Value Investing Based On Net Asset Value

For those who are serious in investing for the long run, it might be interesting to look at the financial ratio, Net Asset Value (NAV). NAV is basically the value of the company owned by shareholders after paying off all of its liabilities. A value investor like Warren Buffett and Benjamin Graham would be interested in buying the shares of companies trading at a discount to their NAV.

The problem with NAV is that it includes intangible assets like trademark and goodwill on acquisition. Since such assets don’t exist physically, valuation becomes questionable. This is perhaps why Warren Buffett isn’t very fond of investing in internet technology companies like Google and Microsoft since it is difficult to value the true net worth of these companies.

NAV is better suited for companies that own ‘hard assets’ like property, plant and machineries or transportation fleet. We shall take a look at 3 companies that are trading at a discount to NAV in the respective sector.

Singapore Land (S30)

Source: ShareInvestor Station Dynamic TA Chart

Singapore Land is a property stock owning mainly office buildings in Singapore. It is currently trading at S$5.80. Its NAV is S$10.74. The stock is currently trading at 0.54x its NAV. If the stock were to appreciate to its NAV value of S$10.74, the capital gain would be a cool 85% return on investment.

STATS ChipPAC (S24)

Source: ShareInvestor Station Dynamic TA Chart

STATS ChipPAC is a chip tester in the semiconductor industry. It owns very expensive equipment used to test and assemble chips. It is currently trading at S$0.48. Its NAV is S$0.58. The stock is currently trading at 0.83x its NAV. If the stock were to appreciate to its NAV value of S$0.58, the capital gain would be a respectable 21% return on investment.

NOL (N03)

Source: ShareInvestor Station Dynamic TA Chart

NOL is a container shipping company. It owns a fleet of container ships. It is currently trading at S$1.28. Its NAV is S$1.48. The stock is currently trading at 0.86x its NAV. If the stock were to appreciate to its NAV value of S$1.48, the capital gain would be a respectable 16% return on investment.

Analysis

All three companies do the same thing. Their balance sheet consists mainly of fixed assets which they rent out to make money. They are trading below their NAV for a very simple reason. The fixed asset they own are not fully utilised due to the current global economic slowdown.

The assumption made by investors buying stocks trading below their NAV is eventually the time will come when demand returns for the goods and service these companies provide. When the company makes more money, naturally the share price will rise.

Buying stocks trading at a discount to NAV is essentially a waiting game, sort of like fishing. The wait varies depending on your skill in picking stocks in the right sector and some element of luck. A successful investor would need patience and a long life.

Discount to NAV on ShareInvestor.com

ShareInvestor.com provides a list of stock sorted by discount to NAV in ascending order via this link for subscribers. Below is a screenshot of the list of stock. Generally the higher the discount to NAV, the “cheaper” the stock compared to its NAV.

Source: ShareInvestor.com

Below is a screenshot of the location of the financial ratios on the factsheet.

Source: ShareInvestor.com

 

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