Telcos top picks in two outlook reports as volatility persists

M1, SingTel, DBS, Frasers Centrepoint Trust have emerged as key ‘buy’ calls

WITH global uncertainties carrying over from 2011 into the new year, telecommunications stocks have once again come up as top picks in two market outlook and strategy reports.

M1, SingTel, DBS, and Frasers Centrepoint Trust, in particular, have emerged as key ‘buy’ calls from both UOB Kay Hian Research and OCBC Bank’s Wealth Panel, in separate reports released on Friday.

Forecasting a 2012 Straits Times Index (STI) price to earnings (PE) ratio of 12.1x, UOB Kay Hian said the index’s valuation is ‘undemanding’ – at a 26 per cent discount to its long-term PE mean of 16.3x (since 1993).

‘Nevertheless, we think the discount may remain elevated in the near term, given the uncertain prospects for 2012 corporate earnings and lingering concerns over the euro debt crisis,’ said UOB Kay Hian.

The research house said investors should opt for a balance of sustainable high-yield stocks, selective retail Reits, and ‘undervalued laggards with specific stock catalysts’.

Apart from the telcos, UOB Kay Hian’s key ‘buys’ included CapitaLand and Ezion, while City Developments and NOL sat in its key ‘sells’ list. It also recently upgraded Wing Tai and Ho Bee to ‘buys’ due to their deep value after sharp share price corrections in December last year.

Meanwhile, OCBC Investment Research head Carmen Lee warned that even though share prices appear to have discounted weaker earnings expectations, ‘they may not have been fully priced in the worst case scenario’.

Said Ms Lee: ‘If the outlook deteriorates significantly, earnings estimates will need to be shaved further.’

With volatility persisting and investor confidence remaining fragile, the OCBC Wealth Panel said that it prefers quality and safer assets, and high dividend yielding defensive stocks.

Telecommunications aside, the OCBC team said that they continue to favour the healthcare and oil and gas sectors in 2012. Its picks for the year include Raffles Medical, Keppel Corp, Sembcorp Marine, Biosensors, and Golden Agri-Resources.

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