How To Pick Best Performing Stocks In Nigeria Today – Learn How I Pick Top Sector Stocks To Buy & Make Money More Trading Shares Online.
This trading strategy is a continuation of my previous guide on how to know which sector stocks to buy now. In that practical and well thought-out tips, I shared the number one economic indicator to watch before deciding on the sectors to focus on. The reason you must start your trading decision this way is that “the performance of the company you buy into is largely driven by the overall sector trend and government policies”. When government decisions favor an industry, it tends to attract more investment from big investors as they channel their funds to companies that will likely receive a boost.
Take, for instance, firms in the building material industry have been grappling with cash flow challenges, rising cost of operation and mounting debt level due to dwindling government revenue that had affected their ability to finance long-term capital projects. If you are an investor looking for sectors to stay away from, this is one of them as the general industry growth may be unimpressive.
But, a rising oil price in the past few months to $60 (above $45 benchmark) provided more revenue for the government to increase her spending on capital projects. From the 2018 budget, the sum of N300 billion was earmarked for road construction and rehabilitation, so expect building materials and cement companies to pick up as abandoned projects will be revisited and more projects awarded. For instance, take Dangote Cement, the company’s share (as at when I checked) is already up by 17.39% since the start of the year (2018), Larfage Africa, Northern Nigerian Cement, CAP Nigeria have also gained 17%, 85%, and 14% respectively.
This is a perfect example of how to uncover stocks that will deliver a great return on your investment; start from the overall macro indicator by following the global Oil market as shared here, then focus on sectors that will benefit from the trend and find great stocks in that sector. This doesn’t mean that all stocks in a top sector will perform well, some companies may still lag but your core focus is on buying the biggest winners.
Here are steps I have always follow strictly to find the best-performing stocks in the best sector.
Focus on the top sector indexes.
As at when I posted the guide, here are the top sectors with most gain:
- Banking index – up by 24% YTD
- Industrial Goods index – up by 21% YTD
- Insurance Index – up by 13% YTD
When you begin your stock selection processes like this, you have automatically increased your chance of finding companies that will deliver a superior return. Like I always say, the performance of a stock is largely determined by the sector group and investors’ perception about growth in that industry based on general economic policies.
Find the best stocks
My next move is to look for stocks that are driving the sector as it’s not all the companies that make up the index will deliver the biggest return. From the three sectors listed above, let’s find the top performing stock in industrial goods:
I check the list of companies that make up the industrial goods sector on NSE market indices to screen out companies that have increased more in share price more than the index on year to date (YTD).
My top pick was CCNN – Cement Company of Northern Nigeria., a building material manufacturing, and marketing company focused on the Northern part of the country.
This company is currently up by 105.26% and 95% since the start of the year and in the last one month. What an outstanding return you will hardly come by if you didn’t start from sector performance.
Here is a screenshot of CCNN stocks as highlighted in yellow:
Did you know that you have bypassed so many complex mathematical calculations like discounted cash flow or financial ratio analysis to arrive at the type of stock everyone is looking for?
If I invest in CCNN stock, it wouldn’t have been a bad idea but just that my trading decision would be half-baked, why? I need to validate the stock by checking few details about the financials of the company.
First, I look at profitability like current quarterly sales and earnings and be sure that the company is performing better than their previous result:
In the latest nine-month financial report, CCNN reported a revenue of N13.62b compared to N9.2b reported in 2016 representing 48% growth. EPS in the same period grew by 184% ( from 50k to 162k). Net profit margin increased to 14% from 7%
On the quarterly basis, sales, and profit also growth by 88% and 1499% respectively while net profit margin, an indicator of profit earned per sale rose from 2% in third quarter 2016 to 19% in the comparable period.
Here is a snapshot of CCNN third quarter result in 2017:
Shareholders fund were adequately utilized as return on equity stood at 15% in the current period from 6.2% in 2016.
Second, I look at the liquidity position of CCNN. The company is able to finance its short-term obligations as it has a positive current ratio of 1.76, higher than the previous year. I also love the impressive increase cash flow of N1billion from operative activities; they generate more cash from their business.
The third area is to look at how exposed CCNN is to long-term debt? Here, I focus on the long-term debt to equity ratio of the company to know if they are highly leveraged or not. A company that has more debt to equity will likely channel their profit to interest on long-term loans or resort to a right issue which will affect earnings per share, investor’s favorite metric.
From the result above, you will see that the company was able to manage its debt down to N2.7b from N3bn, no wonder debt to equity for the 9 months period was 20%, down from 26% level in 2016.
If all the major fundamentals of Cement Company of Northern Nigeria looks great, with the building materials industry projected to grow this year, ( as the government plans to spend over N300billion on infrastructure and road rehabilitation in 2018) tell me why I shouldn’t buy into such company’s share? Besides, the region the firm covers is an area that is ravaged by constant militant attacks and as so the government plans to rebuild the northern part of the country, the company should be among major players in such rehabilitation projects.
CCNN as of this writing trades at N16 per share, the stock is a potential pick for short to medium term gain.
If you had invested N100,000 early this year in CCNN, by now, your cash should have doubled to N215,000. I bought this stock last 2 years, and have already made 3X my cash which is far better than fixed deposit or treasury bills.
Like I said, you don’t need any complex formula to find the best performing Nigerian stocks, what I have shared here is enough to help you screen and pick good stocks to buy.
Do you know good stocks in a top sector? please share your picks, an idea could help an investor invest rightly.