Tunde is a rising star employee in an FMCG company who rose to an inventory manager position, earning an average net pay of N450,000 per month. He is smart, and ambitious, and won the best staff of the quarter with an employee stock bonus. But lately, he’d been feeling a growing sense of unease. The relentless rise in the cost of living had started to erode his hard-earned savings. Inflation, a silent thief, is already threatening his financial security.
His monthly expenses had doubled, and his savings account kept reducing as increased spending made his salary insufficient.
Tunde knew he had to take action. He couldn’t afford to be a passive victim of rising prices.
On a Monday morning, he had a rare opportunity to attend a top management meeting, where issues like sales trends, expenses, inventory and financial projections for his company were discussed. At the end of the meeting, the team concluded that if the company was to survive the harsh economic environment, it had to raise the price of its products.
Tunde immediately communicated the notifications of price increases to his company’s distributors with immediate effect. In less than six months, sales figures surged by 300%, not from improved volume but as a result of an upward revision of prices. Since the company is listed on the Nigerian stock market, investors noticed it on their quarterly financials and started bidding the share price higher.
Tunde, who is also entitled to Employee stock ownership, saw the value of his share double in 12 months.
Employee stock ownership is a benefit plan that gives selected workers or employees of a company ownership interest via shares.
Tunde started educating himself about investing in shares and how he could build an equity portfolio that would not only generate above-average returns but beat inflation since his expenses are rising. He poured over financial books, attended Globfolio webinars on weekends, and sought the advice of CoachOge after watching his YouTube videos
Inspired by the growth witnessed in his stock ownership and knowing the exact reason for such a jump, he started looking for the best Nigerian stocks to invest in to beat inflation
4 Tips to Buying the Best Nigerian Stocks That Will Beat Inflation
1. Invest in Nigerian companies that sell inelastic products
Inelastic products are items whose demand is relatively unchanged even when prices go up.
In a period of rising inflation, companies tend to adjust the price of essential and non-essential items upward to cushion the effect of rising costs. As a smart investor, you reshuffle your equities portfolio and add more stocks of companies that sell essential products, especially food, health, energy, and logistics.
An upward revision of price without a significant loss of market share always boosts the bottom line, hence leading to improved profit margin and higher return on shareholders’ equity (ROE)
The top 10 Companies with the highest ROE and net margin above 10% in the Nigerian stock market have reported an average of 611% growth in share price in the last 5 years.
Here are the 5-year performance:
Presco +1,164%, Academy +944.12%, Eunisell +32.3%, Cornerstone +637%, CWG +150%, Johnholt +400%, NAHCO +1,700%, GTCo +96%, Transcorp Power +36.33%, Geregu Power +945%.
The lowest ROE of these companies is 64%, Presco tops the list with 89%+
When you buy stocks of Nigerian companies with a high-profit margin that translates to a higher return on equity, there is a higher chance that you will beat inflation over a 3, or 5-year period.
Increasing inflation will naturally support your portfolio growth since it is made up of companies that increase their product prices.
Tunde had seen how this insight impacted his employee stock ownership, so he applied this strategy to his portfolio and invested in inflation-protected stocks like Presco, OkomuOil, Geregu Power and Total Energies.
2. Invest in Solid Downstream Oil and Gas stocks.
Out of the major sub-sectors indices in the Nigerian stock market, only one index outperformed the broader market index in the last 5 and 10 years, guess the sector that topped?
Oil and Gas
Do you know why?
Aside from the fact that the oil and gas sector is crucial to the Nigerian economy, individuals and businesses rely on and are largely affected by events in the sector.
Aside from exchange rate, fuel price hikes in the past had been a significant driver of inflation, so it makes sense for anyone to buy stocks of fundamentally sound companies in the oil and gas sector, especially downstream players involved in the sales and marketing of refined products; fuel, lubricants, gas, kerosene, etc.
This explains the +970% increase in the NGXOil/Gas index dwarfing the broad market index of +273% in the last 5 years.
Tunde also understands that an increase in the price of petroleum products would help companies in the downstream pocket more revenue, so he bought shares of Eterna Oil.
3. Invest in Nigerian Stocks Benefiting from Rising US Dollar Exchange Rate
Nigerians are heavily dependent on imported products, so it’s normal for the exchange rate to affect the selling prices of these products.
In the last 40 years, the Naira exchange rate to the USD has been on an upward trajectory with no end in sight; this trend accounts for the reasons inflation rates are high.
Between 2020 and 2024, Naira had depreciated from 350/$ to a high of 1,600/$, representing a dip of 357%. This has pushed the price of almost every item in the market by at least 100%.
A higher exchange rate always leads to increased fuel prices due to an increase in the landing cost of petroleum products which in turn creates a domino effect on transportation and essential items in Nigeria.
Tunde identified companies that also profit from this trend.
First is Nigerian companies that were well-positioned to benefit from the depreciating Naira. These companies, with their strong export businesses and foreign currency earnings, were poised to thrive in the volatile economic climate.
Second is financial institutions like banks, investment and insurance firms with a lot of foreign currency exposure or assets.
By investing in the stocks of GTCo, Zenith, Axa Mansard and Custodian, his portfolio is properly hedged against rising exchange rates.
4. Buy Nigerian Stocks in the Top Performing Sectors.
There is a concept in investing called sector rotation.
It is a strategy that involves moving money between sectors in other to keep it in the best-performing sectors at all times.
Tunde understands that amid uncertainties or unstable climate, there will always be at least a sector that’s currently benefiting from economic events. Just like he spotted selected FMCGs during high inflation, he believed there would be additional sectors to pay attention to based on macro trends.
As of this update, CBN had just increased interest rates to 27.25%, one of many rate hikes in the last 12 months. And in a period of high interest rates, the finance and banking sectors always thrive.
By adopting sector rotation, Tunde kept a close eye on the market and invested in stocks of companies within these sectors that were consistently delivering double-digit growth.
With each passing month, Tunde’s portfolio grew stronger. His investments in oil and gas stocks yielded handsome returns via capital appreciation. The companies he’d chosen to benefit from rising prices and the depreciating Naira also performed. exceptionally well. His strategic approach to sector rotation further amplified his returns.
As the years went by, Tunde’s investment portfolio provided additional streams of cash flow yielding returns above inflation, hence transforming his finances dramatically. He had not only outpaced inflation but had also built a substantial inflation-protected wealth. He was no longer just an employee in a consumer goods stock; he was a also savvy investor, a master of his financial destiny.
Tunde’s story is a testament to the power of informed and strategic investing, a concept we teach in our Elite Trader Course in the globfolio.com community.
By understanding the economic landscape you can leverage strategic unconventional investing ideas to create wealth in the Nigerian stock market
About CoachOge,
✅Founder Globfolio ,8 years+ investment education community
✅Started with a bank share offer in August 2004 at N5.3, sold for N29, +447% in 1 year+
✅Lost money during the 2007/2008 global crisis, recovered all losses and learnt 3 life-changing lessons
✅Accurately picked 35+ stocks that did 150-500% annually, including MTN, Okomu in 2020, Honeywell (2021), Guinness (2022), PZ, Nahco, NNFM, Conoil, Eterna Oil (2023), Oando, VeritasKap, Livestock Feeds, Julius Berger, Flourmill Nigeria so far in 2024.
✅ Trained and mentored 3000+ investors via webinars and private coaching.
✅ Earned N979m+ for members
✅ YouTube: CoachOge
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