external concerns over rising trade tensions, uncertainties over the US midterm elections as well as higher interest rates. To help investors cope with these uncertainties, UOBKH recommends investors to pick stocks using these three strategies.
Investors Takeaway: Coping With Market Uncertainties
- Safe Picks For Risk-Averse Investors
Given the near-term uncertainties, UOBKH continues to recommend a relatively defensive positioning. In particular, UOBKH thinks that investors should not be too hopeful on stocks that do not offer visible earnings or those without strong operating cashflows to support a decent dividend yield.
Within UOBKH’s coverage, it notes that stocks that have outperformed so far offer a combination of visible earnings recovery and decent dividend yield. CSE Global and Tianjin ZhongXin Pharmaceutical are two stocks that fall into this category.
Tianjin ZhongXin Pharmaceuticals: BUY, TP US$1.59; Current share price US$0.96
CSE Global: BUY, TP $0.59; Current share price $0.485
- Pick Stocks With High And Sustainable Dividend
Another aspect of UOBKH’s strategy is to hold stocks with sustainable dividends. According to UOBKH’s analysis, high-yielding mid-caps with see potential upside surprise to dividends will be a good addition to the portfolio. Amongst its yield stocks coverage, UOBKH notes that companies that can afford to and could raise its dividend payout are Valuetronics and Sunningdale Tech.
Valuetronics: BUY, TP $0.96; Current share price $0.69
Sunningdale Tech: BUY, TP $1.70; Current share price $1.35
- Stocks With Good Cashflow And Net Cash Position Will Be King
With rising interest rates and general risk aversion in the market, demand for safe-haven assets will go up, according to UOBKH. Thus, UOBKH believes that investors should pay more attention to stocks with high net cash and strong free cashflow yield.
Based on UOBKH’s screeners, Valuetronics, CSE Global and PropNex emerged as stocks to consider. UOBKH highlights that all three stocks look attractive on the free cashflow yield benchmark (with 2018 FCF yield of 11-21 percent). In addition, stocks like Valuetronics and PropNex also has a high level of net cash as a percentage of its market cap.
PropNex: BUY, TP $0.65; Current share price $0.55
Bonus: Stocks With Near-Term Catalysts
For investors with higher risk appetite, UOBKH suggests looking at stocks that could offer earnings upside surprise in the upcoming 3Q18 results. In particular, there are a few stocks with potential near-term catalysts that can surprise on the upside.
For example, UOBKH thinks that CSE Global and Valuetronics could both see some upside in their upcoming 3Q18 results. CSE Global could surprise from delivery of higher-margin small oil & gas contracts whereas Valuetronics may see consensus upgrades from the recovery of smart lighting product. Furthermore, Valuetronics could continue to enjoy healthy growth in the industrial and commercial electronics (ICE) segment, from better demand for connectivity modules used in the automotive industry.