Think back to the year Nigerians made obscene profits on the stock market. It’s 2008. The same year ranked as the worst year investors have ever had. The power of greed was so great that it drove stock prices beyond their true values.
Those who are knowledgeable and experienced made the most of it and exited the market. Others who were touched by the herd effect were not so lucky. They were stranded when prices plummeted. It was a painful experience for speculators. Statistics reveal that investors have lost about 3.9 billion naira.
Now the stock prices on the Nigerian stock market look very attractive, but investors are very afraid to risk putting fresh funds on the market. The emotion of fear is really reigning now. Smart investors know that this is the right time to buy cheap and buy big. But on what premise would you base your investment drive this time?
There is widespread concern about the global recession, the freezing of margin facilities by banks, the devaluation of the naira and the general slowdown in the economy. What criteria should you use to choose stocks in these difficult times as a forward-thinking investor?
That is the question I wish to answer in this article.
Factors to consider
1. Historical stability
Companies with a history of profitable performance over the years, barring unforeseen circumstances, will continue to improve best practices to make investors happy. Remember that First Bank some time ago took a chance on investing in the emerging Nigerian communications market through ILL. That deal went awry, but the bank didn’t go under as a result. Years later, it continued to deliver favorable results and paid dividends and bonuses to investors. Currently, this action is a delight for investors. The First Bank has been consistent over the years and has a strong reserve base.
2. Competitive advantage
Companies that outperform the market over their competitors have a good chance of surviving this difficult time. Strong brands like Cadbury and UACN will continue to make waves in the market. Its products have been permanently registered in the minds of Nigerian consumers. These products will continue to be sold. They are even restructuring and introducing new products that consumers have been buying. The more people who use these products, the higher the profitability with good management of human and material resources.
3. Strong financial base
Companies that have been building reserves over the years from their earnings have something to turn to this downturn to fund projects that will add value to their markets and deliver a good return to investors. UBA and GTB are building financial energy reserves. The strong reserve base is largely responsible for its expansion into foreign markets. You can see pure gold here. When those foreign branches start to turn a profit, what do you think investors will enjoy? Good timing and high return on investment, of course, especially around the turn of the bulls.
4. Very profitable
Not all companies have the ability to manage resources well to obtain maximum benefit. The fiscal management of certain institutions is so deficient that it profoundly affects their profit margin. In the banking sector, Oceanic Bank stands out for its prudent management of the fiscal portfolio. Making a profit is not the only thing that matters. Having enough to keep is the skill that delights investors.
5. Very underrated
Stocks that are undervalued are the first to rebound in a bull market. You are not going to make a profit on the return of the bulls. Your profit margin is decided at the time of your investment. Taking the risk of investing when the company is undervalued guarantees high returns when the market recovers. Unity Bank currently enjoys agricultural services on loan terms from the world bank. At less than 3 naira at the current market price, the stock is seriously undervalued.
Winning attitude for predictable profits
* Continue fully invested
* Invest in fundamentally sound stocks
* Ignore the economic forecast and be determined to excel in any economy. The stock market always performs better in the long run and is the only solution to inflation when it comes to your money.
* Continue to acquire more financial and investment skills
* Be less emotional in your decisions
Sectors and actions to consider
1. Agriculture
This sector is on the rise as one of the main contributors to Nigeria’s gross domestic product and income. New frontiers in livestock and cocoa processing are paying off. Listed companies, for example cocoa processor FTN, Livestock Feeds and Okomu Oil offer promise of good prospects.
2. Food and drinks
Even in a recession, people will continue to demand food and their confectionery. The logic by which this sector will work is simple. As long as man lives, the demand for food and drink will continue. Along with good management, companies in this sector, such as Dangote Sugar, Tantalizer, Hariner Mills and Honey Well, will continue to delight investors by paying dividends.
3. Banking
Nigerian banks are currently aggressive in their expansion campaign into Africa and beyond. Income and earnings will soon begin to show on the balance sheet. Some banks, such as First Bank, UBA, GTB, Zenith and Bank PHB, have performed well and will continue to reward investors as long as the bears reign.
4. Communications
Nigeria’s communications sector is one of the fastest growing in the world. Despite all the infrastructure challenges, companies operating in this sector have made obscene profits and investors will benefit the most from their operations in 2009. Starcom is the only stock listed in this sector for now on the stock market of Nigeria. Investing in it now will not be a bad idea.
5. Clusters
History is in favor of this sector. In particular, they have the ability to restructure and reshape their businesses in difficult times. An action like UACN will continue to delight investors
6. Transportation
Talk about monopoly. ABC Transport is the only company in this sector that is listed on the stock market. It has been consistent in paying dividends since it was listed in 2006.
7. Insurance
The insurance industry currently enjoys goodwill and patronage as investors continue to position themselves for long-term profit taking. Companies like International Energy Insurance and Cornerstone are very attractive.
Learn how to allocate the majority of your available fund to the food and beverage sector to minimize your risk. Thinking long term is a sure strategy that will ensure your success in 2009 and beyond.
