Value investing: A file photo of the Singapore Stock Exchange lobby. Khoo says the Singapore market is the best option for yield. — Bloomberg
SINGAPORE: The US market will continue to suck in liquidity and outperform all others in 2025 but investors must pick the right buys and stay invested for the longer term.
That is the advice of well-known Singapore investment guru Adam Khoo, whose Adam Khoo Learning Technologies Group is one of Asia’s largest investor training and education companies.
“No one can predict the market, but if you are looking for growth and capital gains, you won’t find anything close to the US market,” he said.
“The only other market that offers anything close to this kind of growth is India, but you have to contend with the potential depreciation of the Indian rupee.”
Indeed, US equities remained a magnet for global capital flows throughout 2024, with around US$500bil in inflows during the year.
The S&P 500 had run up about 24% for the year till Dec 30, while the Nasdaq was up by 30%, and the Dow Jones was ahead by 13%.
The S&P 500 has returned 58% over the past two years, and 13% annualised over the past decade.
Analysts said the surge underscores global confidence in the US economy and market, and has driven the Tina (“There is no alternative”) narrative as Europe remains weak and China is mired in economic malaise.
But Khoo, a millionaire who has made a fortune via savvy stock investments, sees more upside on Wall Street.
He advised investors to identify good companies offering reasonable valuations, high growth and strong free cash flow, and whose products will remain in demand over the coming decade.
Companies we can’t live without
“I buy into companies we cannot live without,” he noted.
He reckoned that despite the sharp run-up, selected consumer discretionaries such as Nike, LVMH and Lululemon are still relatively cheap.
US healthcare plays like United Healthcare, which have pulled back sharply in recent weeks, are also in his sights.
Although tech has run up sharply, he sees value in high-growth, high-quality tech plays such as Apple, Tesla, Microsoft, Google, Salesforce and Amazon.
“If you look at just Amazon, they are into eCommerce, Prime, cloud computing and advertising,” he said. “Amazing growth drivers.”
Khoo said that while valuations from a price-earnings (PE) standpoint for tech stocks seemed high, high growth could justify them: “I’d rather buy a high-growth stock with a PE of 30 or 40, instead of being stuck with a low-growth stock with a PE of just five. The growth will justify the PE.”
He added that the local bourse offered value, rather than growth: “The Singapore market is one of the best for yield, and this is tax-free. The banks and S-REITs (Singapore-listed real estate investment trusts), in particular, offer very good returns for yield seekers.”
Khoo holds several S-REITs, especially those under the Temasek and Fraser groups.
Indeed, CGS International Research noted recently that the Singapore market offers an overall forward yield of 4.1% and return on equity of about 12.3% for 2025.
It recommended that investors focus on high-yield, high-growth stocks and value plays on the Singapore Exchange. Its top calls were Ascendas Reits, iFast, Sembcorp Industries, Seatrium, Singtel, UOB, Sats, ST Engineering, Yangzijiang and Keppel Corp.
Among the second-liners, favoured stocks cited by various research houses include LHN, Tiong Woon, Grand Banks, Marco Polo Marine and Centurion.
Khoo warned that while chasing companies based on profitability and growth, investors should not lose sight of factors like free cash flow.
“If you look back at Hyflux and Nobel Group, which collapsed some years ago, they had earnings, but were in negative free cash flow. Earnings numbers can be manipulated, but cash flow inadequacy shows up as red flags.”
Khoo said the decision between investing for capital gains and dividend yield would also depend on the age of the investor.
“If you are young, you might want to chase capital gains,” he said. “After you build up capital gains, start looking at dividends. So if you are young, look at the US stock market for growth. Pick the top 1% of companies that have consistent and predictable cash flows.
“Companies which can sustain a competitive advantage in the marketplace for the next 10 years, these would be companies with pricing power that gives them an economic moat. Even if they raise their prices, people will still buy their goods and services.”
Cyber-security companies have this moat as well, he added: “They have barriers to entry into their business, and it is often expensive and inconvenient for customers to switch to another vendor.”
On the other hand, Khoo largely avoids commodity, real estate and motoring stocks, citing their thin profit margins, cyclical revenue streams, highly competitive operating environment and high debt.
He advised investors to do some homework and crunch the numbers.
As a general rule, investors should seek out stocks which offer a return on equity of 10% to 15%, a debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio of under three times, and a debt servicing ratio (debt to cash flows) of under 30%.
Using these principles, Khoo has seen his portfolio of Wall Street stock holdings grow 220% since early 2019. This is in spite of the Covid-19 pandemic and interest rate hikes.
“I only invest in what I can value. You can value a real asset, but the value of crypto is purely psychological and hype-driven.
“To me, crypto is the greatest fool’s game. And the game will go on until the music stops, like musical chairs. You can purchase a painting, put it in a museum, and charge for viewing. How do you make money on crypto, other than via speculative bets?”
Listening to others
Khoo warned against investing with a Fomo (fear of missing out) mindset: “Don’t rush into stocks just because your friend or neighbour said he or she is making money.
“The easiest way to lose money is by listening to people, but not doing your own research. Also, do not get into investments beyond your understanding.”
He emphasised the importance of differentiating between speculating and investing, saying: “They require different mindsets. In speculative trading, you must have a stop-loss position.
“In investing, there is no stop loss. You buy and hold for five, 10 or 15 years. Don’t pay attention to short-term volatility.”
“Speculating is like a one-night stand. Investing is like marriage, a long-term commitment,” he said with a laugh.
Despite the sharp run-up by US stocks in 2024, Khoo remained cautiously upbeat on Wall Street stocks in 2025.
“We are at the early stages of the artificial intelligence revolution. Meanwhile, the increase in global liquidity will continue amid easing of the monetary cycle. The US market will also be bolstered by tax cuts under the Trump administration and more deregulation across sectors.”
Does he see a black swan event in 2025 which could upend markets?
“The two I would watch out for are runaway inflation arising from US President-elect Donald Trump’s policies, and geopolitical risks such as Russian President Vladimir Putin going after the Baltic states after his Ukraine campaign.” — The Straits Times/ANN
