These Singapore sectors and stocks have amazing investment potential

Follow this equity research strategy from DBS.

Singapore banks, plantation and water treatment plant stocks could all provide upside earnings surprises, and are all attractive investment choices, according to DBS.

For stocks, expect the likes of SIIC, Ezion, Bumitama, Centurion, Yangzijiang, Nam Cheong and Pacific Radiance to outperform the market with potential earnings upside.

DBS added: "This quarter is a good time to position into stocks which provided bumper final dividend yields from the latest results – M1 and China Merchant which surprised on dividend payout. Other high yield stocks are Comfort Delgro, ST Engineering and Venture."

Here's the complete equity research Singapore strategy from DBS:

Earnings cut of 1.3%. Although 4Q13 reporting season saw further downward earnings revisions, the extent of downgrades is tapering off, the impact limited at 1.3% and came primarily from Real estate and Technology sector. We now expect earnings growth of 12% and 9% for FY14F and FY15F, respectively.

Waiting for winter chill to be over. Recent economic data releases out of US have been weaker-than-expected while that out of China is mixed. Add these to the latest geopolitical uncertainties to hit Eastern Europe, we advocate a selective stance while awaiting clearer indications that the current weak US data spell is just temporary, due to the weather. The impetus may come from a US ‘spring revival’ as economic activities there warm up again with the end of the cold winter.

Plantations and water treatment stocks continue to shine. We believe the key to re-rating Singapore equities will come from an end to the earnings downgrade cycle. Sectors which could provide upside earnings surprises are Banks (NIM could surprise), Plantation (drought pushes up CPO prices), and water treatment on more EPC contracts from China. However, downside could come from Property (delay in property launches), Consumer goods (margin pressure if commodity prices rise), Transport (domestic cost pressure and spike in oil prices), Construction (labour cost pressure), Offshore and Marine (volatile margins).

Buy stocks with potential earnings upside. Earnings growth for Singapore equities can be fluid, with varied earnings risks coming from a weaker than expected US/global recovery, geopolitical uncertainties, changes in weather conditions and rising cost pressures in Singapore. We search our coverage universe for stocks that could outperform with potential earnings upside – SIIC, Ezion, Bumitama, Centurion, Yangzijiang, Nam Cheong and Pacific
Radiance.

Bumper yield. This quarter is a good time to position into stocks which provided bumper final dividend yields from the latest results – M1 and China Merchant which surprised on dividend payout. Other high yield stocks are Comfort Delgro, ST Engineering and Venture.