Is it too late now to pick up stocks?

Plenty of investors are walking around dwelling on that most painful of questions: What if?

What if they had jumped back into the stock market in late March or April, soon after the market bottomed out?

Since then, the white knuckle panic of the global financial crisis has given way to optimism.

In Singapore, the Straits Times Index (STI) closed at a 13-month high of 2,712.15 on Oct 15. This was up a breathtaking 86 per cent from its March low of 1,456.95.

In fact, online unit trust distributor Fundsupermart.com is so bullish on the Singapore market that it recently announced it will donate $50,000 to a local charity if the STI does not hit its forecast level of 3,600 by the end of 2011.

Other market indexes also have enjoyed big rallies. The Dow Jones Industrial Average, a bellwether of top US stocks, crossed the psychologically important 10,000 level on Oct 14 for the first time in a year, boosted by robust US corporate results.

It is no wonder that investors are wondering if the bears have departed the scene for good. Also, what are the latest hot stock picks?

The Sunday Times polled some experts on their outlook on equities.

Q: Is the current rally sustainable?

Mr Timothy Wong, head of DBS and DBS Vickers Group Research:

'The current rally is not sustainable from a short-term two-month view. We think that upside will be capped at 2,800 over the next two months. However, the global economic recovery process is still panning out and we see more upside for the STI on a six- to 12-month basis. Our current 12-month forecast for the STI is 3,160.'

Ms Carmen Lee, head of research, OCBC Investment Research:

'We believe the momentum is still healthy, although the pace of appreciation may not be as sharp as what we witnessed in terms of the recent recovery.

'Confidence has also returned to the market. In the US, the Conference Board Consumer Confidence Index, which hit a low of 25.3 in February, has rebounded and is now at 53.1. With the renewed confidence from both businesses and consumers, together with the current liquidity and low interest rates in the market, this should continue to support interest in equities.'

Mr William Cai, director of GYC Financial Advisory:

'As the recovery is still at an early stage, investors still need to be cautious as we still have to see if sales growth and earnings data are sustainable early next year. The final drive that will swing us back to be more bullish will be further improvements on the job numbers, retail numbers and better corporate earnings. This could bring the STI to between 2,800 and 2,900 by year-end.

'However, from a technical perspective, in the short term, many equity markets look ripe for a correction of 5 to 10 per cent.'

Mr Wong Sui Jau, Fundsupermart general manager:

'Earnings have been battered to extremely low levels in 2009, and we expect earnings to be significantly higher next year and in 2011. Thus, we expect a sustainable rally, but only over the longer term as the recovery becomes more pronounced. We also do not rule out short-term corrections in the stock market, given the fickle nature of investor sentiment.'

Q: For investors still on the sidelines, what should they do?

Whilst some experts agree that the best part of the rally is over, it is not too late to get in now.

Instead of investing one lump sum, stock investors are advised to buy into the market in stages. Mr Cai's advice is for stock investors to stick to companies that are fundamentally sound. This means firms that have increasing sales revenue, high gross margins, free cash flows and healthy levels of borrowing.

'Start with 5 per cent of capital into each stock and increase only when it proves to be profitable. Limit the exposure to a stock or related stocks to 15 to 20 per cent,' said Mr Cai.

Stock picks

Here are some stock selections for investors who have set aside some cash for stock investments and have a five- to 10-year investment horizon. Before you buy any stocks, do note that you should do your own thorough research on the company first.

Mr Timothy Wong:

Investment: $10,000 to $20,000

'It is better to spread the risk and go for an exchange traded fund with exposure to emerging or Asia markets rather than an individual stock.'

Investment: $50,000 to $100,000

'Blue chips are preferred as they offer a much steadier return over the long term even as they undergo bull and bear markets. And in land-scarce Singapore, the property sector should offer long-term returns, so go for blue chips such as City Developments.'

Mr Gabriel Yap, senior dealing director at DMG & Partners Securities:

'Investors should set aside at least $50,000 if they want to invest in the stock market. Wait for a good pullback of 6 to 12 per cent to build up your investment portfolio.'

Here are his stock picks:

1) OCBC Bank: Banks normally outperform in the second stage of recovery.

2) DBS Bank: DBS currently has the cheapest valuation among Singapore banks.

3) Bukit Sembawang: The property developer owns a great landbank in the Seletar area which is undergoing rapid changes. Its cash flow is expected to improve.

4) CapitaMall Trust: It has a great portfolio of assets with respect to locations, yields and borrowing levels.

5) Ascendas Reit: Its high-tech properties are under-rented, so there is potential for higher rents. Its built-to-suit strategy and acquisitions are expected to propel growth further.

6) Frasers Centrepoint Trust: The acquisitions of Northpoint 2 and Yew Tee Point next year will propel growth. It also has conservative management and a robust balance sheet.

7) Noble Group: The recent investment by Chinese sovereign wealth fund China Investment Corp will open doors further for this commodities trading firm. It is expected to benefit further from increasing profit margins.

8) Midas Holdings: Midas engages in the manufacture of aluminium alloy extrusion products primarily for the rail transportation and infrastructure sectors in China.

It is therefore a great beneficiary of China's rail industry's booming growth.

Mr Kenneth Ng, head of CIMB-GK Research:

'Investors should ask themselves which Singapore company can truly turn into a pan -Asian leader in five to 10 years' time. Stocks I would own for a five- to 10-year investment horizon must be potential leaders in their field.'

Here are his stock picks.

1) Sembcorp Industries: The utilities division will give it a stable earnings growth profile, which will also benefit from the clustering of the petrochemical industry in Singapore. Its offshore & marine division will benefit in the next few years from orders.

2) Parkway Holdings: It is on the way to becoming a significant Asian health-care player. It already has an entrenched leadership position in Singapore which will improve further when its hospital at Novena opens in 2011. It will also benefit as Singapore builds its position as a health-care hub for the region.

3) Parkway Life Reit: We like Parkway Life Reit because we see health-care assets as one of the most stable asset classes and this Reit stands out as one of the few health-care Reits that can amalgamate such assets.

4) Ascott Reit: Its assets are diversified over Asia and serviced residences stand as a good asset class to benefit from increased business dealings in Asia. With Asia likely to grow in importance as the main growth driver for the world, travel for business projects will grow in tandem.

5) DBS: It is the cheapest among the three Singapore banks, but stands out as the Singapore bank which has established the overseas platform with the most potential. Its short-term risk is poor risk management.

6) Wilmar International: The management of the palm oil producer is proven. Its integrated exposure across the palm oil value chain allows it to manage prices and profit from market intelligence. And its leadership position for cooking oils in China is immensely valuable.

7) Genting Singapore: It is likely to remain as one of Singapore's top five market capitalisation stocks in future. Short-term risks are: high market expectations and the potential disappointment of first-year profitability if a gestation period is necessary.

8) Noble Group: It is enjoying increased volumes and value-added processing capabilities from projects coming online, as well as its expansion into the oil and gas segment. Emergence of a Chinese shareholder also solves capital requirement to fund future growth.