Innovictor
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2015 is already shaping out to be a year in which the men will be separated from the boys in the Nigerian equities marketplace as Nigerian stocks continue to record a massive selloff. The selloff in the Nigerian equities market can be traced to the withdrawal of foreign funds from Nigerian markets as foreign investors go defensive against the possibility of post-election crises. Another reason behind the selloff in Nigerian equities is the impact of the drop in global oil prices on the Nigerian economy.
Nonetheless, some investors will still record incredible gains from the Nigerian stock market landscape this year despite the prevailing sense of pessimism in the market. You can join this crop of investors who make money in both the bull and bear markets if you know how to put the right kind of stocks in your portfolio. This piece is written to show you how to know the kind of stocks that will give you a shot at recording incredible gains in 2015.
Companies with Consistently Increasing Earnings and Revenue
The first type of stocks that should be in your portfolio this year is companies that have an impressive record of reporting consistently increasing earnings and revenue. Revenue and earnings are key indices by which you can decide if a stock is worthy of your investments or not.
A consistent increase in revenues shows that the company is growing its business and that its products or services are widely acceptable to its target market. In addition, a consistent increase in earnings shows that the company is managing costs efficiently such that that it able to record increasing level of profitability.
However, when you want to examine the company's revenue and earnings, you should look at the financials for at least the last 5 years (ideally the last 10 years). Looking at the earnings and revenue picture from the last 5 years will give you a fair representation of how the company performs during the bull markets (when stocks are rising) and bear markets (when stocks are falling). Hence, you will be able to obtain valuable insight into how the company will fare in the worst-case market scenario.
Companies with Consistently Increasing Dividends
The second type of stocks to buy in 2015 is the stock of companies that are delivering consistently increasing dividends. Investors can be broadly classified into two groups of growth and income investors. Growth investors are usually concerned with a stock's share price and its earnings while income investors are concerned with the ability of a company to pay dividends.
Interestingly, income hunters have higher chances of smiling to the banks irrespective of how the market fares because the payment of dividends is tied more to a company's core business performance than to the performance of its share price.
In essence, buying the shares of companies that have a record of consistently paying increasing dividends is a surefire way to ensure constant returns on stock investments even if Nigerian equities end up in a full-blown bear market. However, you should remember to check the company's dividend payment history for the last 10 years in order to ensure consistency.
Great Companies that are Undervalued
The third type of Nigerian stocks that should be in your portfolio is the stock of fundamentally sound companies that are currently undervalued. Growth hunters will find many opportunities to hit the mother lode on Nigerian equities right now because many of these stocks are in a downtrend. If you are impressed with a company's business fundamentals but still can't find a good enough reason to justify a selloff in its stock, you have most likely found a potential undervalued stock.
Many great Nigerian stocks are recording losses in their share prices not because their business fundamentals have changed but because foreign investors are pulling out funds. Hence, you will do well to devote more time to conducting your due diligence to uncover great stocks that are currently available at a discount to their fair price.