10 Undervalued Stocks with Strong Earnings Momentum (Oct 2023)
Sep Update
The portfolio made a total profit of 0.8% in Sep. Assuming a $100k capital invested equally in the 10 stocks, the portfolio will yield $800 profits. UMS has dropped out from the top 10 stocks, and exited with a profit of 6.5%. Mapletree PanAsia Commercial Trust is added to the list. Refer to the table below for more details.
Introduction
Investing in undervalued stocks has long been a favored approach of legendary investor Warren Buffett, who has built a remarkable track record by identifying stocks with significant growth potential. By combining fundamental analysis with a keen eye for undervalued opportunities, Buffett has demonstrated the power of this investment strategy.
In this article, we will explore an investment approach that incorporates the price-to-earnings (P/E) ratio, earnings per share (EPS) growth, and price momentum, drawing inspiration from Warren Buffett’s methodology to uncover undervalued stocks with promising prospects.
4 Simple Steps to Screen Undervalued Stocks
- Analyzing Price-to-Earnings (P/E) Ratio:
The first step in our strategy is to evaluate the P/E ratio of a stock. The P/E ratio helps us assess whether a stock is undervalued or overvalued relative to its earnings. A low P/E ratio suggests that the stock may be undervalued, indicating a potential buying opportunity. However, it’s important to consider the industry average and compare the P/E ratio to competitors to gain a broader perspective. - Identifying Strong EPS Growth:
EPS growth is a crucial factor to consider when evaluating undervalued stocks. A company with consistent and robust EPS growth indicates a healthy financial performance and the potential for future profitability. Look for companies with a track record of positive EPS growth and consider the sustainability of their growth trajectory. Strong EPS growth is often a sign of a company’s competitive advantage and market potential. - Incorporating Price Momentum:
While fundamental analysis provides a solid foundation for identifying undervalued stocks, price momentum analysis adds another layer to the strategy. Pay attention to stocks that are trading at or near their new highs. Price momentum suggests that the stock is gaining positive investor sentiment and that market participants believe in its growth potential. This can be a significant indicator of upward price movement and potential further gains. - Combining the Factors:
To implement this investment strategy, begin by screening for stocks with a relatively low P/E ratio compared to their peers in the same industry. Next, narrow down the list by focusing on companies with strong EPS growth over the past few years. Finally, identify stocks that are exhibiting positive price momentum and are trading at or near their new highs. This combination of factors helps identify undervalued stocks with growth potential.
10 Stocks With Strong Earnings Momentum
Based on the strategy above, we have shortlisted 10 stocks with low P/E, strong earnings growth and trading near its recent high. Data as of 6 Oct 2023.
| Stock | Entry Price | Latest Price | Market cap | P/E | EPS diluted growth % | Profit/ Loss | Status |
|---|---|---|---|---|---|---|---|
| UOB | $ 28.28 | $ 28.26 | 47.284B | 8.84 | 61.16% | -0.1% | Hold |
| Jardine C&C | $ 32.13 | $ 30.78 | 12.699B | 10.43 | 94.15% | -4.2% | Hold |
| Suntec REIT | $ 1.22 | $ 1.16 | 3.53B | 13.59 | 416.09% | -4.9% | Hold |
| KEPPEL REIT | $ 0.88 | $ 0.83 | 3.317B | 11.73 | 1171.19% | -5.7% | Hold |
| GOLDEN AGRI-RES | $ 0.24 | $ 0.27 | 3.046B | 3.85 | 71.63% | 10.4% | Hold |
| FRASERS PROPERTY LIMITED | $ 0.77 | $ 0.82 | 3.003B | 3.22 | 307.02% | 6.5% | Hold |
| HAW PAR | $ 9.83 | $ 9.85 | 2.176B | 12.42 | 114.18% | 0.2% | Hold |
| THE HOUR GLASS | $ 1.95 | $ 1.92 | 1.311B | 7.52 | 121.16% | -1.5% | Hold |
| AIMS APAC REIT | $ 1.27 | $ 1.29 | 1.028B | 9.80 | 93.30% | 1.6% | Hold |
| MAPLETREE PANASIA COM TR | $ 1.36 | $ 1.36 | 7.291M | 12.12 | 442.03% | 0.0% | New |
| UMS | $ 1.23 | $ 1.31 | 820.623M | 9.4 | 44.48% | 6.5% | Exited |
Below are 5 highlighted stocks based on the list above.
United Overseas Bank (SGX: U11)
United Overseas Bank (UOB) is a leading financial institution with a strong presence in the Asia-Pacific region. With a relatively low P/E ratio compared to its peers in the banking industry and a consistent track record of earnings growth, UOB represents an undervalued stock with promising potential.
Suntec REIT (SGX: T82U)
Suntec Real Estate Investment Trust (REIT) is a Singapore-based REIT that focuses on high-quality commercial properties. Despite its resilience in the real estate sector, Suntec REIT has maintained a consistent dividend payout. Additionally, its robust earnings growth and portfolio diversification contribute to its appeal as an investment opportunity
Keppel REIT (SGX: K71U)
Keppel REIT is another Singapore-based REIT that primarily invests in commercial properties. With a lower-than-average P/E ratio compared to its industry peers and a positive earnings growth trajectory, Keppel REIT represents an attractive investment option for those seeking undervalued stocks with growth potential.
Jardine Cycle & Carriage (SGX: C07)
Jardine Cycle & Carriage is a conglomerate with significant interests in the automotive sector, operating primarily in Southeast Asia. Despite its diversified business portfolio, Jardine C&C exhibits an undervalued P/E ratio and has demonstrated consistent earnings growth, making it an intriguing investment candidate.
Haw Par (SGX: H02)
Haw Par Corporation is a multinational corporation engaged in healthcare and leisure businesses. Despite its strong market presence, Haw Par has a relatively low P/E ratio compared to its industry peers. Furthermore, its consistent earnings growth adds to its appeal as an undervalued stock with growth potential.
Summary
Investing in undervalued stocks using a combination of P/E ratio, EPS growth, and price momentum can be a rewarding strategy for long-term investors. By identifying stocks with low P/E ratios, strong EPS growth, and positive price momentum, investors can uncover hidden gems that may have been overlooked by the market. However, it’s essential to conduct thorough research, consider the company’s fundamentals, and diversify your investment portfolio.
