Investing in the stock market for capital appreciation is not as straightforward as you might think. It requires both a fundamental analysis of the company you are buying but more importantly, sentiment analysis.
The past 1 year has been one of the most volatile periods on record, with the benchmark NSE all share losing 5-6% of its value on a year to date basis. In fact, this year has undeniably taught short term investors how fruitless it is to try to predict stock price movements with fundamentals.
I hope you are reaping from the capital appreciation on Law Union and Rock after I recommended the stock – click here to see my analysis.
A stock that’s cheap may remain cheap for a long time so don’t get caught in the trap of adopting only fundamental analysis if you are seeking capital appreciation from penny stocks but rather use a little of fundamental and more of technical analysis, price action and sentiments.
Yesterday, I decided to scan the stock market for momentum value penny stocks that have high relative strength, posted improved fundamentals and still on track to appreciate further between now and end of the year.
Here are my 2 top picks:
FCMB Group Plc provides financial services including micro-lending, asset management, stock-broking, trusteeship and custodial services, foreign exchange, personal banking, corporate and commercial banking, investment banking and transaction banking products delivering cash, trade and liquidity management solutions to entities.
FCMB released a stellar result that beats analysts” expectations; a lot of us had expected a lower top and bottom line but in the bank’s Q2 book, here are the highlight of key figures:
- net interest income increased from N38,6b to N45.3b.
- net fees and commission income declined slightly, on higher charges, to N9b (from N10b reported in the previous comparable period).
- profit after tax increased from N7.5b to N9.7b.
- EPS also prints at 49k against 38k.
Price Performance and Technical Analysis
In the last 365 days, the stock has appreciated by 30.97% with 6 and 3 months trend up by 34.44% and 18.7%. This is a clear departure from bearish performance witnessed among the bank’s peer and I think that the recent downward review in savings deposit rate will reduce FCMB’s cost of funds, hence spur the bank’s FY 2020 result.
The stock looks cheap at a PE ratio of 2.03 and a Price to Book Value of 0.18. With its 50-day SMA above its 100-day and 200-SMA and market price clearly above averages, FCMB remains a good buy between N1.9-N2.03
United Capital (UCAP)
United Capital Plc is a financial and investment services company. The Company focuses on investment banking, asset management, trusteeship, securities and insurance. United Capital provides services to corporations, governments, high net worth individuals, institutional and retail investors across Africa.
In its Q2 result, UCAP also surprised the market with impressive figures; from a 46% growth in net operating income to N4.1b (vs N2.8b in 2019) to 15% and 18% growth in profit before and after-tax respectively. Besides, the stock is amongst the first to calm investors’nerve amidst the fear of impending massive sell-offs.
Price Action and Technical Analysis
Shareholders of UCAP have enjoyed 50% growth in their portfolio in the last 365 days. When you also check the performance on 6 and 3-month period, the stock has returned 49.93%respectively. Just like FCMB, the stock has proven to be a distinct pick among its peers. Besides, the 16% dividend yield on offer for anyone that key in right now is a sure bet for further price appreciations.
As of this analysis, UCAP is among the fundamentally sound stocks with highest dividend yield on the NSE market.
With 50-day SMA above 100-day and 200-day MA, UCAP is still bullish on a short term.
Using a risk-adjusted discount rate of 20% on its EPS (TTM) of 87k, the stock has a fair value of N4.35 which portents a 44% upside potential from today’s market price of N3.01.
Disclaimer: The recommendation shared here is my personal opinion, kindly do your due diligence.