- Ambrose Omordion
That the Nigerian economy is deep in recession is no longer news today, just as the fact that it is billed would return to the path of growth next year.
Since investors cannot afford to dump equities and wait till the storm is over, analysts at the weekend in Lagos took some investors through tested ways of swimming in the murky waters to safety, particularly tell-tale signs of safe bets to remain afloat.
Speakers at a one-day Invest 2017 Traders and Investors summit, tagged: “How to navigate the stock market in a recessed economy,” organized by InvestDate Consulting Limited, warned investors against buying to hold, or becoming greedy. Instead, they urged participants to target between 15 and 20% price appreciation before selling, based however on their investment objective from the onset.
In his presentation, Mr. Meshach Ukpoma, an investment analyst that represented TRW Stockbrokers Limited, Lagos, for example, urged participants to always aim to buy stocks at their lowest prices, and sell when there is a rebound within weeks.
He also took them through some technical aspects of determining when to enter and exit a stock for maximum returns and minimal losses, depending on the trend, including how to even down during stormy weather.
Taking participants through what investors should look for when investing in equities at this season of economic recession, Mr. Ambrose Omordion, Chief Research Officer, spoke of the need to understanding how to interpret financial information.
According to him, “financials are very important when analyzing a stock, this component and the five factors that comprise it are weighted more heavily than the other.”
He listed them as: Debt-to-Equity Ratio (or simply Debt/Equity); Price to Book Value Ratio (Price/Book Value or PBV); Return on Equity; Price to Sales Ratio (Price/Sales); and Free Cash Flow analysis.
“This is because they include the value metrics that investors like Warren Buffet use to find stocks that are both well priced and have potential for long term price appreciation, Omordion explained.
These financial metrics, he said, are essential in an overview of the financial health of a company and market perception, while identifying stocks with significant underlying value and those less risky.
Dwelling on the P/E Ratio, he noted that quantitative investors for many years identified this as a reliable single value metric that uses the share price as a ratio of a company’s Earnings Per Share (EPS).
However, he continued, “in any market situation, price movement and dividend payout is a function of earnings. This means that without earnings, no company can think of paying dividend.”
Based on the identified parameters among others, Omordion said there are at least 10 stocks that can be considered “recession-proof, that can help investors preserve the value of their assets.
He noted that based on the third quarter performance of companies with shares listed on the Nigerian Stock Exchange (NSE) and the current circumstances, there are 25 companies that may pay investors less than they got last year in form of dividends. As part of efforts to guide participants on investing between now and the first quarter of 2017, he noted that while investors in the 25 stocks are lucky to get any dividend at all, there are 50 others from which no payout should be expected at full year, except a miracle happens “in the course of their operations in the dying days of this year.”
In his presentation titled: “Outlook for 2017 and how to navigate the stock market in a recession economy,” Alhaji Garba Kurfi, chief executive of APT Securities & Funds Limited, said Nigeria’s economy is at the verge of recovering, hence the need to put structures in place that would ensure that post-recession, it does not return to where it was.
He noted the NSE’s negative double digits growth for the third consecutive year, following which stocks are now selling at their worst prices, just as many recorded their worst prices in decades during the current year, a situation discerning investors would be watching keenly and taking advantage of the rock bottom prices to harness value in the coming months.
A situation where market capitalization of companies listed on the Nigerian Stock Exchange have lost a cumulative N3.2 trillion in 22 months to October 2016, he assured, may not arise again in the next 15 to 20 years.
Continuing, he told the participants, “identify volatile stocks, make money, exit… don’t lament. If you continue lamenting, you are deceiving yourself… If you buy a stock and you make 10 to 15% loss, sell… cut your loss… cash is king, always hold cash and stand by.”
For David Adonri, managing director of High Cap Securities Limited, who spoke on “the safest recession-proof investing techniques for 2017,” said the market is awash with opportunities for investors whether the economy is growing or not, with falling equity prices an opportunity for bargain hunting.
At a time when irrational behaviour is commonplace, he enjoined investors to reverse their strategy at a time like this “recessions can provide you an opportunity to buy assets cheap and the best time to invest, “meaning you can pick up stocks, bonds, mutual funds, real estate, private businesses and more for far lss than you could just a few years prior.
“Only those who improve their position in the market will smile next year because those who threw away their assets will come to beg you for them later.”