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1 Insurance Stock, Down 16% in 6 Months, With 60% Upside Potential

One approach to trading stocks that have been extremely profitable for years and will still generate big returns for smart investors is the concept of buying beaten-down stocks that are about to pick up on improving fundamentals.

While this strategy is highly risky because you may end up catching a falling knife if you don’t do your homework very well, you can actually increase your chance of picking good stocks by taking a look at the quarterly results, and changes in sentiment and price action of your selected stock.

Cornerstone Insurance stock is one of the few penny stocks you should add to your growth portfolio if you want to catch double-digit moves in the market right now.

Still down by 16.16% in the last 6 months, the insurance stock has appreciated by 17.65% in the last 30 and 90 days respectively beating the NGX index by a sizeable margin.

Fundamental analysis;

  • Cornerstone reported a 2.58% increase in its trailing twelve-month revenue
  • Net income expanded by 90.78% compared to the same previous comparable period.
  • EPS grew by 86.33%.
  • Revenue, profit, and earnings per share on quarterly growth year-on-year print at 1.4%, 141.15%, and 141.35 respectively.
  • EPS TTM is 0.15
  • Using a risk-adjusted discount of 15% (based on the last TB auction rate and risk premium of 5%) on this figure, Cornerstone should be fairly at N1 which is 66% above the current market price of N0.60

Technical analysis;

Cornerstone stock traded between 41kobo and 50kobo between 2013 to 2017 before it dipped to reach an all-time low of 16kobo. The stock recovered from that level to reclaim the 40kobo region and went higher in 2020 to reach a new high of 89 kobos in Jan 2021. That region attracted a lot of selling interest, hence the pull-back in the whole of 2021 and 2022.

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But when you look at the price action of Cornerstone insurance stock in 2022, you’d notice that the stock price always finds support at 40-46kobo; in December 2021 and November 2022 as seen on the chart above.

The stock has recovered steadily from that region and posted successive gains in the last 2 months with a December 2022 gain of 20%.

Based on my fair value estimate of N1 and the last resistance of 86kobo recorded in Jan 2021, Cornerstone stock may retest that high region if the company reports another impressive Q4 number.

What do you think?

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