- How significant is Q2 earnings?
- Making the best use of Q2 earnings
- Best investment strategy now!
- Qualities of stocks to consider
It is only customary to look forward for the terminal results of your kids and wards as the case may be, at the end of every school term/session. Presenting a good result can only bring about a hug and hush at the least, in contrary situation. So it is in the stock market where results on performances of quoted and listed companies are expected to be released at three months’ intervals except in cases where either audit or regulatory queries and verifications might delay. It infers therefore that a major market move should be expected at every earnings season but it is expedient to know the level and extent of impacts of these quarterly releases; strategic positioning in the face of recent changes in rules guiding pricing of stocks in the Nigerian equities’ market can only guide to profit.
Principles of profitable equity investment in any age and market irrespective of location or local guiding rules are basic and rarely change. About the major factors that are commonly responsible for incurable losses is the changing stance of investors and market players, particularly when rules seem to be changing. Of course, this might not be unexpected because of the emotional attachment to money so invested and urge to keep such safe but truth is that markets will always imbibe its own rules and respect its own principles and not you or yours per se.
There are stimuli that will always determine prices of stocks at any point in time. These include information on the industry or specific companies. Making the best of information about an industry is a function of size and strategic positioning of specific companies to benefit from such. This, every investor must know as guide and not just a mad rush into any stock all because of good information about its industry. When policies become favourable, rightly positioned companies will benefit while unprepared ones will remain the way they are with woes betiding investors in them.
Specific information could be on what an organisation is doing better than others to lead and garner market share even when policies are contrary or remain same. The first point of call therefore, of investors in stock of any company is information centres and not necessarily the books of account. Knowing how to convert available news in the open space to investment decision is the hallmark of real investor.
Politics and policies go hand in hand. Major factors behind fears before a major election is probable change in policies or slow down in implementation of existing ones as focus often changes from governance to politicking at such periods. Money gravitates naturally towards peace, tranquillity and consistent policy formulation and implementation, from environments where such are seen to be in disruption.
Markets all over only reflect investors’ psyche hence, kinds of investors will always determine kind of markets. A market when concentration is in the hands of local investors will remain firmer in face of crisis than a market with concentration inn hands of foreign investors who will shift base with little disruptions; markets that are concentrated in hands of retail investors will flow more freely with higher vacillation than markets with concentration in hands of institutions that buy for strategic ownership purpose’.
Markets and stocks prices move relative to when major previous purchases were made. A market or stock prices are declining and some strategic investors moved in to bring about a reversal, it only makes sense for them to bail out when they have made profits enough to cover cost and sizable profits only to wait for another downturn to strategically again, invest. In other words, every new high must of necessity derives its source from the previous market low for prices of stocks and markets will never move in just one direction for too long because what someone is just discovering is what some others discovered few months back.
Please note, every long term plan is a potential short term in reality in nature and the long term plan is being realised, another long term plan is setting in for others so the market continues. What this teaches realistically is that what prices or margin you may consider too low might just be appropriate for someone else all because of the entry points. As a matter of fact, what position where you are currently returning losses to some others is huge profit. These should be true guide that before entry is even made at all, possible exit and factors that would make such projection or anticipation happen should be in view.
On companies’ books, truth is that what most investors will read as reasons to shun an investment are same set of figures others will see and invest heavily. That is why prices of stocks of seeming dead companies can emerge as market leader while many are standing to watch, expecting a crash only to see sustainable price performance.
We still can’t rule out the fact that these companies are being managed by people who enter into transactions on behalf of the companies, prepare the accounts to post before we all could have access. How far can a closed period go in curtailing insider dealing? A chief executive is entering a transaction, he knows where that could lead, what stops him from taking position knowing full well what impacts will be at the end? These are facts that do determine price performances.
In view of the foregoing, the earlier one comes to the reality of the technicalities behind operations of the stock market the better. Let’s share together few insights into what Q2 earnings portend.
- Fundamentally, impacts of Q2 earnings on equities’ price performances stand to be the least of all quarterly reports. This is so because of the following reasons.
- There is another report ahead- Q3 in just a few months’ time just as it is being released few months after the Q1 hence, impacts of Q2 takes in some cases, just few trading sessions and the stock price resumes normal trend.
- With Q3, clearer projections could be made for the audited reports whereas with Q2, performance at full year is still somewhat shady.
- The gap between Q3 and audited report is often the longest because of the audit and in some case, regulatory issues hence, impacts of Q3 on markets and stock prices last longer.
- Because audited report is often delayed, Q1 in some cases are released almost at same time to cushion in most cases, poor audited report whereas, Q2 is most often released independently.
- Short-lived price performance is expected no matter the reliability and strength of released result. In other words, do not think that price rally consequent upon release of positive Q2 earnings will be sustained. The market is still very much in a weak mode and mood hinged on factors beyond capacities of quarterly reports but note those reports, keep tab on those stocks with good Q2 reports. Guess what? The lower the prices, the better for you as fresh investors in them but you should look beyond the figures to see facts behind the figures. Focussing on what current figures look like to determine investment without a glimpse into factors behind will ultimately lead to losses. When you know factors behind and see possibility of better days ahead, even if you invest and price subsequently nosedives, keep such stocks.
- Stocks do touch various prices at intervals. Q2 earnings with positive statistics after consistent price decline makes stretch of growth slim after the release of the good result because those that bought low will only cash out seeing improving demands hinged on improving earnings. in case you invested in such stock, you may need to watch volume in relation to price performances on daily basis to guide. Deals and turnover on such stocks are also critical statistics that should lead you. How do I mean?
- Equity with rising price but low deal though increasing volume is indicative of one man show. When the fellow is satisfied, price shed resumes. Such might also be a cross deal. The market is structured such that knowing the buyer might be difficult, all you need do is to be careful
- Equity with declining price but with improving volume, turnover and deals tells of good float. It will soon get to equilibrium level and will resist further loss, rally for a few trading session, relax and again will resume the cycle. Treat such as good stocks for short term investment.
- Equity with rising price and improving deals, volume and turnover also tells of good float but with good back up factors. Laying hold on such factors make you a wise investor. All you can do is see what you can make, get out and wait on the sideline.
- Ensure you know the float and shareholding structure of any stock you intend to invest in.
4. Positive Q2 earnings of stocks with high price do not necessarily connote higher price levels at release of result, if at all, it might be short-lived.
5. Market fundamentals will always remain to support or resist price performance. Price performance of a stock with good earnings in a weak market will be soon be hacked down whereas an average earnings performance in a strong market will generate better price response.
CURRENT REALITIES:
- Q2 earnings released so far do not portray the Nigerian economy as being bad. If anything, the economy is improving.
- The market is weak owing to structural changes in stock ownership
- Most results being released are positive
- Price response has been spontaneous- both ways. For positive earnings, prices have been spontaneously positive. To poor earnings, prices also have been spontaneously negative.
- Because this is Q2 earnings season, consistent price rally is not and should not be expected.
- Because the market is largely weak, consistent price rally should not be expected.
- Sellers will only seek opportunities of renewed bid because of good earnings to shed.
HOW TO INVEST:
- Follow and stay with premium stocks as a matter of policy.
PREMIUM QUALITY:
- Significantly, most market operators might differ in opinion on composition or definition but being who they are, opinions of the Nigerian Stock Exchange remain authentic as far as the Nigerian stock market remains, so at that, premium stocks are simply elite stocks that meet the Exchange’s most stringent corporate governance and listing standards. They are stocks of companies that are industry leaders in their sectors that also meet the Exchange’s highest standards of capitalization and liquidity. Subsequently, these are set of stocks that are preferred by global investors whose focus are on companies managed in conformity to the highest standards in their target markets. Being guided by the above is the first step in profitable investments under the new market structure.
- In as much as I do know and agree that there are a number of stocks that could be described as elite outside of the Exchange’ list, one certainty is the fact that nothing could be denied those on the Exchange’ elites stocks list as being what they have been said to be by the Nigerian Stock Exchange.
- Consequently, either within or without the list as compiled by the Exchange, your search for stocks that would remain buyable even under the new market structure should begin with elite stocks. Please note, NSE has made the search so simple with their list, discovery of others rest with you.
PREMIUM STOCKS
WHY ELITE STOCKS?
- Going by the list above, it could be deduced that being an elite stock does not necessarily impose higher prices. This suggests that your search for the best of stocks to survive current market trends should not start from price but quality of companies behind the stocks because prices are market formations which could be right or wrong and are also given to change either in the short, medium or long time, quality of companies are products of factors beyond the market but rather internal. Premium stocks are stocks you can hold for a long time because, technically speaking, no matter what negative trend, a new set of rule might impose on stocks of good companies, in the long run, prices of stocks of good companies will rise in recognition of intrinsic values the companies carry.
Follow and stay with PENSION BOARD STOCKS:
PENSION STOCKS:
Price sustainability in any market under whatsoever negative trend is relative to the strength of holders or ownership. In other words, investors who entered into a stock high will panic in a downtrend, those who are highly geared will lose sleep in a downtrend, short term players will be depressed in a downtrend. Illiquid investors will groan seeing prices down. On the other hands, highly liquid strategic investors, who have capacity to hold and who probably once bought low will only wait to buy more in a downtrend, such are pension funds and other institutional investors around. Knowing such stocks where these kinds of investors dwell will make your selection better in a dwindling market. The table below is the list of NSE’ Pension index stocks.
NSE PENSION INDEX STOCKS
Limiting yourself to the stocks in the list above will sure save you from unnecessary panic in a downtrend. But why? The forces behind them over time will ensure they are back where they belong.
Knowing full well the existing investors in these equities, though not to precision of percentage holding should strengthen your confidence. You might be losing now in a few of them but companies on this list don’t look as if will die soon.
If you must consider other stocks not on the list above, please consider the following factors.
- OUTSTANDING SHARES IN ISSUE:
- SHAREHOLDING STRUCTURE
- STRENGTH OF MAJOR HOLDER
- INDUSTRY AND REGULATION
- YEAR LOW/HIGH, RESISTANCE AND SUPPORT PRICES
- DIVIDEND PAYOUT POLICY AND POSSIBILITIES