Felix Leong says he once was a professional poker player and stock broker but now is a full-time investor. This article was recently published on Felix Leong's blog and is republished with permission.


I RECENTLY
 wrote about how ST Engineering under performed the index over the last 5 years, as investors paid too high of a price for it and ended up only with disappointment. Today, I'm gonna talk about why this wonderful company looks like a good buy.

» Trading Close to 2-Year Low


ST Engineering has declined 15% over the last 12 months! Within the last 2 years it ran up to as high as 4.56 before crashing down to a recent low of 3.22, mainly due to its third quarter results falling behind analyst expectations.

STEngg_chrt12.14STEngg recently traded at $3.41. Chart: Yahoo! 


» Below Historical PE 

Like I mentioned in my previous article, investors in the past paid too high of a price of way over 20 times earnings, which did not translate into good returns. Currently, it's only trading at slightly over 18 times earnings which gives some sort of comfort. However, do note that this doesn't mean ST Engineering is selling cheap, I do think that its a great company with a wide moat selling at fair price, the kind that Warren Buffett wouldn't mind paying up to hold for long term.

» Insider Buying


Looking at the recent SGX announcement page, one would find that two of its major shareholders have been picking up more shares of ST Engineering. Temasek which owns a 50% stake bought more at 3.46 and Aberdeen which owns close to 10% bought more at 3.60, so like how Peter Lynch used to say "when insiders sells, there could be many reasons, but when insiders buy, it only means they think it will go up!" Currently it still trades below both their recent purchase prices.

» Dividend Yield

Even though management have stated that they would be paying out less of their earnings as dividends (a reduction to 75% of earnings), I do think that they should not have any major problems paying out at least 14 cents for a yield of at least 4%, which is still pretty decent. I also estimate they can grow earnings around 5% annually, so investors could expect around 8-10% long term returns from this defensive blue chip.

» Government Backing

What does Starhub, Semb Corp Industries and ST Engineering have most in common that I like them so much? They are all government backed blue chips! These are the solid companies that I would want to hold when facing a potential market crash (well, US is looking more like a bubble day after day breaking record highs) and not a basket of highly geared penny stocks. If this makes you sleep well at night while collecting constant dividends, why not?


Quote"If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards." - Peter Lynch


"If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored." - Peter Lynch 

 


Recent stories: ST ENGINEERING -- Target $4.30; QT VASCULAR -- 51 Cents

FELIX LEONG: 8 Stocks That I'm Watching


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