From September (the day I shared a strong fundamental and technical reasons you should start buying Nigeria stocks), the stock market has added more strength to its index – now up by 3.87% (from 25,978 basis to 26,985). Besides, the 2.53% bullish run in the last 5 days has pushed the market index into the positive region on a year-to-date – NSE ASI is now up by 0.54%. (Let’s pop champagne!!).
But before you buy into the hotties, take your time to understand the reason the market is bullish at this critical time the world is battling a pandemic.
Like I shared in the previous stock recommendations, CBN’s latest monetary policy stance is the reason rates on fixed income instruments are at their all-time low – savings deposit now earns 1.15%, 365-day treasury bill is between 2-3%, while returns on 2-year and 3-year FGN Bonds are in the low range of 4.13% and 5.13%, respectively.
All these paltry returns are in no way close the inflation rate (last reported to be 13.22%) and if you are still considering these options, your money is losing value.
For smart money managers, it makes more sense to hunt for alternative opportunities that offer better returns. This summarizes the reason we are seeing the return of capital in the stock market but you know what? it’s only a few stocks that will attract this new inflow – High-yield Dividend Stocks with Good Fundamentals.
A few weeks ago I recommended UCAP as a stock to watch. The stock has appreciated from N3.01 to N3.33 with more upside in the coming months. As a top to my picks, here are 2 must-own safe stocks to add to your portfolio in the new bull market.
In its most recent quarter, Zenith bank reported good numbers that beat analyst expectations .
The above income statement captures the bank’s result on a trailing twelve month. While it recorded a high loan loss provision as its expect some customers to default in loan repayment, this didn’t deter the net interest income as it prints higher to N246b against N242b in 2019. This growth was driven by a lower interest expenses.
With the reduction in MPR and savings deposit rate, Zenith bank is well positioned to benefit from lower interest expenses.
Another line item to watch closely is the non-interest income (TTM) – the bank generated N279.5 from fees and commission, higher than N254.1b in 2019FY. As more customers embrace mobile banking and online portal for their fast transaction processing, this should support the bank’s bottom line in its 2020FY.
A net income and EPS of N223b vs N7.1 (higher than N208b vs N6,6 in 2019FY) already shows that the bank is on track to deliver a better result in 2020.
How is the bank’s cash flow?
A look at its statement of cash flow shows that the bank is generating more cash than its burning. On a trailing twelve month, Zenith generated N272.9b from operating activities while it has N276b in free cash flow.
Zenith Bank closed the week at N18.05, up by 5.56% against the week’s opening price. This is higher than the banking sector index performance of 4.24% in the same period.
While the bank’s stock is down by 2.96% on a year-to-date, its dividend yield of 15.5% makes it a promising dividend stock that can attract buyers’interest, hence add more gains via capital appreciation.
Considering the 51.6% and 18.59% increase in share price in the last 3 and 6-months, it’s already clear that investors have actually been mopping up Zenith bank stock ahead of the bank’s full-year result.
Let’s start with the weekly chart:
As long as the share price is still below the 50-day, 100-day and 150-day average, the short term trend is considered bearish. You will also notice that Zenith bank stock trends to pull back whenever it trades close to these moving averages (Point A and B).
But as the share price clears the 50-day average of N17.07 and appreciates further to the 100-day average of N18.95, should we expect another pullback? I don’t think so! The general market sentiment is positive right now and I think an inflation-beating dividend yield of 15.5% is too juicy to ignore. Zenith bank stock may go past its 100-day SMA of N18.95 to N21.35. This is like 18% upside potential from the market price of N18.05.
And if Zenith stock faces no resistance at the 150-day moving average, a bigger push to N26 and N32 is imminent. The bank’s EPS (TTM) of N7.1 discounted by a risk-adjusted rate of 20% brings it fair value to N35.
Let’s look at the bank’s stock a monthly chart:
The number technical tool I use to predict stock price on a monthly chart is MACD – this tool offers a clear guide on where a stock price is headed based on its 9 and 26-day average. The last time we had a bullish crossover on Zenith bank was in 2017, the banking stock appreciated from N14 to N31, that’s like 121%.
The same bullish crossover (Point A) is emerging on the chart right now, this seems to confirm my target price of N30 very soon.
In March 2020, the economy was put on lock-down, including construction activities but this didn’t deter Dangote Cement from delivering its slow but steady growth numbers in its latest financials.
Based on its TTM, the cement maker has generated N900b against N891.6b in its 2019FY while PBT, PAT and EPS numbers in the same period are N257.8b, N207.4b and N12.2 compared to the previous full year’s figure of N250.4b, N200.5b and N11.8 respectively.
This is actually not a significant increase but at a time most consumer and industrial goods firms were shutting down operation, cutting down earnings guidance, and struggling to keep their operations afloat, Dangote Cement’s management proved that it can ride the global health crisis.
Dangote Cement stock is one of the major drivers of the NSE ASI. As the index turned positive on a year-to-date, I noticed that only 3 large-cap stocks account for this green switch; Dangote Cement, MTN and Airtel Africa.
Dangote Cement stock is now up by 1.41% in 2020. With a dividend yield of 11.11%, the stock looks attractive to yield seekers looking for an alternative to Treasury bill.
From the chart above, Dangote Cement stock price is still bearish as price is below the key averages – 50-day, 100-day and 150-day. The point A and B shows that the stock always finds resistance at its key average but as the price moves past its the 50-day average of N143.84, I anticipate some strength to the next moving average.
With Friday’s trading session ending at N144, it means the stock is likely heading to N162 and if it doesn’t pull back, then N187.20 before a brief sell-off.
Here is the monthly chart to confirm the possible bullish run:
Look at the chart above as a mountain and you were tasked to climb up and down successively – you move from A to B (Uptrend), B to C (Downtrend), then C to D (Uptrend) followed by D to E (Downtrend), what should follow from point E as we notice a MACD bullish crossover? Uptrend.
The next resistance facing Dangote Cement stock on the monthly chart is its 100-day average price of N182.
From these two charts, I can forecast a 29% upside potential to N182 from the current market price of N144.
Disclaimer: The opinion shouldn’t be taken as an absolute recommendation, kindly do your due diligence.
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Thank you for your Sir. Thank you!!
Of a truth, your predictions are awesome. I Appreciated you sir.
Thank you, Sir, for the positive feedback.
[…] most recent stocks to buy are Zenith Bank and Dangote Cement. Both stocks exhibited a bullish potential that is not far from institutional activities; the […]
[…] If you are yet to discern the fundamental driver of the bull run, refer to my post on why now is the best time to buy stocks and 3 sure stocks you should buy in this new bull. […]