10 RECESSION-PROOF STOCKS TO BUY ON NSE
It is true that investing successfully in any market in the
world requires that you understand the big picture of the economy and stock
market dynamics to grow wealth. The wealthiest people who made fortunes from
equity investment in today's world are
those that recognize the long term nature of the stock market and also know the
appropriate keys to play the game profitably.
The big picture gives an idea of how all the facets of the
economy work together to influence the market and share prices of quoted companies.
A gloomy economy will have a weak and unpredictable stock
market which is the leading indicator that reveals a country’s economic
deterioration or prosperity.
An economy consists of the socio-political and business
environments that influence business activities which in turn, drive a nation’s
development and growth. The economy is
sub-divided into markets, sectors, industries and companies.
It also goes through boom and gloom cycles, with the boom stage comprising the early, middle and
late expansion periods; while the gloom stage comes in form of the early and
late periods of contraction.
For us to be successful equity investors and traders at all
times, we must successfully identify the stage our economy is at any particular
time and which sector, industry and company can do well in all these stages by
remaining in business and posting good earnings that can support its share
price and dividend payout in
future.
The just concluded Q3 earnings season reveals the weak
earnings power of many listed companies on the exchange, that was expected, having been obvious for four
straight quarters beginning from Q4 of 2015 till the recent numbers in the
market.
On this note, as smart investors that are not swayed easily
by sentiments, we must alsway look at the nature of a company’s products and
services. These will help us determine whether the demand for them are
inelastic in nature such that increase in prices will not have much effect
being that they are a necessity.
A vital question one should therefore ask is whether the
company has a clear and simply business model that you understand. The next
question becomes the quality of management team and existence of a succession
plan; followed by the presence of not of a strong risk strategies or buffer to
absorb external forces.
Other factors that help identifying quality companies
include: whether they have a profit driver, consistent earnings growth, a profit margin
that is above 15%, low debt,
improved cash flow and a good dividend payout ratio.
This suggests
that growing your income in a bad or good economy is a function of your
understanding of how the stock market operates when planning for financial
independence through equity investment. This is possible if you are buying the
right stocks in time and season.
It is obvious that the two straight quarters of economic
contraction is taking its toll on listed companies as revealed by corporate
earnings made available to the investing community. The general stock market
tends to perform poorly during recessions, but stocks that are dependent on the
economy perform worse than others. Stocks outperforming the economy now on the
exchange are the services sectors, net exporting companies and dividend paying
stock with high yield.
It is important to understand that if
you are feeling uneasy about the market at this time you are not the only one,
even market operators and fund managers are in the same boat. But that is not
enough for you to sit on the fence with your money.
Instead, watch the market and be
proactive with your money to continue cashing in on opportunities that makes
themselves available for smart investors to create more money, no matter the
prevailing economic situation.
Ten defensive
and recession-proof stocks identified in this piece have beenselected based on
their strong earningspower on quarterly/yearly basis, among others previously
identified. Investors looking to protect their portfolio at this time of
recessive should fix their gaze on the stocks below:
TOTAL
NIGERIA
This company is into oil marketing, distribution and energy.
With strong financials that have supported its price for the last five years in
a row, it remains well positioned in the downstream oil marketing sector with
low crude oil price in the international market been a plus. Total's stock has
a potential to rally on the strength of its strong earnings and payout policy. Investors looking the way of this sector now
should think medium and long, as the increased pump price of fuel has started
reflecting on the bottom line of oil marketing companies.
With the quarterly earnings moving from first quarter EPS of 668
kobo to second quarter EPS of 2631 kobo, and third quarter EPS of 3026 kobo,
full year is forecast at 3485 kobo. Final dividend probability of N5 or more is
high, for a company that has paid interim dividend of N10 in the current
financial year on the strength of its strong earnings power. The stock trades at 10.91x earnings with a
dividend yield of 12.37%.
MOBIL
Mobil also is into oil marketing,
distribution and real estate business. The latest 68% hike in pump price of
fuel has started reflecting on its bottom line, in addition to its property
business, despite the economic recession.
The increasing earnings power of the company has supported its share
price and dividend payment over the years.
The company remains well positioned in
the downstream oil marketing sector with the low oil price in the international
market serving as a boost to its earnings power. The recent divestment of its
core investor ExxonMobil International offered an indigenous company- NIPCO the
opportunity to hold 67% stake in Mobil.
So far, the market seems not excited
about the ownership change in Mobil, which the parties expect to consummate
next year. A major reason is not far-fetched, going by the experience of many
oil companies managed by Nigerian over the years that have become mere shadows
of themselves, just after the exit of their core investor international oil
company (IOC).
This stock has potential to rally on
the strength of its strong earnings power and payout, its quarterly earnings
have been in the north direction, just as the. third quarter EPS of N15.93 and
full year forecast of N18.00, dividend possibility of N8 is high. The stock is
currently trading at 11.93 times earnings with a dividend yield of 3.78%.
ZENITH BANK
This bank
is unique in its aggressive marketing, relationship building with a strong ICT
that is driving its business to rank among the biggest in the continent and
Nigeria's top three banks in Nigeria.
On the
strength of its earnings power and performance in its sub-sector, it has
remained on top with strong profitability ratios. The high dividendpayout of
the bank in the last four years have been supported by the equally strong
earnings, despite the seeming over regulation of the sector? by the Central
Bank of Nigera (CBN).
It has
consistently grown its earnings on quarterly and yearly basis to support its
share price and net assets that had provided investors with high margin of
safety. This stock is trading at 4.67x
earnings, with a dividend yield of 10.65%.
The nature
of it service, role in economic development and the dividend policy has made
Zenith Bank stock defensive, especially in this period. The bank is good and
attractive for income investors that want regular flow into their account from
their investment. It also operates branches outside the country with strong
technology and competent personnel. The possibility of dividend in 2017 is
higher.
For
trading, the stock is attractive with good potentials after the weak earnings
season and market fundamentals had depressed it share price. The bank's performances have been impressive
with or without the current FX revaluation that boosted its results in recent
times.
GUARANTY TRUST BANK
This bank
provides financial services to Nigeria, having branches outside the shores of
the country, with investment in Global Depository Receipt (IDR) and Eurobond
which has boosted its FX revaluation as stated in its latest report.
The bank's
profitability level for the first time hit N120 billion to top the industry in
gross earnings and profit. Itscorporate and retail banking preference
and strong service culture have enabled it record consistent year on year
growth in customer base and these have impacted on its bottom line to support
its dividend payout policy. Its strong professionalism in operations and
good technology have helped in delivering satisfactory services to its
customers at all times.
The bank ranks best in return on equity. It has been
consistent in dividend payment in the last five years. The stock trades at 5.86x
earnings and a yield of 6.68%. For capital protection and regular dividend,
look the ways of this stock, because it has strong up potential from the
current position it is selling. Its pattern of dividend payment and holding
structure has equally supported its share price even at this recession.
OKOMU OIL
This palm
oil-producing company in recent years have stabilized with steady earnings
performance to reflect the operating environment as government incentive to the
agricultural sector which is part of the reaonsis enjoying as the zeal to
diversify the economy by government has shifted attention to food production
for local consumption and export.
The
improving earnings of the company have started to reflect in its share price,
regardless of the increase in share outstanding due to the last bonus issue. The company processing it finial products into
different stages for several uses. This company is a net exporter of refined
palm oil which is expected to boost its bottom line as revealed in the latest
numbers released.
It has remained the leader in its industry in
terms of market value with strong earnings power. On the strength of its
current financial year quarterly earnings growth in the mixed of economic
recession and having a strong prospect for better earnings regardless of the
economic position. This company is fair
valued as it is currently trading at 9.36x earnings but with a low dividend
yield of 0.24per cent. The stock has been trending in recent months to a strong
resistant level which might be a breakout or reversal. It is expected that the company will pay a
better dividend at the end of the day.
PRESCO
This
agribusiness company that is into palm oil production and processing has for a
long time posted strong numbers that have supported its dividend payout and
share price on the exchange. The
oscillating trend of the company’s share price in 2014 and 2015 before this
year's up trend was due to general market performance.
Presco's over
100% quarterly earnings growth is worth considering at this point, especially
given the expected improvement in the sector amidst government's efforts to
diversify the economy. Government is seriously working to boost the
contribution of agriculture to GDP in a bid to diversify the economic by
encouraging farming, if the country must feed herself, thereby saving the huge
foreign exchange spent yearly to import food that can otherwise be produced
locally. Thereafter, the plan is to export and enhance foreign reserve,
Already,
Presco is benefiting from government's single digit interest rate for
agribusiness thereby enhancing their smooth operation. Also the company earns
in foreign currency due to export of palm oil. It has remained the leader in
its industry in terms of earnings growth and consistency in rewarding
shareholders.
On the strength
of its recent third quarter earnings position of N6.80. This company is
currently trading at 6.45x earnings with a dividend yield of 2.28%. The stock
has formed a cup and handle chart pattern that support breakout and
continuation of trend.
DANGOTE SUGAR
This company is into the
refining
of raw sugar into edible form, which is then and has strong prospects of growth as it continues to invest in
capacity expansion to meet domestic consumption and export with the aim of
boosting profit.
The backward integration efforts of
the company with the setting up of sugar cane farms in more than five states,
is geared towards making raw materials available for production at low cost.
This has started yielding results as reflected in the company's quarterly earnings
reports. The implementation of government roadmap to boost sugar production in
the country will increase activities in the sector. Growth in the company's
earnings has supported dividend payment to shareholders since it was listed on
the floor of the Nigerian Stock Exchange.
The company’s stock is reasonably
valued at its current 7.44x earnings with dividend yield of 8%, with its upside
potentialfrom the price. The company’s expanded marketing and distribution
outlets within and outside the shore of the country will attract foreign
currency boost profit that will support price.
DANGOTE CEMENT
This is a leading cement producing company
in Nigeria that isfully
integrated with projects and expansion of its operations into 18 other African
countries. The company is the most capitalized
stock on the exchange and the most priced in its sector. It has expanded
production capacity above 20 million metric tons
per annum to boost sustainable development with
alternative energy from coal to remain in production and boost profitability
level. It has continued to export cement, while meeting the demand of
government and private sector consumers.
It continues to prove a worthy ally in
the commitment to infrastructure development and efforts to bridge the existing
gap on the road to economic diversification.
The company’s huge investment in
capacity building will yield outstanding returns for the medium and long term
investor. On the strength of its third quarter EPS of N8.13 and the projected
full year EPS of N12.00, the possibility of dividend is high, the stock trades
at 21.53x of earnings with a dividend yield of 4.57%.
The company is trading at a reasonable
valuation with improving profit margin. The construction industry and building
materials' companies are expected to benefit from the government infrastructure
development drive to support economic diversification at this time of the
nation history and development.
UCAP
This investment company has demonstrated capacity and
strength to create value for its investors since it was listed on the exchange.
The company's services include investment banking, asset management, securities
trading and financial advisory to government and private companies.
It ranked among the top three high dividend yield stocks with
14%. The company's performance in the
current financial year has been impressive with and without the sales of its
investment in metropolitan insurance, as it continued to structure and package
financial instruments for the nation's energy sector, in addition to consulting
services which has boosted bottom line over the years.
The impact of its increased capital base by way of right is
reflecting on the numbers posted after the offer.
As a financial and investment service provider, the
possibility of dividend payout for 2016 is very high, consideringthe impressive
third quarter EPS of 78 kobo. These strong numbers are attractive at this time
of recession.
The company's price to earnings of 3.21x is attractive as it
indicates that waiting period in this stock is short if current earnings and
price remain constant. Its earnings movement so far is impressive as quarterly
earnings have surpassed 2015 full year earnings position.
ACCESS BANK
This bank,
in recent times, has emerged in the sixth position in terms of profitability
level in its sector. This was attributed to its increasing African subsidiary
network that is contributing more than 20% to the bank’s profit. The bank is not consistent in dividend payment
as a result of undulating earnings’ performance. Its performance in recent time
shows dwindling earnings power which can be attributed to pressure from the CBN
policy adjustment which ranges from increasing public and private sector Cash
Reserve Ratio, hike in Monetary Policy Rate to others. On the strength of the
bank’s third quarter EPS of 102 kobo, the likelihood of dividend in the range
of 30 to 35 kobo is high and anything closer to the figure paid last year will
be as a result of its shareholding structure.
It is currently trading at 4.22x
earnings with a yield of 11.63x. As the bank is currently sourcing for
additional funds to boost its operation through rights issue, its earnings and
future performance are expected to improve. Income and growth investors should
keep their gaze on the stock.
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