The Straits Times Index, a benchmark of the Singapore bourse, crossed 2,500 points this month, a six-year high, before retreating to close at 2,497.31 points on Friday.
Despite the buoyant market, it is no time to invest willy-nilly simply because in a market downturn, poor-quality stocks will be hammered.
How does an investor pick all-weather stocks that are relatively resilient and have the potential to rise?
Some experts say go for growth stocks - that is, look for businesses whose sales and earnings are growing at a nice clip.
But among businesses that are likely to be profitable, how do you zero in on those which can squeeze more profit out of a given sum of shareholders' money?
That is where return on equity (ROE) comes in, say analysts.
However, that alone is not enough: You need to buy stocks cheap, or you will not have a high chance of making gains.
That is why you would want to look also at a stock's price-earnings (PE) ratio, the most widely used tool of valuation.
There are many other criteria, but these are some of the key ones that can make investing a party most of the time.
No doubt, successful stock-picking is a complex exercise: Analysts recommend 'buy' or 'sell' based on several factors - not just one.
And they don't look at just quantitative factors.
They weigh other issues such as the company's business model and the management's vision, or lack of it, and the industry trends.
And even when an analyst - or you, for that matter - has not stinted on research, his forecasts can fail to materialise for various reasons: for example, the business could suffer an unexpected upset.
For what they are worth, here are examples of stocks that meet some key criteria and others that don't. This is based on some analyst reports released in the past month.
Growth of at least 20%
TWENTY per cent growth in both earnings per share (EPS) and sales is enough to get any stock noticed.
Anything above 50 per cent should amaze - but it is a rate that is not sustainable in the long run.
Raffles Education, which offers fashion design and multimedia courses, is set to grow its sales and earnings per share (EPS) this year by 47 per cent and 66 per cent, respectively, according to OCBC Investment Research analyst Chong Wee Lee.
Raffles Education has delivered high growth in the past few years, which explains why its shares have been among the best performers ever on the Singapore Exchange.
Since its initial public offer in 2002, it has soared 6,500 per cent, rising from 3.5 cents (adjusted for bonus issues) to $2.32 last week.
'We reiterate our buy rating on Raffles Education,' says Mr Chong, who has a target price of $2.81.
To contrast, consider a slow grower like Datapulse Technology, which provides services, such as manufacturing, relating to CD-ROMs and DVDs.
Its sales will post zero growth this year while its EPS will grow a tepid 2 per cent, says Kim Eng Securities analyst Vilasini Thavarajah.
With an outlook like that, it is not surprising the analyst recommends a 'sell' on the stock.
PE ratio of under 15
THIS ratio compares the stock price with the EPS. The lower the ratio is, the more of a bargain the stock probably is.
Take Zhongguo Powerplus, which makes hand-held agricultural equipment in China.
Based on an EPS of 4.65 cents this year, as forecast by Sias Research analyst Doris Wong, the stock's PE ratio is only 6.1. This is calculated by dividing its recent stock price of 28.5 cents by the EPS.
'We believe it's currently undervalued, as compared with the China stocks listed on the SGX, which average about eight in terms of PE ratio,' she says.
She expects Zhongguo Powerplus' EPS and sales growth to be around 12.5 per cent each - which is decent but not meteoric.
She recommends a 'buy' on the stock and her target price is 32 cents.
Next year might be a better year, with sales growing 15 per cent and EPS 23.9 per cent, she reckons.
In contrast, an example of a stock that is considered expensive is Datapulse.
Kim Eng Securities reckons the stock is trading at a PE ratio of 55, based on this year's earnings.
Another example is Hyflux, a water treatment specialist.
After surging more than 1,000 per cent since its IPO in 2001 as its business boomed, the stock now trades at around $2.70.
That translates into a lofty PE ratio of 32, based on CIMB-GK analyst Kerryn Tay's forecast EPS of 8.5 cents for this year.
That's why she says the stock will 'underperform because of its lofty valuation'.
ROE of at least 25%
ROE is useful in distinguishing firms that are well-oiled profit machines from poorly-run ones in the same industry.
Consider two companies that each earned $1 million.
Company A achieved this with $5 million of shareholders' money. Company B achieved it with $25 million.
Company A is clearly more attractive to invest in as it can do more with less.
A's ROE is calculated to be 20 per cent ($1 million divided by $5 million multiplied by 100 per cent).
B's is only 4 per cent ($1 million divided by $25 million multiplied by 100 per cent).
FibreChem Technologies, a China company that makes synthetic fibres, is set to have an ROE of 39 per cent this year, reckons analyst Kenneth Ng of CIMB-GK Research.
FibreChem has a track record of strong and rising ROEs: 21 per cent in 2004 and 28 per cent last year.
Mr Ng recommends a 'buy' on the stock and a target price of $1.67, compared with its recent price of $1.12.
At the other extreme of the ROE range are stocks such as BreadTalk, whose bakery items are popular and innovative. However, its stock is not as popular among investors, and has stagnated in the 20-25 cent range over the past year.
BreadTalk is in a highly competitive business. Its net profit margin this year is forecast by Phillip Securities analyst Pauline Lee to be razor-thin at 1.44 per cent - that is, based on sales of $112 million, the firm is expected to make $1.4 million in net profit.
Its ROE is expected to be only 6.6 per cent this year, she says.
Low or zero debt
DEBT cuts both ways: It can boost a business' growth, but the interest cost can become a heavy burden, especially during a downturn.
Some companies can grow at a healthy rate without debt. One of them is Micro-Mechanics, which makes products for the semiconductor industry.
And it has other fairly attractive financials, according to OCBC Investment Research analyst Suan Teck Kin, who has a 'buy' rating and a target price of 56 cents for the stock:
ROE of 20 per cent forecast for this year.
EPS growth of 18 per cent this year.
PE of 10 this year, based on the recent stock price of 47.5 cents.
For an example of how devastating debt can be, consider Lindeteves-Jacoberg, which makes electrical motors. As at the end of last year, it had outstanding borrowings of $257 million. Its interest expense was $17.9 million.
The firm, once a market darling, suffered a net loss of $156.5 million last year. Its stock, which was trading at more than $1 in mid-2003, now hovers at around 16 cents.
