Granted that I do not write about individual counters frequently (save for the “Inside The Bedokian’s Portfolio” series), I had decided to pen down what and where I am looking at now, as a form of airing and sharing my thoughts. A huge disclosure and disclaimer here that we are presently owning these counters and doing an averaging up/down. Do your own due diligence and research before entering.
The recent hammering of the equities and REITs asset classes, plus the preference of depositing capital in short-term bills and bank deposits due to the shrinking risk premium and rising interest rates, had seen prices of erstwhile favoured counters plummeting. It is at such times that we can find some buying opportunities, given the perceived cheap prices they are now.
I will share three counters, plus two bonuses, on where we are likely to deploy our capital next as part of our active rebalancing management.
What And Where #1: Apple (listed in NASDAQ)
As with most other counters in the technology sector in 2022, Apple’s plunge was no exception; its price had dropped around 24.1% year-to-date (YTD). Reasons attributed to this fall are many, among them the impending recession that is coming, the slowing down of iPhone production, etc.
Despite the negativity, Apple is still in a strong financial position for the past three to four years: it has an increasing free cash flow (FCF) position; its earnings before interest, taxes depreciation and amortization (better known as EBITDA) is increasing, albeit slower within the last two years; and its total liabilities were constantly within the same range (see Figure 1 below).
Selected Financial Figures | TTM | 2021 | 2020 | 2019 |
FCF | 107,582 | 92,953 | 73,365 | 58,896 |
EBITDA | 129,557 | 120,233 | 77,344 | 76,477 |
Total Liabilities | 278,202 | 287,912 | 258,549 | 248,028 |
Fig.1: Selected financial figures of Apple. Figures in millions. Apple’s year end date is 30 Sep (Source: Yahoo Finance, Seeking Alpha).
Going into price movement, Apple’s decreasing YTD was not really in a straight line, but rather in an up-down fashion. If a YTD figure was to be taken at January, March and August, it would not have been as low as -24.1%, but rather -1.7% at best.
Traditionally, Apple’s best quarterly EBITDA numbers in a calendar year were at the quarter ending in December, a trend which I had observed since 2010, as this period is associated with year-end holiday shopping. Based on guesstimates, the trend should follow through for 2022, and this may spell yet another jump for Apple’s share price by that time.
Bedokian’s Apple Average Price/Share: approx. USD 75.39
What And Where #2 & #3: Frasers Centrepoint Trust & SPH REIT (listed in SGX)
The relaxation of COVID-19 rules meant that in-person shopping and dining (and tourists) were back in vogue and revenge. In other words, the retail segment is back. However, rising interest rates meant higher cost of loans, and the narrowing margin of risk premium meant investors would want to be compensated with a higher yield for the extra risk taken. In my opinion, these two major factors contributed to a fall in REIT prices throughout.
Taking into consideration the raised points above, I would use three major metrics for the selection of favourable retail REITs in our portfolio to add: low price-to-book ratio (P/B), low gearing and respectable yield. Frasers Centrepoint Trust (FCT) and SPH REIT came into my spotlight (see Figure 2 below).
REIT | P/B Ratio | Gearing | Yield (trailing) |
FCT | 0.94 | 34.5% | 5.569% |
SPH REIT | 0.99 | 30.3% | 6.000% |
Fig. 2: Selected figures of FCT and SPH REIT (Source: Reitdata.com, with P/B ratio calculated from available figures).
These two were selected based on their locations of their properties (FCT primarily in heartlands, and SPH REIT possessed Paragon in the Orchard Road shopping belt). Furthermore, for FCT, it is an uncommon occurrence for its price to go below the net asset value, hence it is a good opportune time to load further.
Bedokian’s FCT Average Price/Share: approx. SGD 2.04
Bedokian’s SPH REIT Average Price/Share: approx. SGD 1.02
Bonus #1: Russell 2000 Covered Call ETF (listed in NYSEARCA)
The Russell 2000 Covered Call ETF (RYLD) is a dividend-generating counter that uses covered call strategies to generate income. As I had shared here before, the compromise of covered call ETFs is the limited upside of the share price, in exchange for relatively higher dividend yields, so this style of investing may not be for everyone (thus, being categorized as “bonus” here). Think of it as a high interest account with no capital guarantee.
Anyway, the YTD price had gone down 23.8%; even with a trailing dividend yield of 12.41%, it is still suffering from a loss of 23.8 – 12.4 = 11.4% or thereabouts. In my opinion, it is feasible to add into this counter as this is much better covered call ETF compared to the rest (I will write more on this ETF in a later article).
Note that RYLD is sitting inside our trading portfolio and not our investment portfolio, due to its options characteristic.
Bedokian’s RYLD Average Price/Share: approx. USD 21.63
Bonus #2: iShares FTSE China A50 ETF (listed in HKEX)
In my 2022 preview (here), I had talked about venturing into China, and my selected proxy is the iShares FTSE China A50 ETF (2823.HK).
2022 had not been kind to the Middle Kingdom: extended lockdowns due to a zero-COVID-19 policy, the big property developer busts, geopolitical tensions, etc. Regardless, my guesstimate for the next decade would see China as continually growing as it is going to become a more complete economy with its still manufacturing base available, a rising middle class to sustain consumerism, and their seemingly autarkic technology sector.
I had selected the 2823.HK due to the A-Share holdings and the diverse sectors. I will write more on this ETF in a later date.
Bedokian’s 2823.HK Average Price/Share: approx. HKD 18.08
Conclusion
When the markets open later today, we are not sure how these counters’ prices would go. Internally I had set different levels of entry prices to commit different tranches of our capital (hint: the 10-30 rule1) over the course of next few months, but when prices are recovering above my entry price, we would hold back and probably divert the funds to the others, or just stay put.
All data and information stated above are as at 30 Sep 2022.
1 – The Bedokian Portfolio (2nd Ed), p131-133
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