Oge
We are a few weeks away from the general election, the stock market index is at bottom of the curve, a bearish trend that started last year (2018). But should you follow the crowd and wait for the stock market to pick before investing? I bet you, you may be paying more than what you can get right if you allow fear to drive your trade decisions.
According to Warren Buffet, the best strategy to make money in the stock market is to be greedy when others are fearful and the be fearful when others are greedy. While the latter is for the bullish market, the former is for a bearish market.
Although we might witness another market fall as election risks drive more fund flow from the equity market to safer fixed income instruments but 28,000 – 30,000 basis point seems like a strong support region to watch closely.
How can one be greedy in this market when the daily index fall is alarming amidst Election Fever?
For me, I use moving average crosses to pick good stocks that are outperforming the market index, this strategy account for 80-90% of my success in the Nigeria stock market. As simple as the tool is, it has helped me weed out sluggish stocks and scan for best performers even in a bearish market.
To recap this strategy, here are key checklists to finding stocks using the moving average crossover:
- 50-day SMA crosses the 200-SMA to the upside.
- Price has been trending and up in the last 1-3 months.
- Fundamentals are strong as indicated by latest quarterly results.
- Fair value estimates of the stock are higher than the 50 and 200-SMA.
In tracking stocks that are potential picks, I follow a stock market analysis website and bookmark all the Nigerian stocks, including their moving averages. As of this writeup, here are stocks you should watch closely right now, they have been resisting the market sell-off lately, attracting huge buying interest and may be set for a golden crossover.
Union Bank
Union Bank of Nigeria provides commercial banking services. The Bank further offers wholesale banking, brokerage, asset management services as well as mortgages and property related services through its subsidiaries.
The banking stock closed at N6 and is already up by 17.65% in the last 3-months. On a YTD basis, the stock is 7.14% up with over 4 million units bid in the last 7 days. The bank’s Q3 result showed a 12% growth in gross income and 14% growth in PAT driven by 46% growth in non-interest income.
Technically, the 50-day SMA is 5.37, some basis point away from the 200-day SMA, 5.73. The more than average increase in volume traded to 4.7million units is a bullish sign to watch.
Neimeth Pharmaceutical Plc
Neimeth International Pharmaceuticals Plc. engages in the manufacturing and marketing of pharmaceutical and animal health products.
Neimeth closed at 70k and is also up by 22.81% and 7.69% in the last 1 and 3 months respectively. On a year to date basis, Neimeth is down by 10.26%, a profit-taking activity that follows 49% rally, from 59k to 86k.
The company released an impressive result that showed an unexpected bounced back; from a loss of N411 million in 2016 to N184 million profit. Revenue jumped from N1.53 billion to N2.27 in 2017/2018.
Technically, the stock’s 50-day SMA is 0.61 slightly below 0.65, its 200-day SMA. Based on its EPS TTM of 10k and a modest discount of 19%, my fair value on this stock is 52k. Interestingly, the stock might find support at 65k – 66k as investors factor in the expected EPS for the year.
Learn Africa
Learn Africa PLC publishes, distributes, and markets educational books.
The educational stock closed at N1.24 and is up by 12.73% and 6.90% in the last 3 and 1 month respectively.
In its latest Q3 result, the company reported a 50% and 35% growth in revenue and profit after tax, an impressive number, investors love.
The stock’s 50-day SMA (1.21) is closed to its crossover (200-day SMA of 1.23) and I think you should pay attention to this company. Last year, it delivered a 40.91% return to shareholders who held units in the company.
Based on an EPS TTM of 0.41 and a risk-adjusted discount of 19%, Learn Africa shares, from my analysis, has an estimated fair of N2.15 which is 73% above the market price of N1.24.
I will update this analysis as the crossovers are confirmed.
Disclaimer: The stock trading ideas shared here are based on my opinion and should not be taken as a buy or sell recommendation, kindly do your own research.
