I was invited to the Obafemi Awolowo University, Ile-Ife, a campus reputed to be one of the most beautiful in the whole of Africa, to give a talk to the Junior Chamber members and one of the participants asked me if I was still active in the capital market. He asked because he had not been seeing me on television, talking about how one can make money on the Nigerian Stock Market and other global exchanges. I told him that I was and I went on to discuss how there is still value in some stocks that could help him grow his portfolio and wealth. I will share some of my strategies with you, in the hope that you will do your own research or seek advice before investing your hard-earned income.
In view of the tone of economic policy, as capped in the proposed budget for the 2016 fiscal year, here are key sub-sectors of the economy that may spring some surprises, as their business fundamentals may receive an unprecedented boost.
•Agriculture (Okomu Oil, Presco)
•Mortgage (Aso Savings and Loans, Resort Savings and Loans)
•Cement (Dangote Cement, Ashaka Cement, WAPCO)
•Building, Construction/Real Estate (Julius Berger, UPDC)
•Banking and Financial Institutions (Guaranty Trust Bank Plc and Stanbic IBTC)
I will now treat the above-mentioned stocks in detail and give you the underlying fundamentals that will help you stay with the stocks through thick and thin. It was Warren Buffet who also said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” What he was simply saying is that he looks for fundamentals in a company before he sets out to buy its stock. What do we mean by fundamentals? We need to pay serious attention to the management set-up of companies – who are on the boards of these companies? What are their corporate beliefs? Andmost importantly, what growth strategies do they have?
Agriculture: Okomu Oil and Presco are the two companies that we will look at in this sub-sector and this majorly because of the renewed interest of the government in investing in the agricultural value chain. We believe that as the government invests in agriculture, these companies, because of their robust management set-up, will be the direct beneficiaries of these policies. Let me quickly sound a note of warning that investment in agriculture does not yield overnight returns, but with proper dividends re-investment and capital growth, the harvest will be bountiful.
Mortgage: Aso Savings and Loans and Resort Savings and Loans are the two companies we researched and found worthy of your investment, as the managements of the two companies met our stringent fundamental analysis rules.
The fact that the federal, government through the Minister of Power, Works and Housing is favourably disposed to the idea of mortgages over building and selling outright to the populace makes these two companies very important. The development strategy of Aso Savings and Loans is also very robust and they have decades of experience in the housing and mortgage sectors. The prices of these stocks are very low right now, so we advise that you start buying slowly in the year and then increase your stake when the government policies around housing start taking shape.
Cement: Dangote Cement, Ashaka Cement and West African Portland Cement.
That the government’s budget places great emphasis on infrastructural development and on roads and construction will definitely benefit the companies in this sector. It is actually going to be a double jackpot for them, as their products will be needed in the housing sector as well. You will also recall that these companies have, over the years, invested greatly in their plants and have fully completed their automation. Their prices are also at an all-time low. So why not take the plunge and ride it out?
Building, Construction/Real Estate: Julius Berger and UPDC were both selected because of their sound management and financial power and most importantly, the policy thrust of the government, which favours the construction of houses, roads and general infrastructure. The fact that their prices are also at an all-time low is also a great incentive for investing in them.
Banking and Financial Institutions: Guaranty Trust Bank Plc and Stanbic IBTC Plc have overtaken First Bank Plc and Zenith Bank Plc as the two top banks in Nigeria, by market price and return on investment. It is important to note that the banking industry is having very serious liquidity issues, due to the low price of oil and the global economic downturn, but we still feel that these two stocks should be in your portfolio for balance and the fact that they will be the first beneficiaries of a positive global outlook. The banks are very lean and drive most of their business through information technology (IT) and sound management. They also have foreign partners they can fall back on whenever they have to execute a mega deal.
I conclude my column today by again quoting Warren Buffet: “Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.”