The bullishness continued on Jamaica Stock Market during the past week with the main market reaching new record level on Thursday and the Junior Market closing at the highest level since November 3, last year.
Several companies released results during the week, some showed strong gains and others were in line with the prior year’s period or slightly below and some were in line with expectations, investors reacted accordingly. The chronic shortage of many of the stocks continue to put upward pressure on prices. Following the release of results some companies profit forecast were adjusted. This resulted in Radio Jamaica and Palace Amusement falling from the TOP 10. Palace forecast for 2019 fiscal year is now placed at $100 per share up from earnings of $96 for 2018 including gain on sale of property. Key Insurance reported another quarter of losses and full year’s earnings were revised downwards putting it outside the top listing. Indies Pharma, the other Junior Market stock to jump ship, rose to $2.36 after listing earlier in the week and is up 57 percent from the IPO price of $1.50.
Paramount Trading fell to $2.10 on low volume to jump into the list and Lasco Distributors fell to $3.85 climbed in as well. Paramount is now in a new fiscal year and is expected to record much improved results over the outturn for the year to May as the company enjoys the benefits of increased revenues and profit from the two new ventures started earlier this year in chlorine, bleach and manufacturing of lubricants. Lasco reported improved results of the year to March with the first quarter to June this year recording improvement over 2017 an indication for increased sales and profit in 2019.
Existing TOP 10 stock, Caribbean Cement continues to undergo wild swings in prices and traded as high as $56 during the past week but closed the week at $47.50, on Friday as supply has virtually dried up, not surprising with the company cutting finance cost and reports of several projects slated to come on stream later this year. Berger Paints moved down from $21 to $18 during the past week as direct cost rose sharply by 46 percent in the June quarter to negate a 35 percent rise in revenues but profit after tax rose 13 percent over 2017.
Salada Foods was recently in the Top 10 but moved out based on increased price, reenters with a fall in price to $17 and benefits from improved nine months’ results suggesting earnings of $2 per share. Management expressed concerns as to the impact that the imposition of a cess on coffee could have on sales. Sygnus Credit Investment is a new entrance to the main market and enters as the price fell sharply during the week to $10, but closed with the bid at $10.50.
The PE ratio for Junior Market Top stocks averages 7.9 compared to an average PE for the overall market of 12.5, based on 2018 estimated earnings and the main market PE stands at 8 for the top stocks, compared to a market average of 13, a good indicator of the level of undervaluation of these stocks, currently. Work done by IC Insider.com suggest that the PE ratio is likely to end around 16 or 17 times earnings by year end, as investors continue to gradually upgrade the multiple they are prepared to pay for stocks, which would lift prices sharply over the next several months from current levels. In addition, the latest Treasury bill offer, saw rates dropping to 1.7 percent on the 91 days instrument and 1.88 percent on the 182 days instrument. These rates suggest more funds will be going into stocks as liquidity remains high.
The TOP 10 stocks now trade at an average discount of 37 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings and main market stocks traded at a discount of 39 percent to the market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.