There are many ways to find investment insights. 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 11 January 2019. They are DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11) and Oversea-Chinese Banking Corp Limited (SGX: O39).
Source: Singapore Exchange; SGX Stock Facts
From the above, we can see that institutional investors have been excited about the local banks, buying up all three companies’ stocks in the past week. 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.
Let’s start with DBS Group. For the quarter ended 30 September 2018, DBS Group reported that income grew by 10% from a year ago to S$3.4 billion. Net interest income (income from loans) improved by 15% year-on-year to S$2.3 billion, driven by improvement in net interest margin and loan volume growth. As a result, net profit jumped 72% to S$1.4 billion due to higher income and lower allowances.
Similarly, 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. Higher total income, as well as lower allowances, resulted in a higher net profit of 17% year-on-year to S$1.0 billion.
Now let’s move on to OCBC. Similar to its peers above, 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. Moreover, higher total income resulted in net profit up by 12% year-on-year to a record S$1.25 billion!
The banks are expected to report the last quarter result for 2018 in the coming next few weeks. Despite all negative macro news, such as trade war and Brexit, there’s no clear indication that the banks are going to report weaker performance anytime soon.
Another compelling reason that suggests the current purchase of the local banks’ stocks is their valuation. For example, OCBC’s share price of S$11.66, is trading at 1.2 price-to-book (PB) ratio, price-to-earnings (PE) ratio of 10.5 and a dividend yield of 3.4%. The DBS share price of S$ 25.03, on the other hand, is trading at price-to-book (PB) ratio of 1.3, price-to-earnings (PE) ratio of 11.9 and a dividend yield of 4.9%.
Comparatively, the market average’s PB ratio, PE ratio and dividend yield is at 1.1 times, 11.5 times and 3.5% respectively. If we use 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).”
Overall, we can see that the banks trading at a valuation that is comparable to the market average.
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, United Overseas Bank Ltd and DBS Group Holdings Ltd.