FORGET the blue chips and big caps this year. Financial and investment analysts see penny stocks making money for investors in 2020.Analysts say the big caps are less likely to outperform penny stocks. Counters such as Bindura, Dawn and Medtech are seen performing better this year.Counters to look out for are BNC and RioZim, analysts say.
Other counters seen tracking inflation are retail stocks. The risk-averse investor is, however, going to be looking at something different from the traditional picks.
Traditionally, financial analysts research the fundamentals of companies and also use quantitative techniques in valuing companies. They also look at growth potential and then arrive at a pick recommendation.
With Zimbabwe’s economic crisis charecterised by hyperinflation, financial analysts are now more concerned with preserving value and outperforming inflation.
Inflation was last measured at 300% by the International Monetary Fund in August last year.
“I think small caps and penny stocks are what investors ought to be looking for in the new year. One has to look out for companies such Bindura, Dawn Properties, and Medtech. Other stocks to look out for are those with the ability to generate forex such mining companies and exporters,” a local financial analyst said.
As inflation rose wildly, analysts have deviated from fundamental approaches such as valuation to arrive at investing decisions.
Although stocks have been trading below their replacement values in US dollar terms, fund managers and investors have not been allocating funds for these counters because the macro-economic environment does not signal a buy decision. Investors tend to have more confidence when the economy is performing.
Smart investors tend to take advantage of perceived discounted valuations in a market.
For instance, value investors tend to buy into counters with low price-to-book valuations and those they believe are not valued fairly compared to other sector peers.
After a Zimbabwean government decree outlawed the use of foreign currency in local transactions in June last year, investors have not been buying stocks on the Zimbabwe Stock Exchange, leading to seemingly low valuations.The low valuations have not encouraged investors to pile into shares.
“While several counters are trading below their replacement values in real terms, lack of visibility in the larger macro environment prevents the investing community from interpreting this as a buy signal,” IH said last year.
The securities broker said it would continue to lean towards counters that are diversified through direct exports or regional sales and counters with significant market shares in staples. Investors have been buying into Innscor affiliated companies such as Padenga and others with strong forex earning potential.
A look at the 2020 top 10 performing counters shows how bellwether stocks like Delta, PPC, Econet and Seedco swing wildly.
Analysts say investors will continue to be cautious in their stock selection, while fund managers may choose to adopt a defensive strategy to minimise downside risk in the uncertain market. Interest will remain in counters with characteristics of dominant market position, cash generating capacity, forex generating capacity, sustainable gearing levels and market growth prospects.
Institutional investors are seen buying big caps Econet, Delta, Innscor, SeedCo, Old Mutual, PPC, while retail investors will also include in their portfolios some of the small to mid-cap counters with growth prospects and those with the ability to outperform inflation.
Zimbabwe’s economy is seen plunging into the year.The country’s economy is set to further decline this year on the back of inflationary pressures and drought, among other challenges. The economy contracted by at least 6% last year, according to the International Monetary Fund.
In 2019, the economic crisis deepened, characterised by debilitating power outages of up to 18 hours a day, an acute foreign currency shortage, fuel shortage, reduced production and runaway inflation which is now inching towards 500%, year-on-year.