(Ambrose Omordion) The equity market in 2016 was mixed as it closed lower, following the Nigerian Stock Exchange’s All-Share index closed 6.17% down, as many investors lost their funds or entire investments.
The simple reason, must of the times, was that they were in the wrong stocks, with no clear objective and roadmap as guide while they were making buying and selling decisions despite the economic situation.
We are expecting the economy to recover gradually in the year and support a bull market this year thereby boosting individual portfolios.
But then, we must not overlook the fact that the investment environment anywhere is full of uncertainty, following which a clear plan of action is needed to navigate and make money, especially now that we have crossed over to 2017.
What is your portfolio like today, and how do you hope to select stocks to reposition or balance it for profitability in this New Year.
I would like to share the investment process that we rely on here at INVESTDATA, making use of the factors enumerated below to build winning portfolios. Each one of these factors individually will help you pick good stocks. But putting all of them together gives you a significant edge over others in stock market investing.
1) VALUATION – There is plenty of practical evidence showing that stocks with low valuation will outperform the market over the long haul. It’s not easy to find ‘cheap’ stocks after the market has been in a bearish run for three consecutive years, but we look for companies that are trading with low Price-to-Earnings (P/E) and Price-to-Book (P/B) multiples, relative to their peers and their own history.
2) MANAGEMENT’s EFFECTIVENESS – It is very important to get a sense of how effective the company’s management is in utilizing resources available to them. This can be done in a number of ways, but our research shows that Return on Equity (ROE) does a good job of capturing this attribute. So we seek companies generating ROEs that are superior to their industry peers.
3) RECENT ANALYSTS UPGRADES – Our research also clearly shows that stocks that have recently received a recommendation upgrade from analysts will continue to outpace the market. Most of that benefit is felt in the short run. However, quite often a stock that receives one upgrade is likely to get more in the future, which keeps pushing its price higher as the quarterly earnings change or something positive or negative happens to the stock that could give rise to adjustment up or down.
4) BEST INDUSTRIES – Even the best looking stock will underperform the market if it is in an out-of-favor industry. That is why we weigh stocks based on best industries and sectors. And there is no better guide to choosing the right groups than to focus on the earnings estimate revisions for all the stocks in the industry.
5) LONG-TERM ATTRACTIVENESS- We look for stocks with potentials that can transform the company in the future, the nature of its products or service, and whether it is expanding or acquiring new production lines or companies to boost market share. While our preferred long-term indicator is an ‘Outperform’ rating, we also consider neutral-rated stocks that stand to get upgraded to our preferred rating. The main ingredient behind the recommendation is positive changes in a company’s earnings estimates.
6) TIMELINESS – There is no better timeliness indicator like the technical analysis tools that signals or tells us that now is a good time to get in or out of a stock, combining it with the earnings position of the company. There is always a time to position in any stock, no matter how solid or otherwise the fundamentals are. You cannot be in a stock at all times, there is time to get in and to exit.
