It may seem anti-buffet if I say, it’s smarter to buy stocks that have shown some level of price appreciation before taking a position but the truth is, not everyone actually makes money using the buffet strategy, except you want to own the stock for a long time say 5 – 10 years.
For someone that’s considering short-term gains that are driven by economic events, I have tried my best to share ideas in my book, Explosive Stock Strategy.
One stock that passed my checklist earlier this year and still looks like a potential trade is Total Nigeria. now Total Energies.
TotalEnergies Marketing Nigeria PLC distributes and markets refined petroleum products and fuels. The company sells LPG and operates lubricant blending plants. TotalEnergies Marketing Nigeria serves customers in Nigeria.
Share Price Performance:
The downstream stock has recorded an impressive run, beating the local bourse by a wider margin on a year to date basis.
Shareholders that held on to the stock in the last 6 months and 3 months should have pocketed an estimated 47% and 32.4% profit respectively while those that had stayed put in the last 12 months are already up by a whopping 140%
The question now is, can one still buy Total after such a double-digit outperformance?
Let’s take a look at the chart right now.
The red horizontal line on the chart above says a lot about Total and how the stock has an established key level around N184- N192, You’d notice that the oil and gas stock rejected this key resistance four (4) times between 2013 and 2015 before it eventually broke out by 11.76% in June 2016 to reach a new high of N345 representing an 81% share appreciation.
Total Energies stock pulled back from that all-time high (345) to re-test the same key level in August 2018 before bouncing back to its 20-day average, that’s where the bear took over hence dragging the stock to a low of N80 in September 2020, no thanks to global economic lock-down in the same year.
As the demand for oil resurfaces, the stock recovered significantly by 153% to reach a 2021 high of N203. And as investors take profit on the stock, monthly performance is in the negative region of -3.61% but here is my focus.
Total stock trading at N192, the same resistance region it tested several between 2013 and 2015., looks like an important key level that might define the trend of the stock going forward – we could see a spike to the upside or downside/
But here are the reasons I consider the stock a great buy at the level.
1 – Impressive Q2, 2021 Performance:
- Revenue grew by 42% to N151bn from N107bn in the previous quarter.
- Profit before tax stood at N11.8bn., up by 1578%
- Profit after tax stood at N8.1bn, up by 1601%
- EPS increased by 1603% to N23.76 compared to a loss of N1.58 in the previous comparable quarter.
- Share Price as at the time this result was announced stood at N168, that’s like 14% appreciation to today’s price of N192.
2 – Surge in Energy Price
Across the world, a natural gas shortage is starting to bite. The price of gas is up by 100%+, from $2.5 to $5.
Right here in Nigeria, the cost of filling a 12.5kg cooking gas is almost up by 100% in the 12 months with 6 weeks change now at 13%.
This and a general increase in energy price is expected to push the company’s revenue by a significant percentage to the north which should add to profit after tax and earnings per share.
I have no doubt that Total Energies stock is a growth that still looks unstoppable at N192 key price.
The trailing price to earnings ratio of 6 compared to the expected year on year growth makes the stock a no-brainer for both value and momentum investors.
The risk right now is the N190 – N184 key level – if the stock fails to recover from there, I’d consider a sell and cut my loss.
Make sure you do your due diligence.