James
Dennise Williams, Staff Reporter
THIS IS the message from Vernon James, senior manager, stock brokerage division of Dehring Bunting & Golding (DB&G). Mr. James takes a critical look at the market while acknowledging that DB&G may or may not have a position in stocks recommended.
That said, despite the less than stellar performance recently, Mr. James believes that understanding the reasons behind the stock market behaviour will help investors make informed choices.
"The Jamaica Stock Exchange (JSE) has been in a lull for the last four or five months, due to a variety of reasons," explains Mr. James.
"First, the market had quite an unexpected run in January of this year. So stock valuations were much higher then than now. In January, the average price earnings ratios was between 16 to 17 and so a correction was due.
"Next, there was the Dyoll bankruptcy. This removed some amount of confidence in the market. People realised, especially minority shareholders, that they can lose money in the JSE.
Then there are the sociopolitical issues crime has impacted on investor confidence. Also, there is concern about the viability of the memorandum of understanding in light of police pressure for higher pay.
Finally, we have had a series of corporate earnings released which appear to be fairly strong and some, below expectations. And, this is why the market has suffered a bit."
Indeed, at the end of January, the JSE index was at 120,000 points, now it is at 107,000 points.
BUYING OPPORTUNITY
However, Mr. James sees this as a buying opportunity. "Stocks are more attractive now. We will have a strong last quarter, based on a number of factors: We are now experiencing the lowest interest rates in Jamaica; the money market is very liquid, and that money needs somewhere to go, and there are few investment options."
For the investor who is skeptical in light of the continued summer malaise of the stock market, Mr. James says: "The JSE is the primary way to grow wealth. The wealthiest people in the world have made their fortune from stock market investing through their own or investing in other companies. The fact is, you cannot grow wealth in a commercial bank savings account."
TOP PICKS
Essentially, the point is to buy now. Mr. James is optimistic, not only because he is in the business, but because he has seen the wealth created by the stock market. What he cautions against is waiting until stock price valuations start to trend upward and there are no more bargains to be found. Mr. James expects that the market will pick up during the last quarter of this year and investors who participate now will realise profits.
In order for investors to properly position their portfolios, Mr. James offers six top picks: Jamaica Broilers, Life of Jamaica, Radio Jamaica, Courts, Goodyear and Desnoes and Geddes. The stocks highlighted are generous to shareholders as none pay out no less than 15 per cent of net profits.
VERNON JAMES' TOP SIX PICKS
Stock Projected P/E Ratio Payout
Price Timeline
JBG $6.72 April 2006 12 18%
Goodyear $14.04 March 2006 2 50%
RJR $8.80 March 2006 14 15%
LOJ $13.05 Dec. 2005 15 25%
Courts $5.00 March 2006 12 30%
D&G $11.00 March 2006 15 95%
Note: LOJ management has commitetd to a payout of 40 per cent. There is no distinct trend for Courts and figures are based on 2004. Goodyear's is based on 50 per cent of prior year's earnings.
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