Oil prices plunged

Jamaica and the majority of Caribbean nations got some great news on Sunday, with the price of oil plunging 27 percent to just over US$30 per barrel.

Oil prices fell sharply in 2016 as well

Oil traded over $65 per barrel late 2019 but has fallen to the low US$50 recently. The price opened at US$32.87 and traded as low as $30 on Sunday, Jamaica time. The price is back to where it was in early 2016 when it tumbled from just over US$100 per barrel. According to Market Watch, a USA publication, Asian stock markets plunged Monday after global oil prices nosedived on worries a global economy weakened by a virus outbreak might be awash in too much crude.
Jamaica, a heavy oil user, imports around 20 million barrels per year and could save nearly US$400 million per annum if the price were to stay around these levels. If the price holds, it will result in gasoline price dropping, electricity bills will fall, but the government will collect far less taxes on petroleum.

Jamaican stocks set for 2020 growth

The Jamaica Stock Exchange saw divergent movement in the three markets it operates, in 2019. While the major focus was on the Main Market performance with 34 percent gain, the US dollar market actually outdid it with gains of 40 percent but the Junior Market was nowhere to be found.

Almost clear skies for the Jamaica Stock Exchange

The Junior Market had its worse performance in three years, with an increase of just 3.4 percent. Last year was the fifth year of annual gains for the Jamaica Stock Exchange. In the past, the five-year mark meant that the market had peaked and was due for a major correction. Technical and fundamental indicators are not pointing in this direction currently.
Technically, the Main Market has 900,000 plus points on its radar, 60 percent away for the All Jamaica Composite index from the start of the year. The market is being steered by an upward sloping support line. There is no indication of any major resistance until it passes the 900,000 points mark.
The PE for the Main Market based on 2020 earnings is down to 16 times, 25 percent below the 2019 PE at the end of 2019 of 20.  NCB Financial performance is going be crucial to the performance of the market index as it controls so much of the market capitalization. In the end, the index is just a barometer of the movement in the value of all the companies listed and investors would be well advised to focus on the quality of stocks that will provide good returns. IC Insider.com forecast shows 13 to 15 companies that could double in price during the next 15 months in the Main Market starting in January.
The Junior Market is poised to move much higher on improved profits for 2019 and 2020, even as some 2019 results were disappointing and did not stimulate investors to acquire these stocks in increasing volumes with many of them still undervalued relative to values in the Main market. Improvement in profitability will convince investors that there are excellent values in this segment of the market.
There are 28 Junior Market stocks with the potential to deliver gains between 100 to 600 percent in 2020 and up to March 2021. The major reason for the large group is the lack of performance in the market in 2019. Investors placed a major focus on the Main Market, driving the PE ration to 21 compared to 14 for the Junior Market. At the end of 2018, both markets were trading around 17 times 2018 earnings. This divergence, suggests that there are good opportunities to profit from in 2020, as investors move to take advantage of undervalued stocks when
The forecast assumes that economic growth will continue during the year around the 2 percent level and that interest rates will remain close to current levels with Treasury bills rates staying under 2 percent. A major factor, that is important in viewing the market is the number of companies that are enjoying strong growth in sales as well as those that are expanding or likely to do so. Such developments bode well for major gains in profit going forward.
Investors should not ignore companies that performed poorly in 2019 but could enjoy a strong turnaround in 2020. The Investors’ Choice 80:20 rule based on 40 years of data, shows more stocks rising form the bottom 10 worse performers in a year and surge into the TOP 10 the following year, while an average of 80 percent of those in the TOP 10 fail to repeat in the following year and since 2016 the average is just one.
With the likelihood of twenty IPOs planned for 2020, investors can look for a series of disruptions in the upward trajectory of the market. For the past two years, there were signs that on each occasion of popular initial public offers, prices of existing stocks came under pressure.  The most recent were the three issues for 2020 to date. This phenomenon is most pronounced in the Junior Market that is far less liquid than the Main Market. The pullback of prices caused by the sell-off to fund IPOs also provides opportunities for investors who may want to pick up existing listed stocks at bargain prices.

Jamaica GDP set to gain in 2020

Economic growth for Jamaica is expected to remain positive in 2020 following increases in 2019, even as the closure of Alpart acts as a drag on the economic growth rate in the first half of the year.
Jamaica will see steady growth with improvements in several areas during the year, with increased output for manufacturing, tourism, finances and other service sectors such as BPO and entertainment. The continuation of major road construction projects and many new buildings going up in the country will also aid the continuation of economic growth during the year.
Growth in stopover arrivals bounced to 7.6 percent in the December quarter up from a slightly slower summer months with gains of 4.5 percent, 2019 finished with an overall increase of 6.5 percent in stopover arrivals and bettered the 4.6 percent increase in 2018 over 2017. The increase in 2019 suggests a very strong demand for the Jamaican product. Increased demand for the product provides room for greater revenues per room as hotels do not have to do a deep discount of rates as they did in the early part of the last decade. The sector should continue to grow around 7 to 10 percent for the coming year and bring in addition inflows around US$400 million over 2020. It could do even more with the strong demand for rooms that could see hotels getting average rates that are higher than in 2019.
Concerns regarding the coronavirus are worth watching. If the spread in the west is more broad-based than it currently the case, it could negatively affect visitor arrival numbers to Jamaica.
Data out of Statin indicates a 4.9 percent increased output in the manufacturing sector for the September quarter, helped by gains in PetroJam production. That is faster than the July quarter, with growth of 3.2 percent and the first quarter growth with negative 1.3 percent following a 2.4 percent increase in the December 2018 quarter. The trend is positive for the manufacturing sector and augurs well for a good increase in 2020. Continued growth in loan financing and increasing interest of companies seeking fresh long-term capital through the capital market are big positives for the business sector in 2020 and beyond. The Manufacturing sector’s use of borrowed funds, excluding cement, was consistent with 20 percent increased borrowing in 2019 and 2018.
An important thrust in Jamaica’s economic development is the increasing number of companies raising long-term capital and listing on the Jamaica Stock Exchange. Increased long-term capital is an important move in getting greater productivity and production of goods and services out of local businesses that will help greater economic growth in the current year and beyond. Increased listings provide investors with viable opportunities to invest capital long term and be an integral part of the wealth creation in society. During 2019, there were several new listings on the Jamaica Stock Exchange. The exchange is forecasting 20 new listings in 2020 based on information provided by stockbrokers. The country will see the majority of companies seeking to list, raising fresh capital for business upgrading and expansion.
Growth in the construction sector will pick up, with the start of the Kingston to Port Antonio road construction and demand continues in the BPO sector that will stimulate the need for more space while adding to employment. Data out of the Bank of Jamaica shows a sharp rise in lending to the sector with an increase of 37 percent over the amount lent in 2018 and well ahead of the 27 increase in 2018 over 2017. The increase in 2019 suggests a further rise in growth in the sector, which should continue into 2020.
The new Old Harbor power plant commenced operation on December 17 and uses natural gas that is much more efficient than the oil-powered plant that was 50 years old and was highly inefficient. The South Jamaica Power Centre plant will provide a more reliable and efficient source of electricity and will result in fewer power disruptions and lower electricity cost as the new plant will use less fuel, fewer workers and requires lower maintenance than the old one, that will be closed in early 2020. With capital expenditure of US$300 million, some of the lower operating costs will be eaten up by interest and depreciation costs. JPS quarterly financial gave a glimpse of what to expect from the switch over with a 10 percent drop in fuel cost for the quarter even as the official switch over took place in mid-December.
The Foreign exchange market went through a number of changes as the central bank reduced the compulsory take from the market from 25 percent down to 20 percent for dealers and 15 percent for Cambios. In effect, the central bank bought no funds from the market through its weekly intervention tool and had no scheduled sale to the market. About four bouts of strong demand resulted in BOJ intervening by selling funds to the market. Notwithstanding, the interventions, the central bank ended the year with the NIR rising from US$3.005 billion at the end of December 2018 to US$3,16 billion after the NIR sank to US$2.95 billion in July.
Over the course of 2019, the exchange rate moved from $127.72 to US$1 at the end of 2018 to end 2019 at J$132.58 to US$1, after it reached its lowest level of J$141.89 to the US dollar on November. The NIR movement for 2019 suggests that the market is in a fairly balanced position. The country has periods when demand and supplies are higher than at other times and the two may not coincide thus creating some disquiet. There are other times when capital flows can impact the market positively or negatively. Unexpected capital flows can create a serious temporary imbalance in the system and may warrant BOJ’s intervention as occurred on a number of occasions over the last twelve months.

Growth in tourism expected in 2020

Money Market rates have been down and “This decline was also related to the increased supply of  liquid assets during the quarter, given the maturity of GOJ bonds over the period.” Interest rates have been generally trending downwards from April of 2019, following sharp falls in 2018.
Spike in the exchange rate of the Jamaican dollar to the US dollar in the last quarter of the year put added pressure on prices and pushed inflation rate for the year to 6.2 percent, well above the 4.6 percent for the last 12 months to November 2019. Inflation for January dropped sharply by 1.1 percent as the FX rate impact was not present with the Jamaican dollar appreciated. Movements of the local currency accounted for a large part of increased inflation in 2019. The natural level of inflation is in the two to three percent range. The inflation rate should move back to more moderate levels in 2020 than it ended in 2019.
Government normal revenues up to November were running 7.5 percent ahead of the $373 billion intakes forecasted, with inflows at $400 billion to December 2019. This increase is after the government removed or reduced taxes at the start of the 2020 fiscal year with no new taxes levied. The preliminary guideline for the 2021 fiscal year, is for increased expenditure amounting to $18 billion in non-interest expenditure, but that is likely to be well below a probably $30 billion increase in normal revenues. With interest cost on government debt set to fall below that of the 2020 fiscal year, following the sharp fall in interest rates during 2019. The government will have room to increase spending in an election year. There is likely to be increased in capital spending, to be well ahead of the $75 billion projected for 2020, the Ministry of Finance instructions suggest for fiscal 2021.
Unemployment rates continue to fall, with the October 2019 unemployment rate down to 7.2 percent, the lowest on record. Labour Market conditions are projected to continue improving for the next eight quarters, the country’s central bank contends “the expected improvement reflects employment growth in manufacturing, finance & insurance, and business process outsourcing.” The Statistical Institute of Jamaica data shows the number of unemployed dropped to 96,700 persons in October with the number employed rising to 1.248 million persons. Based on the trend seen over the last three years, the unemployment rate should drop a possible one-percentage-point in 2020 compared to 2019 putting the unemployment around 6 to 6.5 percent. What is important about this improvement is the increase in the number of employed persons that will lead to increased demand in the economy, helping to stimulate increased growth levels.
Crime continues to be a major negative on the country acting as additional taxes on the wider economy, unfortunately, this major negative will continue to be present for some time to come.

2020 IPOs offer opportunities but

Add your HTML code here...

Investors can look forward to 20 new listings for the Jamaica Stock Exchange in 2020, split equally between Junior and Main Market stocks, information from the Jamaica Stock Exchange indicates.
The final number could be more, or it could end being less than the above number. Over the past two years, offers of new shares on the market affected demand for stocks already listed on the exchange at the time of the offering, as some investors disposed of exiting stocks to raise funds to invest in the new offerings. Switching stocks had more impact in the Junior Market than the Main Market. Investors can expect more volatility this year if the new offers come close to the number mentioned above. The sell-off of existing stocks offers investor opportunities to pick up some good quality stocks at bargain prices.
First Rock is the first issue to come to the market to take up a large sum to expand its operation with more real estate acquisitions. Government-owned Trans-Jamaican Highway comes to market and could pull $14 billion from the market, and could add several thousand new investors to the market as the publicity associated with the issue attracts new investors. Caribbean Assurance Brokers is the third for 2020 and as they seek $100 million in new capital. Alliance Financial Services’ initial public offer is scheduled to come in February or early March, with the broker being JMMB Securities.
Others that expressed an interest in 2019, to list include, Tropical Battery, AJAS, Marathon Insurance Brokers, ARC Manufacturing, Express Fitness. Government of Jamaica’s ownership in the Jamaica Public Service Company, Jamaica Mortgage Bank, Factories Corporation, while UDC should have some entities that should go as well.
Grace Kennedy Capital Market
has five issues working on to come to market during the year; one is said to be in the food flavouring business.

Alpart closure a drag on 2019 GDP

The Jamaican economy may not be growing at lightning pace but it should end 2019 with growth around 1.5 percent having grown an average of 1.2 percent for the year to September and reports from players in the private sector that volume sales in the December quarter bettered that of 2018.
Growth in the September quarter was pulled down to 0.6 percent as a result of a decline in the mining sector with the closure of the Alpart Alumina plant and weather-related impact that negatively affected growth in the agricultural sector.
As the end of 2019 approached, concerns about the state of the Global Economy surfaced with forecast for slower growth worldwide. According to BOJ, “a slowdown of 0.3 percentage point in the quarter ending September, relative to the growth in the June 2019 quarter” was seen. The main cause was the “weaker growth in China, Japan and selected emerging market economies”. The Canadian and US economies, however, outperformed growth projections for the penultimate quarter of 2019.
As 2020 starts, a number of the negatives globally seems to be receding with signs that trade issues between the USA and China are thawing as well as the cut in interest rates during 2019 in the USA is helping to keep US growth on track.
For Jamaica, there are three bright spots that augur well for 2020. The closure of the Alpart plant will be a drag on growth in the first half of 2020 but gains in other areas should overcome the negative impact of mining and lead to positive growth for the full year. On the flip side, a major game-changer is the switch over of Jamaica Public Service to new power generating plant that will cut import cost for fuel and result in a fall in electricity cost locally.
Data released by the Statistical Institute of Jamaica shows that inflation was 6.2 percent in 2019, the worse in four years, but the exchange movement played a major role in the spike. Statin also reported a continued decline in the unemployment rate at 7.2 percent to October and an increase in the number of persons employed.

Use PE ratio to make big bucks

Investors can improve return on their stock market investment by just following one critical measure, the PE ratios of stocks. Buy low PE ratio stocks and sell those that are too high relative historical norm that almost a sure recipe for making good money in the stock market.
An important factor worth noting is that the PE ratios based on 2018 earnings are well ahead of those for 2019 earnings. The average PE of stocks listed on the Jamaica Stock Exchange based on 2018 earnings is just under 19 times, reflecting valuation as high as 60 times 2018 earnings, with some with PEs in single digits.
The Junior Market boast average PEs around of 17, while the main market is at 19.5. The Junior Market typical PE hoovers around 16 while that of the main market is around 15, all based on 2018 earnings. The typical PE is where a large number of stocks are clustered.
While many investors see stocks as cheap, based on price, that is not the basis of investing in a stock. The focus on the PE is most critical. It is the tool used by most investors to determine if a stock is worth having or not. Many individual investors consider NCB Financial as expensive at

Chart showing falling interest rates & rising PE ratio of the Jamaica Stock Market.

$145, but with a PE ratio of less than 10 times 2019 earnings, suggest otherwise. PEs based on current year’s estimated earnings, are just 10 for the Junior Market and 14 for the main market, with the typical average of 12 for the main market. Should economic factors remain relatively stable, as they current are in Jamaica, as well as globally, the PEs based on 2018 earnings, are indicative of good gains in stock prices in 2019. The above would equate to the junior stock posting gains of 60 percent by next year March and the main market 25 percent.
Investors can compare, the current PE based on 2019 estimated earnings of each stock against the typical ones based on 2018, to get a picture of which ones are likely to gain strongly this year. IC Insider.com daily stock market report charts carry projected earnings and current PE for each stock that investors can use as their tool for identifying stocks with above average potential gains.

TOP 15 JSE main market Stocks

TOP 15 JSE main market stocks for 2019

While Junior Market stocks seem poised to deliver better returns in 2019 than main market ones, there remain some attractive buys with great potential gains in the JSE premier market.
The average PE of the Main market for 2019 is 13 times estimated 2019 earnings, compared to nearly 16 at the end of 2018. This suggests potential for gains above 20 percent on average, for stocks in 2019. Stocks selling below the average for 2019, are poised to deliver above average growth for the year.  Added to this, is the current PE ratio at 16 times 2018 earnings that should rise further before prices fully reflect earnings for 2018, which will take place by March. Stocks with PE at 8 or lower are likely to at least double during 2019.
Seprod – PE 7.5. The company acquired new business from Facey Group in 2018 as well as taking ownership of the former Nestle’ production facility in Bog Walk. Both activities will help swell revenues and profit as cost are lowered, giving greater leverage in the local and overseas markets. The sugar operation that has been bleeding for years, is getting greater attention with a view to cutting out the large loss. It should not be too long before action is taken to stop the bleeding.  Elimination of the sugar losses will result in even more profit.
Sterling Investments PE 7. The company underperformed the overall market for most of 2018 but has room for growth with the price bouncing after the announcement of a 5 for 1 stock split. They are now raising additional capital to diversify their investment objective, which could help expand profitability and lessen reliance on movements in foreign exchange gains. Investors should not expect explosive growth from this one but with the stock undervalued there is some amount of healthy gains that can be realised.
Victoria Mutual Investments – PE 7.5. The company recorded increased profit from ongoing operations in 2018 to September but the booking of $118 million impairment on Barbados bonds negatively affected the profit for year to date. The company also reported other comprehensive income separately from regular profit but this is likely to change for the full year and could well provide a kick to the final result, for the year. The company is active in seeking areas of growth. It has also added new unit trust funds to the market. The continued buoyancy of the local stock market bodes well for increased profits from this area as well as a result on its impact on fee income from its equity linked unit trust fund.
Caribbean Cement – PE 8. Caribbean Cement has not yet delivered on its potential. The plant that was previously leased, was acquired in 2018, and is now saving nearly $2 billion per annum. Shareholders enjoyed none of those savings last year. That could change this year, as the company raised prices late in 2018 and will now be producing all of the cement they sell, thus lowering direct selling cost. For most of 2018, the company imported cement to meet a part of its demand while they were working on upgrading the plant to meet both local and export markets. With continued growth in the economy and strong expansion in the construction sector, the company should continue to enjoy increasing revenues and profit. Cement has partially refinanced some of its US dollar debt and started to pay down the US based debt as well, thus limiting FX losses.
Radio Jamaica – PE 9.5. RJR has so far not been able to deliver on the promise when the media business and that of the Gleaner, were merged. While they have cut out some cost, revenues have not grown to deliver improved results. They remain profitable and yet results have been below expectation and has dragged the stock price below 90 cents. Tightness in the local economy in the past few years and cost incurred to switch Television to digital telecast, added to the pressure on results. The biggest part of the problem is the failure to pull in more revenues. The improving economy is likely to help to improve revenues going forward as advertisers increase their marketing spend. Of note is the fact that the stock now trades below net asset value of 95 cents. Importantly, even as the company reported a loss of $133 million for the six months to September, operating cash flow generated was a positive $120 million.
Sagicor Group PE 9. The company has not delivered much in 2018 partially due to losses incurred in the write down of Barbados bonds that it holds. The company will benefit from increased revenues from the acquisition of the Scotia Group’s insurance business going forward and will also gain from investments in the local stock market as well as from the growth in the local economy and increased employment that should facilitate increased sales of life policies.
Sygnus Credit – PE 9.2. This company is relatively new and it listed in 2018. The company provides financing to viable but growing businesses by direct lending or other types of funding including factoring that will provide above average rate of return. The original concept was to deliver around 8 percent per annum to its investors, but depending on the nature of the investments they make the rate could be better. They have investments in two Portfolio Companies with profit sharing features attached. Up to September, return on invested funds was almost 11 percent. At the end of the September quarter US18 million was invested in various companies, with a similar amount available to be invested. The company incurred a loss for the September quarter due to exchange rate movement, which resulted in foreign exchange loss of US$7,000. Since then the local dollar has revalued and this will reduce the loss incurred. The stock pulled back after reporting the release of the last results and now offers investors a nice entry point for appreciation, especially with PE ratios mostly around the 15 mark. The Company intends to pay out up to 85% of the earnings generated from these investments as dividends on a quarterly basis, after the end of the first financial year.

JMMB Group

JMMB Group – PE 9.5. JMMB shares have suffered from selling by insiders from time to time that has left it undervalued. It has a long history of good performance. Revenues and profit rose in the half year to September as a number of areas performed very well. Going forward, the group has a great deal of room to expand in the Dominican Republic with a population of 11 million, compared to Jamaica with 3 million. Effective April 1, 2018, the Group adopted IFRS 9 “Financial Instruments”. Prior period amounts are in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 has resulted in changes in accounting policies related to the classification, measurement and impairment of financial assets and liabilities, the company stated.
Carreras – PE 9.5. Regular increases in taxes on cigarettes have pressured demand for the product and squeezed profits for several years. There was no increase in prices in the last year but revenues grew in the half year to September while administrative cost fell. The company should earn around 80 cents per share to March this year and that should increase for the 2020 fiscal year. Growth in the economy and more importantly, the buoyancy in the construction industry will increase disposable income for smokers and thus drive increased demand for the company’s products. The stock is currently trading at just over 11 times earnings, based on 2019 earnings well below the market average of 16.  With the dividend yield around 7 percent, investors will get good value for an investment in the stock, but not big capital gains in the short term.
Proven Investments PE 9.5. Proven has been expanding with new acquisitions in 2018 and recently the purchase of 20 percent of JMMB Group shares. Access Financial Services in which it owns the largest block of shares, just concluded the acquisition of a loan company in Florida, while Proven concluded the acquisition of brokerage business in Cayman Islands and their St Lucian bank was in the process of acquiring a Latin American bank. IC insider.com expects more acquisition going forward and this should augur well for continued growth of the group.
Jamaica Broilers – PE 10. The company has been expanding by acquisitions and agronomic growth, leading to group revenues for the October quarter increasing 18 percent to $13.6 billion, over the $11.5 billion achieved in the similar period in the previous year. Gross profit for the quarter was $3 billion, a 3% increase over the previous year. Profit for the quarter was not as positive as the gains in revenues but that will change going forward as the company improves on profit margins.
Wisynco Group – PE 9.5. Shares are selling at a discount to the average of the market. At the same time, profit for 2019 should rise well ahead of the 2018 results as the company fully overcome the added cost associated with the damage and dislocation caused by fire that destroyed their warehouse in 2016. Profit growth should increase with the addition of the distribution of sugar and rum as well as improvement from the operating from one site as opposed to two in 2018. Growth in the local economy will be beneficial to sales growth and profit as well.
Berger Paints – PE 10.5. The company has been undergoing changes since Ansa McAl took control in 2017.  The Penta brand of paints is added to the product line, along with the strongly in demand Berger brand. Penta paints were previously imported, by a third party, with production locally, cost will be reduced and allow for greater profit margin. Other changes within the company will lead to increased sales at lower cost and greater profits going forward.
Jamaica Stock Exchange – PE 10.5. The JSE enjoyed its best year in trading ever, in 2018 with the value traded, almost doubling and bettering the highest level enjoyed in 2004. The company enjoyed more listings on the market last year and they expect a 20 percent increase in 2019. News listing not only bring added listing fee income but increased trustee fees as well. Additionally, new listings open up the market for new investors some of whom will start to be more frequent stock market traders, thus increasing fee income as further.
NCB Financial – PE 10.5. The group’s shares are not likely to be the top performer in 2019 but is expected to put in a decent return and could continue to increase in value for a number of years. NCB is currently on a strong growth path with operating profit increasing strongly with the December 2018 results rising 40 percent before onetime income. The planned acquisition of more shares in Guardian Holdings will only enhance the bright prospects ahead for the Group.

Top 15 Junior market stocks for 2019

Selection of stocks is not isolated from the environment in which the companies operate. Accordingly, investors need to take developments in the wider economy and in certain sectors that can impact profit.
The data available suggest that Junior Market stocks should do better than those in the main market, in 2019. The TOP 15 Junior market stocks, selected based on the lowest PE ratio, using 2019 projected earnings and stock prices at the start of the year, are listed below.
AMG Packaging – PE 6. AMG suffered from losses incurred in their venture into the production of toilet tissue that failed, resulted in losses and dragging down profit in the box making business. Now that the segment of the business is closed, focus can be on their core business for which there is demand. Revenues should grow along powered by growth in the wider economy. The company reported a big jump in profit for the first quarter to November, from an increase in revenues and improved profit margin. The earnings projected is that for the fiscal year that ends in June 2020, when they would have implemented price adjustments to recover the fall in profit margin. IC Insider.com sees management as a weak area of its operation. Hopefully, changes in the composition of the board will address this frontally. Since the start of the year the price has moved up to $2.70 in response to the strong gains in the first quarter profit.Caribbean Cream – PE 9. The company enjoyed increased sales for the nine months to November last year but with flat sales in the second quarter and pick up in the third quarter. Importantly, the raw material prices for a number of production items fell sharply on the world market and will lower cost for them. The latest is the fall in the price of crude oil that will result in cheaper electricity cost as well and as JPS switches to lower electricity production the savings should gather steam during the year. The combination of lower input cost and increased sales will make the stock a winner in the current year. An investment in the stock around the $5.50 level that it is trading at may not pay off until the second half on 2019 when higher profit is expected. Caribbean Producers – PE 6. The company has more going for it that it has so far
delivered. The interim report to September recorded a loss of $1.3 million, but that was mostly due to write down of computer software cost and cut in the selling prices of some items that affected profit margins negatively. The core business is not affected and margins were, restored in the second quarter. The company benefits from growth in the tourism sectors in both Jamaica and St Lucia where it operates.
General AccidentPE 4.5. Investors are not seriously looking at this stock but they should. The stock is undervalued based on a PE and net asset value. Up to September, the company posted strong gains in profit for the nine months. Reports suggest that the company is looking to expand outside of Jamaica. Increased premium rates and a large pool of investible funds, are expected to deliver higher revenues and profit for the company for awhile. Continued growth in the Jamaican economy will provide a basis for above average growth in premium income and profit.
Fontana – PE 10. The PE is 10 based on current fiscal year’s earning but 7 times based on the next fiscal year results. Investors are unlikely to get this stock in the secondary market close to the IPO price any time soon. Expansion plans will make it a good investment for long term investors if bough in the $3 region. The company will be opening their newest branch in Kingston by the second half of 2019. That will result in increased revenues and profit for the 2020 fiscal year that ends in June. They also have plans for the opening of 3 more stores in the island, when completed they will result in above average growth in revenues and profit.
Elite Diagnostic PE is 6. The company recorded increased cost in 2018 as expenses associated with two new branches impacted profit negatively. The second branch is now in operation and reporting profit, while the one to open in St Anns Bay in the middle of this year should lay the foundation for continued above average growth for another year or two.
Iron Rock Insurance – PE 6. Iron Rock made profit in the September quarter for the first time and was set to report a full year of profit. Moving into 2019, revenues from increased premium income and low overhead cost and growth in the local economy are set to land a decent profit for them.
ISP Finance – PE 6. One of the smaller micro lenders ISP continues to grow and had to float a new bond to raise funds to service increased demand for loans. The September 2018 quarterly results show that interest rates charged on loans fell and that may have helped in stimulating increased demand. Loans should continue to rise and profit as well going into 2019, as cash flow from profits is invested in new loans.
Jamaican Teas – PE 7.5. The group will benefit from continued growth in the local economy and increased purchasing power of Jamaicans. The star performer, export sales have grown healthily for a number of years and should continue the growth path again. Added to this, some cost incurred in 2018, are unlikely to repeat in 2019. Importantly, accounting policy IAS 9 will see all gains or losses on investments being booked through the regular profit and loss statement and that could lift profit in 2019 as local stocks continue to grow in value.
Lasco Financial – PE 6.5. The company continues to earn from Money transfer business but the real growth potential rest in the micro lending area that enjoys high profit margin. The area is crowded but entities with size can have an advantage. Additionally, Lasco has a wide network of branches, used to reach a wide potential group for granting loans.
Lasco Manufacturing – PE 8. New products and the streamlining of the business with potential for more product lines that can be added make this entity a compelling long term investment.
Medical disposables – PE 7.5. The company started as a distributor of medical and pharmaceutical distributors but has now broadened their offering to involve consumer products. The base is established for a wider range of products, using a lot of the existing infrastructure that is adding to the attractiveness of the stock. Results for the June quarter showed strong increased revenues and profit but their usually slow second quarter saw modest increased revenues and flat profit. Importantly, gross profit increased well ahead of the growth in revenues and but for a big increase in foreign exchange losses, profit in quarter and six months would have climbed strongly. Revaluation of the Jamaican dollar in the December quarter will result in a reversal of some of the foreign exchange losses.

Stationery & Office Supplies MoBay Office

PTL- PE 7.5. The company reported growth in revenues for the half year to November resulting in improvement in gross profit. Administrative cost grew higher than revenues with depreciation accounting for 25 percent of the increased cost. The company’s joint venture lubricant plant, was operational during the period and resulted in cost and revenues excluded from the six months results but included in the 2017 figures.  Only the company’s share of profit is now included in the results amounting to $2 million. The company had moved into the repackaging of chlorine and bleach production in 2018. The last quarterly results have not shown much increased business from these two ventures, while they incurred increased staff cost to serve the market. Major improvement in profit, is not expected until the 2020 fiscal year that starts in June 2019 and will probably hold back the stock price for the greater part of the year.
Stationery and Office Supplies – PE 6. SOS delivered two good years on the Junior Market for early investors. IC Insider.com is forecasting another year of strong stock gains for the company. The company moved into the production of exercise books, mostly for schools and added note pads for the local and overseas markets.  Other products could be added to their line up in 2019.   
tTech – PE 6. Results for the September quarter almost doubled, with earnings per share reaching 12 cents, versus 6 cents in 2017, with operating revenues rising an attractive 25 percent. Profit for 2018 should hit 40 cents for the year. Management indicates that they are proactive in seeking new business locally and overseas and sees past marketing effort to attract new business now bearing fruit.

Case against hanging on to stocks

Many stocks listed are undervalued based on projected earnings but many offer attractive potential gains but the likely gains are inadequate to put them into the TOP 15. So attractive is the market that many below the TOP 15 have potential to gain in excess of 50 percent in 2019.
Not all growth companies will deliver the same level of returns, a feature of markets that investors need to bear in mind to optimize return on investment. Expansion of smaller companies can have a far more telling impact on profit that larger ones. For example, Grace Kennedy would need to acquire a large entity to make a big improvement to its profit than the typical Junior Market company that are vastly smaller but could acquire a business that will make a big impact on profits.
The 80/20 Rule in the market suggest that only around 2 out of the Top 10 stocks repeat in the subsequent year, this is the results from nearly 40 years of tracking the market. The data shows that around 40 percent of the worst performing stocks in a year are likely to enter the TOP 10 in the subsequent year. What the data suggest is that investors need to be careful in identifying top performing stocks and that top performers with above average growth are likely to come from the worst performers of the prior year.  The year 2018 was unusual with three stocks repeating their 2017 top 10 appearance from the Junior Market and four in the main market. The Junior Market had C2W renamed SSL Venture Capital repeating and in the main market 5 repeated including Pulse Investments and Palace Amusement.
Half of the Junior Market TOP 15 list have either acquired new businesses or actively expanded operation in the past year or plan expansion in the coming year and a boost in revenues and profit is expected. The average PE ratio for the Junior Market based on 2019 projected earnings is 12 but the market closed out 2018 at 16.5. This is an indication of how far the market may rise as well as the extent to which the top 15 stocks are undervalued.

PE expansion highly likely in 2019

An overall view of stocks indicates that the main market continues to be steered higher by an upward sloping support line as well the 45 and 125 day moving averages, lending support just below. The Junior Market is currently guided by an upward rising long-term support line, pointing to more gains ahead.
The market is also supported by a golden cross. The  golden cross is a strong bullish long-term signal. The market needs the fuel of rising profits.
Profit performance, in 2018 was mixed, but helped move some stocks higher, falling interest rates however, pushed up PE ratios to 16.5 times 2018 earnings by year end, up from 14 at the end of 2017. PE ratios on average are set to rise above current levels toward 20 in 2019. The Junior Market has 10 stocks and the main market has 6, trading around and above this level. Investors seem more at ease with higher PE ratio than in the past, with interest rates now around 2 percent and economic stability now in the system.
Local economic performance should have a positive impact on profit of most companies as demand grows in the system from greater employment that is expected to continue growing in 2019 as well as increased disposable income.
Nine IPOs made it to the market in the year with three in December, giving investors more investment choices than in 2017, with even more to come in 2019. ICreate will be the first IPO in 2019, but that is a new company, then Wigton Wind Farm’s IPO will be launched early 2019, but it is not one for all investors, as it is mainly an income play. However,

Junior Market stocks should out perform JSE main market stocks in 2019

there are others, namely, a central Jamaica manufacturing entity with a strong export base, the possibility of a paint company plus one in the BPO sector. IC Insider.com gathers that there are at least another three IPOs, that should make it to the market this year, but the Jamaica Stock Exchange is expecting 21 new listings for the year, including preference shares.
Business mergers and acquisitions are likely as some companies shed smaller segments of their operations and others, getting together for greater economies of scale. Stocks comprise different features. Growth plays an important role in many stock selections; examples are Access Financial Services, Elite Diagnostic, Fontana, Derrimon Trading, Jamaica Producers, Kingston Wharves, NCB Financial, PanJam Investment, Paramount Trading, as they grow by acquisition and expansion of current facilities. Carreras is a value play with good dividend yield along with Grace Kennedy.