Twenty days have passed in 2020, and it’s time for investors to evaluate the stock markets in a new light. Last year, the market suffered substantially due to lack of policy direction on the part of government and poor earnings performance by companies, which dampened investors’ sentiment.
The Nigerian Stock Exchange (NSE) has however gained 9.74 percent since the start of the year, thanks to the influence of local investors as foreign investors are waiting on the side-lines.
Crude oil price jumped to $70 a barrel on the back of the assassination of an Iranian general by the United States, but the price is back to $68, as the OPEC plus group are steadfast in their production cuts.
Amid macroeconomic uncertainties in Nigeria, and a rally in equities it is wise for investors to put their money in stocks which have cheap valuation.
Why Should You Invest in Value Stocks?
Value investing is the practice of buying stocks in companies that have market capitalization lower than the book value of the asset.
The market capitalization of a firm is derived by multiplying the share price of a stock by its total number of ordinary shares while book value is total assets minus total current liabilities.
Value stocks are a safe bet for investors as they provide good returns over a period and are considered fundamentally more stable.
Read also: Stock market opens new week in green
Zenith Bank
Zenith Bank’s market capitalization of N681.30 billion (as at January 17) is lower than N871.10 billion shareholders fund.
It has a price to book ratio of 0.798, lower than the industry average of 0.812, while its shares have gained 17.20 percent since the start of the year, outperforming the NSE ASI Index.
Investment houses have placed Buy ratings on the lender’s stocks on the expectation that its aggressive foray into internet banking will add impetus to earnings amid a low yield environment.
Zenith Bank has a dividend yield of 12.73 percent, the highest among the companies quoted on the bourse. That means an investor would get N120,730 in dividend for every N1 million invested in the stock.
Access Bank
Access Bank is relatively undervalued and it will make a good buy since its market capitalization of N364.33 billion is lower than shareholders fund of N614.84 billion.
Its price to book ratio of 0.60 is lower than the industry average as it continues to record double digit growth in earnings after acquiring Diamond Bank to emerge as the largest lender by total assets.
United Bank for Africa
The lender is indeed a value stock with a lot of growth potentials. Its market cap of N304.17 billion is lower than shareholders’ fund of N555.50 billion. It has a price to book ratio of 0.60, lower than the industry average.
Seplat Petroluem Development Corporation
Seplat Petroleum Development, the largest upstream oil and gas firm in Africa’s largest economy, has a market cap of N324.18 billion, a figure that is less than its total equity.
Seplat and Nigeria’s state oil company will raise $700 million for a joint gas project scheduled to start production this year. This means the upstream oil and gas’s revenue will get a boost from the joint venture.
