Pounce on the turnaround plays: DBS

Which five stocks could bring a handsome payoff given the declining global risks?

FNN, SingTel, China Merchant Pacific, Sound Global and World Precision are all poised to rebound, and investors have a golden opportunity if they play their cards right with these stocks.

Here's more from DBS:

Go bottom up as macro risks recede while GDP growth remains sub-par ‘Risk on’ trades are back on as the immediate danger of a Euro crisis GFC recedes. Refinancing costs have fallen across most of Europe while the Euro has rebounded. Across the Atlantic, US economic data continues to indicate sub-par rather than zero growth, while the current round of earnings reports there has helped equity indices.

Look for potential turnaround in tech and last year’s laggards. In an environment where macro risks are gradually receding, but where GDP growth remains sub-par, bottom-up investing can pay off. Tech, especially HDD-related, is poised for a rebound on re-stocking demand after the floods last year in Thailand. The sector is also amongst the most oversold. We see Broadway (Upgrade to Buy, TP: S$0.44) as offering the biggest turnaround potential and Armstrong (NR, Fair value: S$0.40). Among last year’s laggards, we foresee an earnings rebound for Hyflux (Buy, S$1.78), Ying Li (Buy, S$0.52) and potentially lower losses for NOL (Hold, TP: S$1.25).

Select stocks with company specific situation / catalysts. Apart from good fundamentals, investors should select stocks with company specific situations or opportunities 1) to unlock value of the holding company’s subsidiaries; 2) involving M&A or privatization. Our bottom-up picks include FNN (Buy, TP: S$7.20), SingTel (Buy, TP: S$3.32), China Merchant Pacific (Buy, TP: S$1.10), Sound Global (Buy, TP: S$0.90) and World Precision (Upgrade to Buy, TP: S$0.68).

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Tags: Singapore stock market, Singapore stock market picks, turnarounds