TIMES are tough, so why waste money this Christmas on a gift that will give only temporary satisfaction. Treat yourself or someone you love to an investment that provides arguably the best opportunity for positive real returns for investors at this time – stocks.

According to NCB Capital Markets vice president of sales and client services, Vernon James, with the rates on fixed income likely to remain low and unattractive, the appetite for stocks is increasing and this will in turn lead to an increase in prices.

Indeed, supporting James’ assessment is the performance of the main Market index on the Jamaica Stock Exchange since the completion of the Jamaica Debt Exchange (JDX) on February 24, 2010, when the average yield on Government of Jamaica (GOJ) Jamaican dollarsdenominated bonds fell to 12 per cent from 19 per cent. The index has gained

six per cent since the JDX, with 22 stocks advancing and 16 declining over the period.

“The potential capital gains are one of the most compelling reasons to invest in equities,” said James, adding that

“dividend payments also provide another incentive for investing in the stock market.”

James told Sunday Finance that finding stocks that make frequent dividend payments with yields above money market rates can be used to augment returns.

“In essence, the stock market currently provides excellent opportunities for investors to pick up stocks at discounted prices while benefiting from frequent cash flows,” explained the NCB Capital Markets executive.

James along with two other experts — Stocks and Securities Limited’s Kimberly Thelwell and Jamaica Money Market Brokers’ Donette Johnson — revealed what stocks they think investors should seriously consider buying right now.

Donette Johnson

Senior Equities Trader

Jamaica Money Market Brokers Limited (JMMB)

Main Market

* Pan Jam Investments (PJAM) trading at a P/E of six, which is below the sector and market average, has a strong balance sheet. The company’s results have been negatively impacted by the harsh economic environment as is evident in the segment reporting; but with strong leadership and sound management practices, the company will withstand the challenges. The company pays a quarterly dividend with a payout thus far for 2010 being $1.12. $1.36 was paid out in 2009, a four per cent dividend yield. Pan Jam is one of those companies which exudes investor confidence.

* Jamaica Producers Group (JPG) recently revised their dividend policy to an annual payout of 15 per cent of after-tax profits, subject to cash flow availability, subject to periodic review. The company has spent the last two to three years changing its business model in light of the global recession and the benefits are now accruing to the bottom line. At the current trading price of $21.01, the stock is trading below its book value (as at Q3 2010) of $29.30.

* Jamaica Broilers (JBG), like many of its counterparts in the manufacturing sector has had its fair share of challenges. The stock remains an investor’s favourite and is one of the most liquid stocks on the local exchange. The stock currently trades at a price of $6.11 and a P/E of six. One big plus for the group has been its ability to reduce finance costs which augurs well in this environment. For the first quarter, the Best Dressed Foods and HiPro Ace Divisions were the star performers for the Group. The ethanol operations were negatively impacted by “reductions in tolling activities”.

Junior Market

* Junior Market stocks provide an opportunity for investors to participate in the ownership of small and medium-sized enterprises. Since October 2009, when there was 1 listing, this number has grown to six, namely Access Financial Services, Blue Power Group, Jamaican Teas Limited, Lasco Distributors, Lasco Financial Services and Lasco Manufacturing. The Junior Market Index has seen tremendous growth since its first listing, with a year-to-date appreciation of just over 165 points or 110 per cent. The Junior Market stocks have thus far communicated their intent of an annual dividend payout upwards of 20 per cent out of profits. As this market develops, as the saying goes, “let the buyer beware” and investors should consult their investment advisors as usual before buying stocks. However, this market is a viable option for investors seeking returns both in terms of capital appreciation and dividends.

Regional

* West Indian Tobacco Company (WCO): with investors focusing more on dividend stocks in a declining interest rate environment, the gravitational pull towards West Indian Tobacco has been intoxicating. The share price has had a year-to-date appreciation of 39.5 per cent to its currently trading price of TT$45.20. Historically the company has maintained a high dividend payout policy, which at current price levels amounts to a yield of seven per cent (in a TT environment where interest rates are empathetically lower than local rates). For the 9M 2010, the company reported a three per cent year-on-year increase in profits.

Kimberly Thelwell Manager, Research & Analyst, Corp Finance & Advisory Services Stocks and Securities Limited (SSL)

Main Market

(1) Carreras Ltd (CAR) — Historically, after announced Special Consumption Tax (SCT) increases on cigarettes, we usually see CAR’s stock price dip between six per cent to 10 per cent. However, the stock tends to rebound on strong EPS growth. Notably, in the past two quarters, the company’s core business has regained momentum with revenue climbing 31 per cent for the six-month period ending September 30, 2010. In addition, CAR is one of the highest dividend yielding stocks on the Jamaica Stock Exchange (JSE) with a yield of 11 per cent.

(2) National Commercial Bank of Jamaica Ltd (NCBJ) — NCBJ remains a fundamentally sound Company with a strong capital base and a track record of growth. For its year ended September 30, 2010, net profit climbed 8.07 per cent to $11.07 billion boosted by a strong performance from its Wealth Management Division. Its dividend yield of 7.86 per cent also makes this stock an attractive buy.

(3) Scotia Group Jamaica Ltd (SGJ) — Though net profit for the full year declined 7.8 per cent to $10.7 billion, the Group’s performance demonstrates its ability to produce positive earnings in spite of the challenging economic climate and lower yields due to the Jamaica Debt Exchange (JDX). The stock has pulled back slightly in the second half of the year, providing a BUY opportunity for investors.

Junior Market

In addition to Main Market stocks, SSL sees value in the JSE Junior Market, which has provided a medium through which investors can invest in smaller or mid-size companies in our economy that are regulated. It is important to note that during a prolonged recession most large or mature companies register flat or declining revenue and earnings growth. On the other hand, smaller companies that are fundamentally sound tend to see stronger growth opportunities. Specifically, SSL recommends:

(1) Lasco Manufacturing Ltd (LASM) — LASM enjoys strong brand loyalty locally for its products and has begun to penetrate certain key export markets via its International Division which it seeks to further expand using a portion of the proceeds from its IPO. Though the stock has gained almost 60 per cent since listing on the Junior Market on October 12, 2010, SSL expects this stock to continue on this upward trajectory over the upcoming months.

(2) Dolphin Cove Ltd — Dolphin Cove has produced consistently strong results in spite of the challenging economic climate owing to the fact that it has a niche market; with significant barriers to entry. The company also has favourable growth prospects with the opening of the Falmouth port, which is 30 minutes away from both its Ocho Rios and Hanover attractions. Additionally, given the anticipated strengthening of its balance sheet as a result of its IPO, SSL recommends Dolphin Cove as a buy.

Vernon James Vice-President, Sales and Client Services, National Commercial Bank Capital Markets Ltd ?Pan Jamaica Investment Trust – PJAM

Pan Jam has consistently delivered above average earnings growth over the past five years through strategic decisionmaking. The company is endowed with a sound management team, prime real estate assets, market leadership in key business segments and significant financial flexibility. Pan Jam owns substantial Triple A office properties in Kingston’s prime business district. The company also has substantial holdings of retail shopping properties in one of Kingston’s upscale shopping plazas.

The company continues to enjoy high occupancy levels. PJAM, (like most listed companies is expected to report lower earnings in 2010). This, as the property segment has been under pressure by the economic downturn — in particular its retail holdings — and property revaluation income declined. In addition, its share of results from associated companies should decline with declining earnings from SLJ and H&L. That said, the company has a very low price to book value ratio of 0.84X (book value of $59.26) and the lowest P/E ratio in the group of conglomerates. PJAM’s P/E ratio is 6.58X (lower than the group average of 11.64X) and below the three-year average of 6.60X.

Scotia Group Jamaica

BSNJ is one of the leading players in the local banking sector and the bank is making a strong bid to maintain this position. Through its acquisition of Dehring, Bunting & Golding Limited (later renamed Scotia DBG Investments), the group gained a much needed foothold in the Wealth Management industry. The combined operations of the two entities, Scotia Group Jamaica, has a strong and experienced management team which has an enviable record of consistently improving profitability and an adherence to prudent risk management standards. SDBG Investments has leveraged Scotia’s strong brand equity and BNSJ’s nationwide branch network to grow its market share wealth management industry and cost savings. A well diversified business line has helped the group to weather the adverse impact of the current operating environment. With declining earnings from the core banking segments, improved earnings from SJLIC has offset some of this and helped the group to fare better than a few of its peers.

Scotia Group has been the most aggressive in the loans market with a 375 basis points cut in lending rates so far. The group has also managed to grow its loan portfolio when others have seen stable or a shrinking loan portfolio.

Large stable customer deposit base — SGJ leads the industry in terms of deposits placed by the public. The bank’s weathering of the financial sector crisis in the 1990 has established its reputation as a prudent and well-run institution and as such it has benefited from a stable deposit base. The bank continues to attract and retain customers’ savings — a major source of low cost funds — which gives the bank a competitive edge over its main rivals as it continues to leverage it to drive loan and profitability growth.

Operational Efficiency, strong conservative/risk management — SGJ is one of the most efficient financial institutions. The company has been able to remain cost efficient by leveraging its investments in technology as well as consolidation and streamlining business process and structures. SGJ trades at a P/E of 6.65X compared to a market average of 9.79X.

Jamaica Broilers Group

After 50 years of being in operations JBG is still finding new ways to grow earnings. The company dominates the local poultry market accounting for 45 per cent of the total market output. This segment is also supported by its feed and farm supplies segment and most recently, its ethanol segment. The ethanol segment continues to be the driving force behind earnings which emerged triumphant in the 2009/10 FY as the company reported record earnings. While the ethanol segment will remain volatile as it is susceptible to several factors such as high input cost and low demand on the international market, it is expected to be the driving force behind earnings over the medium term driven by higher global demand.

This segment will likely be supported by the other two stable segments which are expected to continue showing consistent and moderate growth. With the company generating excess cash from its ethanol segment, it is now putting the cash to use by paying down debt while at the same time refinancing with longer term lower interest debt. This should lower its financing costs and improve the financial performance and the company’s balance sheet. Meanwhile, the feed and farm segment should continue to perform exceptionally well given the added support by the government for the agricultural sector. The stock trades at a P/E of 6.58X relative to the market average of manufacturing companies of 8.81X.