When looking for the next stock that has the potential of generating double-digit returns in the next 3 to 6 months, it’s smarter not to focus on companies everyone is buying today or attracting the most buzz but simply scan for fundamentally sound boring stocks that have been overlooked due to heavy sell-off and might be the next focus as we look forward to its next quarterly result.
I even feel more excited when such a company is in the penny stock category because the affordability of this type of stocks makes them juicy and attractive to all classes of investors, hence the rush to jump in when it starts going up.
The only thing you need here is extreme patience because picks like this don’t produce overnight quick returns but as investors begin to see the value in them, capital appreciation is a sure thing!
If you are not clear on what a penny stock is, they are companies that trade for less than N5 with a market capitalization under N5 billion. This type of stock is considered cheap but that doesn’t mean it’s every stock that sells below N5 that are good penny stock to buy – make sure you understand the company you are investing in, the fundamentals and every other information that’s necessary for your trade decision.
And if all these look complex, you can leverage the NSB stock basket to see the list of penny stocks I am currently trading.
I just updated the basket with a turnaround penny stock that’s poised to appreciate in the coming weeks or month.
What makes this stock a buy? It’s not only emerging from an oversold region which is my first checklist (TIMING), the financials in the recent quarter might be a key indicator of a better result after an unimpressive outing in 2020.
Summary of FY 2020
- Revenue from contract with customers dipped significantly by 35%, no thanks to Covid 19 disruption.
- Gross profit and operating profit ended in the red zone as expected.
- Finance cost increased by 150%, which weighed on profit before tax and after-tax.
- It should come as no surprise that the company posted a loss of over N300 million down by 460% from its PAT in 2019.
For those that didn’t take their share of the NSE market gains in 2020, the Covid-19 disruption actually presented another good opportunity to key into stocks that didn’t perform well last year. The overall stock market index went up by 50%+ in 2020, this penny stock only appreciated by 5% with the majority of its uptrend coming from Q4, 2020.
This stock was not in any way close to top gainers last year. But as economic activities resume – back to normal – the company will benefit from the increased contract from builders, real estate development and facilities management companies. The clear signs of a comeback are reflected in its first-quarter result and I think the optimism around the turnaround – from loss to profit – means more buyers interest in the penny stock.
In its latest quarterly result,
- Revenue climbedp by 22.1% to over N470 million, from N390 million in the previous comparable quarter.
- Gross profit also followed the same growth trajectory, up by 17% while operating result in the quarter ended March swung from loss 2020 to profit.
- Profit before and after-tax showed double-digit growth, up by 156% and 131% respectively.
- EPS for quarterly grew by 133% against the loss figure reported in 2020.
- The company generated N5.5 million cash from operation compared to N90 million used in the previous quarter.
As we look forward to the Q2 result which should come by August to September, I anticipate a bullish run on this Penny stock.
Technical Analysis and Price Action.
Like I stated earlier, this penny stock underperformed the market in 2020 with a paltry 5% share price appreciation but in the last 6-month, the price is already up by a double-digit 18% while the NSE index is down by 6.5%. Month-to-date, this stock is up by 6%+.
And as the 20-day average keeping rising and stay strong above the 50-day moving average, I have no doubt that the stock is in a short-term bull and will continue to enjoy the positive sentiment.
Personally, I have set an exit target at the upper Bollinger band which is like 30%+ upside potential from the market price.
Where can I find this penny stock?
The stock is exclusive to subscribers of my NSB stock basket, a portfolio of stocks I have personally picked for capital appreciation in the next 3 – 6 months. It also includes some top recommendations like Honeywell, Livestock Feeds and Dangote Sugar.
Take a look at NSB stock basket in Google sheet.
I have 10 active stocks in this basket right now with only one sold at 47% (SEPLAT) and as you can see, the majority of my picks are in the green region so far. These are stocks I am sitting on for at least 3 months, without looking at daily price fluctuations.
With my picks you don’t have to stress yourself trying to scan Nigeria stocks for the best pick – I have done that already and the truth is that it’s not an easy job– these are sure stocks I can boldly say, 8 out of 11 picks will go up in the next 3 – 6 months.
This sheet is designed to track our performance every week by comparing entry prices with current market prices, this way, we know when it’s time to take profit and jump into another stock or exercise patient or say goodbye to stocks if the price goes south.
Let’s assume that you invest N1,100,000 in these 11 stocks, that’s like 100k in each stock. And if 8 stocks appreciate by 25%+ (most times, even more) in 3 – 6 months, you should have N1,000,000 + N270,000 (10% loss on the remaining 3 that didn’t fly) which equals a portfolio value of N1, 270,000.
Overall, you’d still be up by 15.4% while the NSE ASI still struggles to deliver a positive return this year – YES! I don’t see the overall market going up this year, it’s clearly overbought on the monthly chart.