Think about the year Nigerians made obscene profits on the stock market. It is 2008. The same year is considered the worst year investors have ever known. The power of greed was so great that it made stock prices soar beyond their true values.
Those who are knowledgeable and experienced have made maximum profit and left the market. Others, moved by the herd effect, were not so lucky. They got stuck when prices fell. It was a painful experience for speculators. Statistics show that investors lost nearly 3.9 billion naira.
Today, stock prices in the Nigerian stock market look very attractive, but investors are so afraid to risk putting new funds on the market. The emotion of fear really reigns now. Savvy investors know this is a good time to buy low and acquire high volume. But on what premise would you base your investment this time around?
The global recession, the freezing of lines of credit by banks, the devaluation of the naira and the general slowdown in the economy are causing widespread concern. What criteria should you use to choose stocks in these difficult times as a forward-looking investor?
This is the question I want to answer in this article.
Factors to consider
1. Historical stability
Companies that have experienced profitable performance over the years, barring unforeseen circumstances, will continue to improve best practices to keep investors happy. Remember that some time ago First Bank took the risk of investing in the emerging communications market in Nigeria through the ILL. This deal went awry, but the bank did not go bankrupt. Years later, it continued to show favorable results and paid dividends and bonuses to investors. Currently, this title is popular with investors. First Bank has been consistent over the years and has a strong reserve base.
2. Competitive advantage
Companies that outperform their competitors in the market have a good chance of surviving this difficult period. Strong brands like Cadbury and UACN will continue to make waves in the market. Their products have been permanently registered in the minds of Nigerian consumers. These products will continue to sell. They are even restructuring and introducing new products that consumers buy. The more people frequent these products, the higher the profitability is with good management of human and material resources.
3. Strong financial base
Companies that have built up reserves over the years from the profits made have something to fall back on in this down season to fund projects that will add value to their markets and provide a good return for investors. UBA and GTB are a reserve financial center. The strong reserve base is largely responsible for their expansion into foreign markets. You can see pure gold here. When these foreign branches start to generate profits, what do you think investors will appreciate? Good time and high return on investment of course especially with the return of the bulls.
4. Very profitable
Not all businesses have the ability to manage resources well for maximum profit. The fiscal management of some institutions is so bad that it is deeply eating away at their profit margins. In the banking sector, Oceanic bank is distinguished by prudent management of the tax portfolio. Making a profit is not all that matters. Having enough to keep is the skill that thrills investors.
5. Grossly undervalued
Undervalued stocks are the first to rebound in a bull market. You are not going to make a profit when the bulls return. Your profit margin depends on the timing of your investment. Taking the risk of investing when the business is undervalued guarantees your high returns when the market recovers. Unity Bank is currently benefiting from an agricultural facility in terms of loan from the World Bank. At less than 3 naira at the current market price, the stock is vastly undervalued
Winning attitude for predictable profits
* Continue to be fully invested
* Invest in fundamentally sound stocks
* Ignore economic forecasts and be determined to excel in any economy. The stock market always outperforms over the long term and is the only solution to inflation when it comes to your money.
* Continue to acquire more financial and investment skills
* Be less emotional in your decisions
Sectors and stocks to watch
This sector is booming as a major contributor to Nigeria’s gross domestic product and income. New frontiers in cocoa farming and processing are yielding positive results. Listed companies, for example cocoa processor FTN, Livestock Feeds and Okomu Oil, offer promises of good prospects.
2. Food and drinks
Even in a recession, people will continue to ask for food and its sweets. The logic of the performance of this sector is simple. As long as man lives, the demand for food and drink will continue. Coupled with good management, companies in this sector, such as Dangote Sugar, Tantalizer, Flour Mills and Honey Well, will continue to delight investors by paying dividends.
Nigerian banks are currently aggressive in their expansion to Africa and beyond. Revenue and profits will soon begin to reflect on the balance sheet. Some banks, such as First Bank, UBA, GTB, Zenith, and Bank PHB, have performed well and will continue to reward investors as long as the bears rule.
The Nigerian communications sector is one of the most dynamic in the world. Despite all the infrastructural challenges, companies operating in this sector have made obscene profits and investors are expected to benefit more from their operations in 2009. Starcom is currently the only listed stock in this sector on the Nigerian stock market. Investing now won’t be a bad idea.
History is in favor of this sector. In particular, they have the ability to restructure and reshape their businesses in difficult times. A title like UACN will continue to thrill investors
Talk about monopoly. ABC transport is the only listed company in this sector on the stock exchange. It has paid dividends regularly since its IPO in 2006.
The insurance industry is currently benefiting from goodwill and patronage as investors continue to position themselves for long-term profit-taking. Companies like International Energy Insurance and Cornerstone are very attractive.
Learn how to commit most of your available funds to the food and beverage business to minimize your risk. Thinking long term is a safe strategy that will ensure your success in 2009 and beyond.