Source: Unsplash
One thing caught my eye this week.
And no, it’s not a pretty girl. I am a married man. One wife is enough.
The FBMKLCI (Malaysia market) is still trading at only around 1,600 levels. And it has been so for the past few weeks.
If you have been reading some of the newsletters (not many read them, I know), I have previously highlighted that research houses are forecasting that the market will be trading above the 1,700 level by the end of the year.
But there’s only 6 more weeks left.
No doubt the market could climb up to that level. But now might be a good time to do our research and identify some potential companies to invest in.
This week, our main story will delve deep into the various Malaysian sectors to identify potentially cheap investments to accumulate.
Story of the Week: Which sectors are undervalued in Malaysia?
The Malaysian market price-to-earnings ratio (my preferred metric for valuation) fell to 17.1 times currently from its 3-year historical average of 17.5 times. The price-to-earnings ratio is how much the share price is trading above the yearly earnings of the company.
The last time it fell below that level was the period from June 2022 to May 2023. After that, it has consistently remained above that level.
So, this might be a good opportunity to look closely at Malaysian companies’ valuations.
Let’s start from the big picture. SimplyWallSt has a very useful table that gives the sectors’ valuations and forecasted profit growth for the year. Here it is.
First of, we can do a simple analysis of this and view every sector below 17.5 times as undervalued. That leaves us with only consumer discretionary. utilities, real estate, energy and financials sectors.
However, that is not an accurate way of finding cheap opportunities. After all, most of these sectors typically trade below the average market valuations as they are ‘boring’. When sectors are ‘boring’, there’s not much happening and investors don’t really have any interest in them. Hence, opportunities for share price going up are less.
A more accurate way will be to look at the individual sectors’ historical valuations. Luckily, SimplyWallSt also provides this, but we have to work a bit harder to get the data. Here is what I have collected for each sector.
There are two things that I did here.
I compared each sector’s current PER to its historical 3-year figure. The ones in green mean that the sector is trading at levels that are below the historical PER, which means they are cheap to buy.
Secondly, I also put in the forecasted growth rate by SimplyWallSt and compare the sector’s growth to the overall market. The ones in green mean that their growth is forecasted to be higher than the overall market’s 10.5%.
Right off the bat, the telecommunications sector seems to be at the sweet spot with current valuations being 30% below historical, and a projected growth of 15.3%.
Next up, it’s a matter of what suits your preferences. But I am looking at the energy sector which is trading at 53% below its historical PER. I myself prefer to look for bargains which are steady. A 9.1% forecasted growth is lower than the market’s average of 10.5%, but it is still fine to me.
Two more sectors that I am keeping my eye on — technology and healthcare. Now, both sectors are trading above their historical valuations, but they do have strong forecasted growth rates.
