The Jamaica Stock market enjoyed a great 2015 with stocks doubling in value, but the performance of the market in 2016, so far, has not been a spectacular as investors take a more cautious approach to the market that was revalued sharply last year, from a very low valuation.
At the end of August the local market had only record about a third of the gains made in 2015. Starting in October last year the market made a meteoritic rise.
Although, the market overall has not grown very much to date, several stocks have done well with the junior market having 15 stocks rising more than 30 percent, including 3 gaining more than 100 percent and one with more than 300 percent. Twelve main market stocks are up more than 30 percent to date.
One brokerage house just released a report on the market and a selection of stocks. Below is an extract of the report on the market. IC Insider is of the view that most of the comments below are on target, a few are off, but does not change the general thrust of what is said to be happening in the market. Comments by the brokerage house on individual stocks have glaring errors in some cases and forecast in others may be way off the mark, as such investors using the report would be well be advised to be cautious about buy or sell decisions based solely on the recommendations.

Honey Bun is one of the stocks recomended by NCBCM

Stocks continued to trend upwards albeit at a much slower pace than last year since the start of the year, the report states. “The Combined, Main Market and All Jamaica Composite Indices have returned 7.9 percent, 5.7 percent and 5.8 percent respectively to August 26, 2016. This, however, represents a slowdown relative to the 28.8 percent, 28.5 percent and 29.1 percent increase recorded last year,” NCB Capital Market advised their clients in their latest investors’ newsletter.
The report went on to say, “Improvement in the outlook for corporate earnings and an increase in investor confidence continue to drive market activity despite the run up in prices. The Junior Market however continues to see robust growth registering a 24.7 percent increase to August 26th relative to 33.1 percent last year.”
“Positive earnings performances in key sectors such as the manufacturing and financial services assisted in renewing investor interest in the equities market. The Food, Beverages & Tobacco segment of the manufacturing sector experienced some expansion, thanks to a rebound in local and international demand for consumer products resulting in growth in both local and export revenues.
Local companies have been focusing extensively on expanding into international markets which provides income diversification and better prospects for growth. Meanwhile, financial companies have been weathering the low interest rate environment well, and have seen some benefit from larger loan portfolios as well as an increase in fees and commission income in light of active revenue diversification strategies. Lower inflation has also assisted in increasing efficiency and improved margins.”
“The stock market should continue to see modest activity helped by improving macroeconomic conditions, low interest rates and the restoration of Junior Market incentives. Of note, with the earnings growth recorded thus far, valuations have remained reasonable, with the average Main Market P/E declining to 9.3X in August from 10.6X in January. The Junior Market P/E also decreased to 13.7X from 18.7X earlier this year. Shares of financial and manufacturing companies are expected to be the star performers.

Caribbean Cream is one of NCBCM’s recommendations

The main risk to market activity however is an unfavourable turn in the business environment at the end of the IMF agreement next year. In addition, recent tax measures implemented could put upward pressure on inflation and impede the margin improvement being witnessed by companies.”
Strategy “In terms of identifying opportunities, we recommend that investors focus on stocks of companies with diversified revenue streams by type, geography and currency. Investors with the appropriate risk appetite should also take a closer look at some Junior Market stocks given that the potential for growth is greater than their main market counterparts. Companies such as Honey Bun and KREMI are expected to continue to do well. Another recommended strategy is for investors to take a more active approach to stock market investing by taking gains on stocks that are trading above their fair value estimates, with a view to re-enter at more favourable prices in the near term.”