Our COVID-19 Stock Favorites: DBS Singapore

As the Covid pandemic rages on, markets have crashed, bounced up and crashed yet again, and investors are confused as to where to put their money. The next stock we are interested in is DBS Singapore for a long-term play, with added risk protection using technical strategy. As of today, the markets are still at an all-time low, with panic-selling and fears gripping investors money.

DBS is currently trading at a ~31% discount, off from its average price of $28 per share. As of today, its $19.11 price looks extremely attractive, and here's why. As seen in fig.1, DBS has maintained a constant uptrend over the years. Furthermore, they are a government-backed company, meaning that the government will most likely bail them out in times of dire need, lowering the risk of bankruptcy or takeover. Lastly, and the main reason why DBS is such a great buy at this price, is their annual dividend yield. Earlier in 2019, DBS maintained a rough dividend yield of ~4.2% at its $28 share price. This means that dividends paid were roughly $1.20 annually. Now, with the price sitting at $19, this same dividend would now yield returns of close to 7% instead. This, especially in the long run, is an extremely good yield, with low risk, thanks to the government backing mentioned above.

fig.1 DBS Stock over 5 Years

DBS is also currently trading at 0.96 book value, meaning that it is at, or slightly below its P/B level. This means that the risk of entering at this level is minimized, as an immediate bankruptcy would still yield a break-even release.

A quick reference to Book Value from a previous post; The key estimate to look at when purchasing undervalued stocks should be the Price/Book value, which is calculated by taking the ratio of the current market value and the Book Value, found by subtracting liabilities from assets (Book Value = Assets - Liabilities). In essence, this is the cash value of the company if operations were to halt this very day, and mass liquidation occurs. Usually, companies are considered cheap if they are within 1.1-1.4 Price/Book Value, depending on the sector. However, due to the massive panic selling, SIA is currently trading at 0.53 times Book Value. This poses an extreme discount for anyone involved in the equity markets.

Because there is no actual change to the company's fundamental operations, the price is sure to rebound to its original equilibrium once the pandemic and fears have passed, assuming the management handles the issue of cash flow well, and successfully bides their time during this period.

fig.2 DBS' Recent Trendline

Technical Strategy

As evident in fig.2 above, the 2-3 week DBS crash to its Book Value levels clearly respected the 10-year uptrend that started before 2010. Thus, two options present themselves. Ultra-long term investors who are satisfied with the P/B levels as well as the dividend yields can simply buy in at this level, as it already poses an attractive bargain for a strong low-risk stock. This means that riding out further dips in price would be easy, and the investor can simply average down to lower their overall price. However, for the shorter-term investor who might not wish to take any losses, the placement of a stoploss at the $16.50 level would limit losses to ~$2.50 per share, while exposing the position to a potential 1-2 year price rebound to $32.50+. This then provides the investor with ownership of a fundamentally strong dividend stock, while exposing them to a 1:5.5 Risk:Reward Ratio.

Assuming the price stays in the $20-$25 range in the next 5 years, an investor would still enjoy the dividend payout over these 5 years, normalizing the returns on the stock to ~$5 over its market value over 5 years. Furthermore, implementing the concept of compound interest would further amplify gains, regardless of price movements (or lack thereof).

Disclaimer: Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets, instruments and statements profiled on this page are purely opinion and are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should conduct your own thorough research before making any investment decisions. We do not take responsibility in any way for any decisions made after reading this article.