* Please note that The Edge Markets Ratios is no longer available on Lim & Tan Online Trading Platform.
| The Edge Markets Ratios: A Better Way to Pick Good Stocks | |||||
| The Importance of Picking Fundamentally Strong Stocks | |||||
| Just like buckling your car seat belt, picking fundamentally strong stocks is your belt of safety. It may sound boring or cautious, but is essential in managing your risk before anything unexpected happens. As a stockbroker, managing risk is a daily operation for me. One day, I chanced upon a video advert by BlackRock with this message: "Manage the risk first and the rest will take care of itself". This message is simple, yet it is often ignored among us investors. BlackRock is a large US fund manager, and one of their biggest passion is to understand and manage risk. | |||||
| The Edge Markets Valuation & Fundamental Ratios | |||||
| It used to be a very tedious task to choose fundamentally strong stocks. Who has the hours of running through ratios, reading into financial statements and then waiting for the right time for entry? Someone else has done all the work for you: we can now use The Edge Markets Valuation and Fundamental ratios to access and pick good stocks, minus the hours of tedious reading and understanding. These ratios are readily accessible on our online trading platform. To view, right-click on the stock name and select "The Edge Markets": | |||||
| Valuation Score | Fundamental Score | ||||
| The valuation score is a snapshot of the stock's attractiveness, ie. how undervalued or overvalued it is as compared to what it is worth on paper. The valuation score ranges from 0-3. A valuation score of 0 means the stock could be overbought or overvalued, making it unattractive to buy. A high score of 3 means valuations are attractive. | The fundamental score is a snapshot of the company's profitability and balance sheet strength. The fundamental score also ranges from 0-3. A score of 0 means weak fundamentals while a score of 3 means that the company is a fundamentally strong stock. |
| How can I use the scores? | |||||
| 1) The first step is to check on the fundamental score. The higher the score, the better. As a benchmark, look towards picking stocks with fundamental scores of 1.5 and above. A fundamental score of 3 means a company has a strong underlying base and can generally mean it is a good value investment for the longer-term. | |||||
| 2) Proceed to check on the valuation score. If you come across a company that has a good fundamental score and thereafter a good valuation score, it indicates that the stock is strong yet not bought up to the price that it is worth. | |||||
| 3) The third step is to check on the liquidity of the stock. This is important. It will not make sense to buy an undervalued strong stock with hardly any trading volume (easy to buy but difficult to sell). Let's take a look at the scores of the Straits Times Index (STI) Components. It gives us a very good idea on which stocks to look out for within the index. | |||||
| From the list, in general, we can see that the 3 major banks in Singapore are fundamentally strong and still relatively undervalued. Commodity stocks Golden Agr, Noble, Olam and Wilmar have the lowest fundamental scores. These commodity stocks are also typically not dividend-paying stocks, hence, for me, I do not consider them as potentials in my portfolio. Once you have picked out the stocks to focus on, add them to your watchlist and monitor them for low price entry. | |||||
| As of 29 Jun 2015: | |||||
| STI Constituents | Valuation Score | Fundamental Score | |||
| 1 | Ascendas Reit | 1.00 | 1.80 | ||
| 2 | Capitaland | 2.60 | 1.00 | ||
| 3 | Capitamall Trust | 0.50 | 1.40 | ||
| 4 | CityDev | 1.40 | 1.60 | ||
| 5 | ComfortDelGro | Worth keeping track | 1.30 | 2.10 | |
| 6 | DBS | Keep close-watch! | 2.25 | 2.20 | |
| 7 | Genting Sing | 0.80 | 2.55 | ||
| 8 | Global Logistic | 0.80 | 1.90 | ||
| 9 | Golden Agri-Res | 1.20 | 0.55 | ...No... :( | |
| 10 | HongkongLand USD | Keep close-watch! | 2.00 | 2.15 | |
| 11 | HPH Trust SGD | 1.20 | 0.75 | ||
| 12 | Jardine C&C | 1.50 | 1.10 | ||
| 13 | JMH USD | 0.70 | 0.85 | ||
| 14 | JSH USD | 0.80 | 1.00 | ||
| 15 | Keppel Corp | 2.40 | 1.50 | ||
| 16 | Noble | 2.00 | 0.15 | ...No...:( | |
| 17 | OCBC Bank | Keep close-watch! | 3.00 | 2.20 | |
| 18 | Olam Intl | 1.40 | 0.50 | ||
| 19 | Sembcorp Ind | 1.80 | 1.10 | ||
| 20 | Sembcorp Marine | 1.80 | 1.70 | ||
| 21 | SGX | Worth keeping track | 1.50 | 2.30 | |
| 22 | SIA | 1.40 | 1.65 | ||
| 23 | SIA Engineering | Worth keeping track | 1.10 | 3.00 | |
| 24 | SingTel | 1.10 | 1.15 | ||
| 25 | SPH | 1.40 | 1.60 | ||
| 26 | ST Engineering | Worth keeping track | 1.50 | 2.10 | |
| 27 | StarHub | 1.50 | 1.55 | ||
| 28 | ThaiBev | 1.10 | 1.15 | ||
| 29 | UOB | Keep close-watch! | 2.40 | 2.20 | |
| 30 | Wilmar Intl | 1.00 | 0.80 | ...No...:( | |
