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Investors heed experts’ counsel to exploit undervalued stocks



undervalued stocks
  • As market value sheds N186bn

Investors are taking advantage of undervalued stocks at the Nigeria Stock Exchange (NSE) to increase their portfolios in anticipation of the second earnings season of the year, the Q’2.

This is in line with consistent analysis of the stock market by experts and their counsel to the investing public to bank stocks with strong fundamental and liquidity whose prices are currently on the lowside.

In their performance review for last week, analysts observed that attention has shifted tremendously towards stocks with low prices as capital pullback dominated some elite stocks that have appreciated over time.

This was happening amidst sustained selloffs and profit taking continued on exchange last week with the benchmark index closing lower and halting previous week’s gain on lower traded volume which reflected the continued indecision and cautious trading among investors.

Ambrose Omordion, chief research officer at Investdata Consulting Limited said market dynamics reveal that players are afraid of buying at this level, waiting for pullbacks to take a plunge as money flow index is looking down.

According to him, this indicated that funds are leaving the market, despite flowing from one sector to another seeking value in terms of low prices with high upside potentials.

“This is just as economic recovery is expected to come fast on government and Central Bank of Nigeria’s (CBN’s) interventions, ahead of Q2 earnings reports, implying yet that opportunities are still available as sectorial rotation continues

“Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment,” he noted.

Amidst such outlook, however, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs, he said.

“Investors are buying to increase their positions in undervalued stocks ahead of Q2 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

“Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend,” he said.

Specifically, the equities market closed last week amid weak market sentiment, costing investors N186 billion as both market capitalization and All-Share Index (ASI) fell by 1.41 per cent to close at N12.951 trillion and N13.137 trillion respectively.

All other indices finished lower with the exception of NSE-main board, NSE MERI Growth, NSE Consumer Goods, NSE Lotus II and NSE Industrial Goods Indices which appreciated by 1 per cent, 1.42 per cent, 1.81 per cent, 1.01 per cent and 2.24 per cent respectively, while NSE ASeM closed flat.

In their advice to investors, analysts at Codros Securities Limited hinted that risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions.

Thus, they continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks.

Meanwhile, a total turnover of 1.050 billion shares worth N10.125 billion in 19,576 deals were traded by investors on the floor of the Exchange, in contrast to a total of 1.103 billion shares valued at N9.876 billion that exchanged hands the previous week in 16,616 deals.

In terms of traded volume, the financial services industry led the activity chart with 736.274 million shares valued at N5.472 billion traded in 9,776 deals; thus contributing 70.13 per cent and 54.04 per cent to the total equity turnover volume and value respectively.

The conglomerates industry followed with 69.496 million shares worth N334.478 million in 471 deals while the third place was the consumer goods industry, with a turnover of 66.380 million shares worth N1.351 billion in 3,130 deals.

Trading in the top three equities, namely; Guaranty Trust Bank Plc, FBN Holdings Plc and FCMB Group Plc, accounted for highest traded volume at 316.321 million shares worth N3.350 billion in 2,983 deals, contributing 30.13 per cent and 33.08 per cent to the total equity turnover volume and value respectively.

Investors also traded a total of 11,920 units valued at N12.265 million in 18 deals compared with a total of 1,002 units valued at N971,140.42 transacted previously in nine deals.

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