Valuing vice stocks
For this week’s issue on sin-themed stocks, The Edge Singapore has filtered and scored globally and locally listed, investable companies. The Singapore-listed stocks include Ascent Bridge, Emperador, Genting Singapore, Geo Energy Resources, Thai Beverage, and Singapore Technologies Engineering. As per previous issues, this scoring table is purely quantitative and considers six aspects of each company:
• Historical performance, which looks at the company’s historical financials over the past 10 years, where discounts are given for poor performance and inconsistency;
• Profitability, which looks at profitability ratios such as return on equity, return on assets and margins;
• Yields and valuation, which compares the company’s fundamental yields against the risk-free rate and its relative valuation to peers;
• Financial safety, which examines the company’s balance sheet, comprising of liquidity and solvency ratios, the quality of its shareholder equity, and any external credit rating on the company;
• Sentiment, which looks at analyst ratings and forward price ratios on the company;
• Price-to-value aspect, which compares the price growth to the weighted value growth over multiple periods. This weighted value includes revenue, net income, and cash flows in ascending order.
The highest scoring companies are the stocks investors ought to examine further for qualitative analysis and consider for their portfolio. Table 1 on Page 9 shows the scores for the top 10 global defence stocks. Table 2 shows the scores for 35 sin-themed companies, excluding defence stocks.The highest-scoring company in both tables is Shenzhen-listed Wuliangye Yibin, which manufactures and markets liquor. Similarly, the second-highest scoring company is Shanghai-listed Kweichow Moutai, which manufactures and sells alcoholic spirits. A strongly undervalued company is Korea-listed KT&G Corp, which produces and sells cigarette and tobacco products.
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/or after consulting licensed investment professionals, at their own risk.