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FOMO (Fear Of Missing Out) refers to the fear that a trader or investor feels when missing out on a potential rally in stock prices. It’s another type of emotion that can take a stock that’s overbought or at the ceiling to another new high.
If you had read my previous analysis on Vitafoam stock, you’d see a perfect example of how FOMO can drive an overvalued stock to an all-time high.
The consumer goods stock touched an overbought region of N12 which also doubled at the upper Bollinger band but you know what? it didn’t pull back but still attracted pressure as more buyers bid the shares higher to N16, which is like 33% appreciation in 1 month.
FOMO is power in itself, you can attribute it to a two-edged sword – when explored strategically, it can generate good returns but if you lose it, the damage is even bigger.
I often think the FOMO trading strategy works on fundamentally sound stocks that pay dividends, after all, why would you buy a stock that’s considered overvalue if not for the juicy cash dividend? this is a key driver of institutional interest – no smart fund manager will buy shares of a company that’s already high without weighing risk and returns – so an attractive dividend yield compared to fixed income instruments like a treasury bill is a plus.
One stock that’s currently trading at the top of the market but still looks attractive after an impressive half-year result is UCAP, a financial and investment services powerhouse providing bespoke value-added service to its clients.
On a year to date, the stock is up by 34% dwarfing the NGX negative return of 6.6%.
Fundamentals:
Here is the highlight of its latest half-year 2021 result,
- Gross earnings increased by 54% to N6.8 billion (compared to N4.4 billion in 2020)
- Profit before tax also went up to N3.74 billion, 65% growth from N2.26 billion
- Profit after tax also increased by a whopping 64% to N3.14 billion (from N1.191 billion in the previous half-year)
- The company also declared an EPS of 105kobo compared to 64kobo, up by 64%.
Let’s also look at the company’s Q1 result to ascertain the possibilities of an established trend that will surpass FY 2020 numbers.
- Gross earnings increased by 10.5%, from N1.91 billion to N3.1 billion
- Profit before and after-tax grew to N1.97 billion and N1.65 billion from N1.17 billion and N991 million respectively which is like 68% and 66.4% respectively.
This stellar performance is a reflection of management’s strategic investment in growth opportunities. During my webinar with paid subscribers on Saturday (17/07/2021), I shared one key reason UCAP is on a path to beating FY 2020 financials and why fund managements will continue to add the stock to their equities portfolio.
UCAP dividend history
- March 09, 2018 – the company paid 35kobo per share ( dividend yield was 12.03%)
- March 14, 2019 – the company paid 30kobo per share (dividend yield was 10.42%)
- March 09, 2020 – the company paid 50kobo per share (dividend yield was 8.33%)
- March 08, 2021 – the company paid 70kobo per share (dividend yield was 8.01%)
- March 2022, how much will UCAP pay?
The company has been paying higher cash dividends to shareholders since 2018 with an average year-on-year growth rate printing at 33% but I’d rather go with a modest increase of 20-30%. This means UCAP will pay per share dividends in the low of 84kobo or high of 90kobo which is like a 12.9% to 13.8% yield.
In one of my posts on the low-risk strategy to buy stocks as a novice and still make more money, I recommended UCAP as one solid dividend stock you should buy, re-invest in your cash dividend and enjoy capital appreciation year on year. The expected double-digit yield on this good financial stock makes it attractive to income investors and fund managers.
Technical Analysis
The stock is currently trading in the 52-weeks region of N6.5 after closing higher in the last 5 days so we’d be anticipating a clear breakout if the UCAP trades above N6.57 this week.
From the chart above, you’d notice how the stock has been appreciating so fast. In the last 3 and 6 months, UCAP has matched high by 19.27% and 27.95% respectively, and at N6.5, the stock looks overbought and overvalued on a trailing twelve-month basis but you know what? the pressure is still high. This is where FOMO comes in.
Using the EPS TTM of N1.51 and a risk-adjusted discount of 25%, the stock should be fairly valued at N6.04 right now but I think this is far below íts intrinsic value if we use FY 2021 estimate.
In the last 2-3 quarters, the company declared an average growth in profit after tax/EPS around 60% and if the trend continues in its Q3 2021 result, then I am looking at FY 2021E of N2.08 (60% above FY2020 EPS of N1.3) which translates to a fair value of N10.4, 60% upside from current market price N6.5
N10 is a strong psychological level I expect investors’ sentiment to aim at going forward, remember, emotion/sentiments are the most powerful force that drives stock price.
