CHEAP stocks are aplenty, but analysts are tempering expectations of investors eager to make bullish gains in 2015.
The Jamaica Stock Exchange (JSE) essentially “cannot be as docile as 2014″, but its growth depends on business confidence, according to Wade Mars, assistant vice-president, asset management, at Mayberry Investments Limited, in a recent phone interview.
Stocks started 2015 so discounted that more than 10 junior stocks dipped 20 per cent or greater in price over 52 weeks led by Honey Bun down 46 per cent. Ten main market stock prices dipped more than 10 per cent in price, led by Pulse down some 60 per cent year-on-year.
“I am hoping that within the first quarter that you will see an increase in business confidence in the economy and that that will translate into the financial system,” Mars told the Jamaica Observer.
He explained that a rise in the business confidence index should spur activity on the JSE.
“Really, the stock market is based on how people perceive the companies to be doing. If the perception is out there that the whole country isn’t doing as well as it should, then it will not translate into purchasing equities,” he reasoned, adding that his top picks include Lasco Manufacturing Ltd, Kingston Wharves, Scotia Group Jamaica, Dolphin Cove, and Caribbean Flavours and Fragrances.
The stock price dips occurred despite some companies posting record results in the year. But half of 2014 was characterised by a flight to US-dollar securities amid a double-digit depreciation of the local currency.
Ryan Strachan, fund manager at Stocks and Securities Limited (SSL), still thinks US equities are more attractive than local stocks.
“We remain positive on US-dollar stocks as an asset class on a selective basis over JSE stocks… Our analysts have observed continued compressed net margins at a number of Main and Junior companies which has hurt earnings in the past one to two reporting quarters,” Strachan indicated in a mailed response to Business Observer queries. “This needs to turn the corner.”
He added that successful preference share raises at 11-12 per cent and the cost of capital at banks are implying a price-to-earning ratio (P/E) of seven to eight times, dependent on analyst outlook.
“With some stocks at six times [P/E], there is not enough value for a buy recommendation or a bullish outlook at this time,” he concluded.
The largest price gains in the market in 2014 came from loss-making companies led by telecoms giant LIME, up 200 per cent on the main market, and music publisher C2W, up 34 per cent on the junior market.
– Steven Jackson
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Analysts temper expectations on stocks
