Local opportunities in today's market

SSL In The Money

with Jean-Ann Panton

Wednesday, January 18, 2012

With the pullback in the local market seen over the last three to four weeks, many investors are wondering what their next move should be. You may be asking yourself these questions: should I cut my losses? Sell my non-performing stocks and invest in the ones that may offer better returns? Or do I wait it out?

The law of gravity states, what goes up, must come down, so, the reverse must be true. This theory can be applied to stock market investing. Therefore, in the current climate, a wise investor has much to gain by following Warren Buffet's strategy of buying fundamentally sound companies when the market is low and selling when the market is high. Currently, there are a number of opportunities to take positions in undervalued stocks and average down on those investments made a year ago possibly at a high average cost.

Take for instance, The National Commercial Bank of Jamaica Ltd, which closed at $26.61 on January 17, 2012, after hitting a 52-week high of $34.00 on November 7, 2011. NCBJ appreciated 45 per cent in 2011 having posted record results. For the 2010/2011 financial year, NCBJ's net profit climbed 17.69 per cent to $13.03 billion as operating revenue jumped 20.2 per cent to $26.19 billion and the group recorded a one-off gain from associates of $1.02 billion. These results represent at least the seventh consecutive year of annual Profit increases. As NCBJ continues to aggressively grow its business through expansion of its loan book and plans to boost its capital base, investors should consider picking up this stock which trades at five times trailing twelve month earnings, the lowest on the finance industry on the Jamaica Stock Exchange (JSE) Main Market.

While NCBJ's rival Scotia Group Ltd may not have churned out as robust a performance, the Group continues to be fundamentally sound, boasting a solid management team that maintains its focus on long_term growth. For YE 2010/2011, net income declined marginally to $10.62 billion from $10.7 billion a year ago but represents the Group's ability to sustain profitability amid a challenging economic climate. SGJ, which has a dividend yield of 6.83 per cent, is an excellent conservative play for your portfolio particularly at trading levels of $21.68 (close on January 17, 2012) a 9.07 per cent decline since the start of the year.

Pan-Jamaican Investment Trust Ltd, though not as liquid as those mentioned above, is also a fundamentally sound and diversified company. For Q03 2011, Net Profit climbed 33.1 per cent to $454 million boosted by improved results from its property segment and strong earnings from its associated companies, including Sagicor Life Jamaica Ltd. Additionally, its amalgamation with closely related company, First Jamaica Investments Ltd, has helped to remove market confusion, making it a definite force in the market place. At $59.04 (close on January 17, 2012), the stock is trading 74 per cent below its book value making it an attractive buy.

Having declined 10.92 per cent since the start of the year, Desnoes and Geddes Ltd which closed at $4.57 on January 17, 2012, has a 52-week high of $5.75. As part of its strategic initiatives to increase efficiency and boost profitability, the company recently announced its decision to cease domestic production of Red Stripe for the US market. The shift is anticipated to benefit the company in numerous ways including less volatility in earnings and significantly lower distribution costs.

Over on the Junior Market, AMG Packaging and Paper Co Ltd is similarly focusing on efficiency as it seeks to grow its business. The company, via its recent IPO, has been able to upgrade its production equipment, assisting in the reduction of wastage and improved production on a daily basis. AMG's Q01 2011/2012 Net profit climbed 44 per cent to $12.13 million, mainly attributable to the tax exemption due to its listing on the Junior Market and a 20 per cent rise in Turnover to $89.37 million. Profit before tax fell to $11.5 million from $12.7 million. Since listing on July 12, 2011 at $2.88, the stock gained 40 per cent to close at $4.02 on January 17, 2012. However, the current pullback from a 52-week high of $5.75 on November 1, 2011, makes AMG attractively priced and an excellent addition to consider for your portfolio.

Caribbean Producers Group Jamaica Ltd is another Junior Market option with growth potential. The company has diverse revenue streams and various plans for expansion, including building a larger agro processing plant, expanding and improving its warehousing facilities, setting up a distribution centre in St Lucia and acquiring further brands. In-line with its growth objectives, CPJ recently commenced a retail outlet in Kingston at an approximate cost of $80 million. The complex, which it expects to complete September 2012, is anticipated to generate in excess of $300 million in Revenue. CPJ closed $2.42 January 17, 2012, down from a 52-week high of $3.01.

Many opportunities exist locally and internationally and as you look to rebalance amid the current investment climate, you should bear in mind that consistently adhering to sound investment techniques tends to yield positive results especially in the long run. Stick to companies with sound fundamentals and established track records as well as those with strong prospects for future growth.

Jean-Ann Panton is a Wealth Advisor at Stocks & Securities Ltd. You may contact her at jpanton@sslinvest.com

Do you feel buying into Facebook now is a good investment for the long-run?
	Yes
	No

View Results
Results published weekly in Sunday Finance

Username:
Password:

GCT to go down, white rum prices going up

Local opportunities in today's market