As far as the fundamental factors such as low yields environment in the fixed income (FI) market and improved dividend yields in fundamentally sound stocks remain, the Nigerian equity market will continue its bullish performance farther into the first quarter of 2021.
While laudable optimism continues on Custom Street despite the likelihood of profit-taking on recent gains, investors must identify stocks with upside potential because they are very important to win in every cyclical market.
Interestingly, some stocks are quite vulnerable to recessions and economic slowdowns, while others are well positioned to maintain their profits in any economic climate.
In their weekly stock picks for the period till January 8, 2021, GTI research analysts want investors to “Buy” shares of GTBank Plc, Access Bank Plc, FCMB Plc, Wema Bank Plc, Sterling Bank Plc, Union Bank Plc and Fidelity Bank Plc. Others are Flour Mills Nigeria Plc, UACN Plc and Custodian Investment Plc.
Their “Buy” rating means the upside potential of the stocks over the next twelve months is significantly high when the current price is compared to the analysts fair value. Hence, investors may take positions on these stocks. Stocks investors are asked to hold include Zenith Bank Plc, UBA Plc, Nigerian Breweries Plc and Total.
Their “Hold” rating according to the analysts is because the upside potential of the stocks over the next twelve months is between 5percent and 9.9percent when the current price is compared to analysts fair value. Hence, investors may either hold on to current unit or sell.
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With no major declines in most mid/large cap stocks, the Nigerian bourse closed the first trading session of the New Year deep in the green, up by 2.18percent, thereby confirming GTI Researchers expectation that given the less attractive nature of the fixed income segment of the capital market, the domestic stock market should resume for the new year on a positive note.
For Vetiva research analysts, they maintain their positive projection into the first quarter (Q1) of 2021, though noting that with the gains recorded in the last few sessions in 2020, “the possibility of profit taking cannot be overruled in the coming week.”
Stocks the analysts said investors should “Buy” because of their upside potentials are GTBank, Zenith, UBA, Access Bank, FBN Holdings, FCMB, Unilever, Flour Mills, Dangote Sugar, Lafarge Africa, Julius Berger, Seplat, Total and Ardova. They asked investors to “Hold” Stanbic IBTC, Nigerian Breweries, Nestle, and Okomu Oil.
“Buy rating refers to stocks that we consider highly undervalued, but with strong fundamentals, and where potential return in excess of or equal to 15percent is expected to be realized between the current price and analysts’ target price. Hold rating refers to stocks that we consider correctly valued with little upside or downside, and where potential return between +5 and+14.99percent is expected to be realized between current price and analysts’ target price”, Vetiva stated in their top recommendations.
“For some months now we have taken notional market-neutral positions in the largest index weights in the NSE-ASI, namely MTN Nigeria, Airtel Africa, Dangote Cement and BUA Cement, fearing to be out of step with any significant share price changes among this group. This is an essentially defensive tactic, but it has worked out well as prices of these stocks have rocketed,” said Coronation Research analysts in their recent note.
“We have protected ourselves during this rally by holding notional neutral positions in the four principal index weights mentioned above. As we often write, we do not like to guess the market’s direction because we simplify our job to buying stocks we like when they are cheap: but (as was the case in early March), exceptional circumstances require an exceptional response”, Coronation Research further stated.
Also, researchers at United Capital in their Nigeria Outlook 2021 said “In 2021, sentiment for stocks depends on the direction of monetary policy, particularly in relation to the yield environment. A sharp reversal of rates is likely to trigger a sell-off in the equities market considering that the current average market price-to-earnings (P/E) valuation multiple (15.2x) is considerably higher than the 5-year historical average (11.9x)”.
United Capital researchers prognosis for the Nigerian stock market in 2021 is that domestic interest, fueled by dividend expectations, is likely to sustain the market rally in first-quarter (Q1) 2021. “However, in the absence of foreign demand, we see a short-term bear market from second-quarter (Q2) to third-quarter (Q3) of 2021”, they noted.
