Go for high dividend yield stocks

Top stocks: A man watches trading boards at a private stock market gallery in Kuala Lumpur. High on MIDF Research’s list of recommendations for the third quarter are Bermaz Auto Bhd and Malayan Banking Bhd, as well as Mah Sing Group Bhd and UOA Develeopment Bhd. — AP

MIDF Research tells investors to pick up these counters to ride out current volatility

PETALING JAYA: Investors should stick to high dividend yielding counters with strong earnings growth prospects to ride out the current volatility in the stock market, says MIDF Research.

High on its list of recommendations for the third quarter are Mazda dealer Bermaz Auto Bhd and Malayan Banking Bhd, as well as property plays Mah Sing Group Bhd and UOA Develeopment Bhd.

These counters, the firm said, offer investors a minimum dividend yield of 6% at their current price levels. Recent broad selloff in the stock market have also pushed the share prices of these companies below their fair values.

“Disconnects fundamental value of these stocks vis-a-vis the share price movements affected by the market risk would present good buying opportunities, particularly for good dividend paying counters and the companies with strong earnings that could withstand the impact from the external front,” the team at MIDF Research said in the quarterly report.

Mah Sing offers the best mix in terms of defensive quality and strong upside potential. MIDF reckoned at RM1.07, the stock is trading at at a 50% discount to its target price.

Among the big caps, battered banking stock CIMB Group Holdings Bhd trumped Maybank when comparing their share prices upside worth, but Maybank is much superior in terms of steady dividend payout.

For investors looking for hefty capital gain, MIDF top pick is AirAsia Bhd. The firm has a target price of RM4.87 for the airline stock, compared with its market price of RM2.99.

MIDF Research also maintained its positive outlook for the stock market.

It expects the FTSE Bursa Malaysia KL Composite Index to close the year at 1,800 points.

Despite the sharp fall, MIDF said that the index is still relatively expensive at 15.6 times projected earnings compared with other regional markets.

After outperforming all key South-East Asian, North American and European markets in the first quarter of this year, the local equity market began to descend in late April.

The price pullback became more precipitous in May 2018 amid a sustained outflow of foreign funds.

At 1,663 points last Friday, the FTSE Bursa Malaysia KL Composite Index had fallen by almost 12% from its recent peak in mid April. At current level, the benchmark is at its lowest level since January 2017.

Recent sharp decline in share prices across the board has fuelled talks that the market is heading into bear market territory after almost a decade of uninterrupted bull run.

A bear market is when the index fall by more than 20% from its recent peak.

“There are still lingering concerns over the wide ranging effect from the external front that will rein on the performance of the local bourse,” MIDF said.

These factors, including rising global trade tension and changes in monetary policy in developed countries, MIDF said will likely to feature prominently in the immediate to medium term.