There are many ways to find investment ideas. Some useful ways are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue.
Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they are doing, as a way to generate ideas.
In this article, I will look at three Singapore stocks (among the top ten stocks) that have seen the highest net purchases in dollar value by institutional investors for the week ended 28 December 2018. They are: Oversea-Chinese Banking Corp Limited (SGX: O39), Wilmar International Limited (SGX: F34), and United Overseas Bank Ltd (SGX: U11).
Source: Singapore Exchange; SGX StockFacts
The company with the highest net acquisition by institutional investors during the week was our local bank OCBC.
There are many good reasons that might have driven the recent purchase. For one, the local banks have been delivering solid results in the last few quarters. Here are some numbers for OCBC: For the quarter ended 30 September 2018, OCBC reported that total income grew by 5% from a year ago to S$2.5 billion. Net interest income (income from loans) grew 9% year-on-year to S$1.5 billion, driven by improvement in net interest margin and loan volume growth. Non-interest income, on the other hand, was flat. Higher total income resulted in net profit to rise by 12% year-on-year to a record S$1.25 billion.
Another good reason is that the bank is trading at undemanding valuation at the moment. Here’s an article that I have written on OCBC’s valuation. The main content of the article is as follows:
“At OCBC’s share price of S$11.34, it is trading at price-to-book (PB) ratio, price-to-earnings (PE) ratio and dividend yield of 1.2 times, 10.2 times and 3.5%, respectively.
Comparatively, the market average’s PB ratio, PE ratio and dividend yield is at 1.1 times, 11.0 times and 3.6% respectively. Here, I’m using SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).”
The second company with significant institutional buying last week is Wilmar International.
As a quick introduction, Wilmar is an agricultural company that operates through four main categories: Tropical Oils, Oilseeds and Grains, Sugar, and Others.
Similar to OCBC, Wilmar delivered some good results recently. For the quarter ended 30 September 2018, Wilmar reported that revenue increased by 4.3% to US$11.6 billion. Similarly, net profit grew by 10.7% to US$407.4 million. This was driven by stronger performance in the Tropical Oils, and Oilseeds and Grains segments, and higher contribution from associates and joint ventures. Year to date, the group generated US$1.65 billion in net cash flow from operating activities, resulting in free cash flow of US$773.4 million.
Kuok Khoon Hong, the chairman and chief executive of Wilmar, commented:
“Performance of the new processing plants we have invested in the past years, especially in China, Indonesia and India, continues to improve and this has helped us achieve the current good set of results. We expect most of our operations to continue to do well in the coming quarter, due to generally better processing margins. Overall, we are cautiously optimistic that performance for the rest of the year will be satisfactory.”
Last but not least, we have another local bank — United Overseas Bank, or UOB.
In general, UOB shares a number of similar characteristics (from the investing perspective) with OCBC. For one, it also delivered solid financial performance in the last quarter.
For the quarter ended 30 September 2018, UOB reported that total income grew by 8% from a year ago to S$2.3 billion. Net interest income (income from loans) grew 14% year-on-year to S$1.6 billion, driven by improvement in net interest margin and loan volume growth. Net fee income was up by 2% year-on-year to S$484 million. Higher total income, as well as lower allowances, resulted in higher net profit of 17% year-on-year to S$1.0 billion.
Moreover, UOB’s trading at valuation that is comparable to the market average. At the current share price of S$24.26, UOB is trading at a PB ratio, PE ratio and dividend yield of 1.1, 10.7 and 4.0% respectively.
Looking at what institutional investors are doing could be a useful tool in your toolkit when sourcing for investment ideas. But do note that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful starting point for further research.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn't own shares in any companies mentioned. Motley Fool has recommendations for Oversea-Chinese Banking Corp Limited and United Overseas Bank Ltd.