C&W could be 2017 top stock from the main market.
Technical indicators show that both the main and junior markets broke through major resistance levels and seem poised to reach new highs with the all Jamaica composite index seeming poised to hit 290,000 points and around 3,400 points for the junior market index before the year is out.
Projected earnings for 2017, and what now appears to be rising PE ratios, suggest the possibility of a much bigger move ahead for the local stocks.
While the junior market seems to be in the clear to move on to 3,400 before any major resistance, the same is not the case for the main market. The latter is only a few thousand points from a major resistance that has it genesis in 1992 with the major resistance in 2005. This coming week will be a big test. Friday’s initial pull back in the morning session and push back of National Commercial Bank, Scotia Group and PanJam Investment may be early signs that we may be at a tough region presently.
Treasury bill rates are set to decline this year, against the background of stability in the Jamaican dollar, with strong inflows of foreign currency into the system and low inflation. Here technical indicators are pointing to 192 Treasury bill rates going to 4.5 percent, with it reaching around 5 percent late this year or early next year and the lower level in 2018.
With low rates, more funds would be flowing into the stock market driving up valuations, with indications that the current prices for a number of stocks suggest could put PEs around 20 time earnings. Added to this, a look at orders for the majority of stocks indicates a chronic shortage of supply of stocks for sale. The implications, with the majority of stocks priced around 10 times 2017 earnings or less should result in a sharp increase in prices that would take both markets well beyond where technical indicators suggest, in the next few months.
Company expansion| The best rate of growth in the economy for years is expected to continue, with prospects of 2.5 to 3 percent seemingly on the cards for 2017. Against this background, most companies appear set to benefit with increased sales. The real big gainers should come from those companies that are undergoing expansion. They will have a double benefit, that from the pickup in economic activity and from the expansion.
Then there are those companies that will benefit from lower interest rates and pick up in stock market activity. Investors would be wise not to see bullishness in stock prices as a prelude to increased instant profits in all cases. An example is the Jamaica Stock Exchange, while the market is exhibiting a high level of bullishness, it is not translating into high volumes and value in the daily trades as yet. In the peak of the market in 2014, the JSE traded $50 billion currently, the level is running around $35 billion annualised. Last year in the first quarter, the JSE earned a big increase in fees as a result of the Desnoes & Geddes share trade. This year, there is no such a transaction expected in the quarter. Later on, the stock exchange is likely to benefit from increased trading levels as well as increased listings in 2017, with the latter also helping to increase the volume of stocks trading.
There are companies that will benefit considerably from cash provided by operations that will be used to generate increased business. This is most applicable for the smaller junior market companies. For a detail look at the Top 10 stocks for the rest of 2017 in the junior and main market, see Top 10 junior stocks and Top 10 main market stocks.
