ADVERTORIAL: 2016/17 Equity Strategies

By: JMMB Research and Investment Team

The Jamaica Stock Exchange (JSE) Main Index was the top performer of global equity exchanges in 2015 as share prices were buoyed by favourable macroeconomic factors and the buzz generated by several mergers and acquisitions. For the 2016/17 period, below is our equity strategies recommendation:

1.  Buy Growth and Value Stocks:

a. The local stock market has appreciated strongly for the year, and the current macroeconomic landscape should bode well for growth stocks. For e.g. Lasco Manufacturers (LASM) & Lasco Distributors (LASD) have both recorded double digit growth in profit and earnings for the financial year-to-date. LASM further advised that LASD is now the sole export distributor of all its manufactured products. This strategic decision to extend distribution to the export market through LASD, will enable LASM to focus on its specialism in manufacturing while optimizing the economies of scale and expertise of a principal distributor to drive growth of all LASM`s brands in the overseas market.

b. Also, value stocks with attractive price earnings ratios and a diversified income stream should be targeted. Blue Chip companies are expected to continue paying dividends which will add to the overall investor return.

2. Junior Market Opportunities: 2015 was a relatively quiet year for IPOs on the Junior Market, but if the government extends the tax incentives to the junior market we expect increased activity which will create trading opportunities. The Jamaica Stock Exchange has indicated a target of 50 new listings over the next 2 years. Clients can use this as an opportunity to take advantage of any attractive listings which come to market.

3.   Invest in Jamaica Depository Receipts (JDRs): It is expected that JDRs will be available to clients by June 2016. These instruments offer investors an opportunity to get access to the US Stock Market which could provide some hard currency exposure. While we agree that some dynamics are being worked through, we believe that the concept is a good one especially for pension funds given restrictions on the assets they are able to hold.

STOCK TO WATCH  

Grace Kennedy Financial Group:
The recent acquisitions coupled with the new product offering across its divisions augur well for the revenue growth over the short to medium term. The management of the GraceKennedy Financial Group is excited and optimistic about its new mobile money service. The mobile money service will facilitate the movement of money to make electronic payments. Further, GK Capital Management received its Securities Dealer License and with the approval from Jamaica Stock Exchange can begin trading. This approval will help to bolster fee income should the buoyancy return to the local market. 

The Hi-Lo Supermarket chain’s renovation of its Manor Park store has been completed and the Barbican store is expected to be completed by the first quarter of 2016. The renovation is expected to improve customer experience and attract a wider customer base that should increase revenues from this division. On the other hand, continued depreciation of the local dollar and high operating expenses will continue to hurt the Group until the synergies from the recent acquisition take full effect and the new international distribution channels are fully establish. GK will also be impacted by tax charges going forward. 

Disclaimer: While JMMB®’s Proprietary Trading Portfolio may take positions in any of the above securities, these trading decisions are not necessarily guided by, nor do they influence, as to why these are our recommendations. All information contained herein is obtained by JMMB® from sources believed by it to be accurate and reliable. The Author of this report may or may not have an interest in the securities outlined. All opinions and estimates constitute the author’s judgment as of the date of the report. However, neither its accuracy and completeness NOR THE OPINIONS BASED THEREON ARE GUARANTEED. As such NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF THIS REPORT IS GIVEN OR MADE BY JMMB® IN ANY FORM WHATSOEVER.

– ADVERTORIAL