The market experienced a bloody Monday.
It could be triggered by any of these reasons: mounting US recession fear, Japan’s interest rate hike, heightened tension in the Middle East, Berkshire Hathaway increased their cash pile. More likely, it is a cumulation of the above that caused the plunge of global markets.
Hmm, maybe it’s the beginning of the lunar 7th month? Just kidding. As the saying goes, the market often finds a reason to sell, regardless of underlying fundamentals.
Being a bottom-up investor, market melt down presents an opportunity to buy more of the businesses that I am interested and believe in. Due to the recent sales, I was able to squeeze out some spare cash to add more DBS Group Holdings (SGX: D01) this morning. Additionally, I maxed out my CPF Investment Scheme Limit to for a bit more AEM Holdings (SGX: AWX).
DBS – Sustainable performance and dividends
“Based on expected Fed rate cuts in the second half, we are expecting 2024 earnings to be around 2023 levels. Net interest income is expected to be around 2023 levels as a lower net interest margin is offset by loan growth and the full-period impact of Citi Taiwan, which was consolidated in August 2023.”
– DBS responses to substantial and relevant questions for 25th AGM
Similar to my view on OCBC and UOB, I believe DBS could manage the imminent rate cuts. The bank has guided similar earnings for FY2024. Given that it achieved a record earnings for 1Q 2024, there is no reason to think that the guidance will be incorrect. Hence, I expect at least $2.16 dividends for FY2024, which translate to an attractive yield of 6.3% at my purchased price.
AEM – Long-term prospect remains in tact
With or without the market carnage, AEM price was already on the decline as its key customer Intel Corporation (NASDAQ: INTC) reported a big Q2 earnings miss and guided a loss for the third quarter last Thursday.
I am unsure of the impact on AEM as Intel indicated that it will continue to fund the investments needed to deliver its strategy. Is AEM Test 2.0 solutions part of these investments? I do not know, but my take is if Intel keeps to its roadmap, it will benefit AEM eventually.
Coupled with the orders won by AEM from the new customer, I continue to believe that AEM has a market that it can grow into. But I am only expecting numbers to show up in the second half of next financial year.
Managing the downside risk
Of course, I could have made the incorrect judgement for my investment. To manage the downside risk, I keep it to a position size that I am comfortable with.
For DBS, it currently takes up about 5% of my portfolio. OCBC and UOB will bump that up to 20%. As for AEM, it only takes up about 1% and I am not intending to add to it further as I already hit my CPF Investment Scheme limit.
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