Earnings Season: Guide to profitable investment decision

  • Stocks to watch

Investment in the stock market requires deliberate effort to ensure more wins and fewer losses. At that, it is important for investors to know what to do per time relative to the seasons and times in the market.

There are seasons and times in every stock market community. There is the earnings season when results are released; this happens at least 4 times in a year. There is the bullish season when prices are generally up, even if there are no results being released. There is also the bearish season when prices are generally down. For sure, there are periods when the market is sideway; that is, when the market is neither bullish nor bearish.

We are finally in the earnings season when Q2 2022 results of listed companies on the Nigerian Exchange are expected to be released. Just 2 results were released last week, which are Infinity Trust Mortgage Bank and Living Trust Mortgage Bank. By the second and third week of July, we expect to see more results in the market.

How do you invest in earnings season?

The most mistake people make all the time in the market is a situation where investors do rush to invest with the release of quarterly reports, audited reports or declaration of dividend. That’s actually a wrong way to invest in the stock market. Investment in stocks is done against expectation and not on realities. In other words, you are buying into a company based on what you think you can get; that is expectation. For instance, when you are putting your money in a stock, it is because:

  • You hope that the price of the stock will grow more than it is now along the line.
  • You are buying today because you hope and expect the Company to be there, bigger and better in years to come.

If your expectation is that an institution will soon be gone and out of operation, you will not be investing in it.

Expectation is the mother of all investment strategies. At that, investing only after you have seen the result of a stock is wrong. It is a wrong approach.

How should you be investing?

  • Invest long before the next quarter’s result is released.
  • You must always have an expectation of the outlook of the next quarterly report.
  • Then invest, take position and wait.
  • The next line of action should be first to monitor price direction while you are waiting. Price may be fluctuating. So long as your expectation is intact, wait.
  • Results when released will form the answer to your expectation.
  • If the result is good, then you have passed. You might decide to wait or buy more. You might decide to wait in the stock, buy more or even sell; take out your money and move on to another stock.
  • If your expectations are not met, taking a decision appropriately should be expected.

How are expectations formed? How do you make up your mind to invest against that expectation? The following should form the basis of your expectation:

  • Listen very carefully to news about the organisation. It could come through the pages of newspaper. It could come on the social media. It could come among your friends. It could come from people working within the organisation.  When you are interacting and relating, also keep your ears on the ground because some of the information that filters to your ears could actually be processed and make use of to benefit you as you invest in stocks.
  • Look at the product and services of the organisation.
  • Look at the Board and Management of the organisation
  • Consider the previous results of the institution; that is, quarterly reports, audited reports and history of dividend payout.

So for you to invest well in stocks, seek to lay hold on what the company’s earnings always look like. Is it improving yearly? Is it declining, fluctuating or stagnant? You need to get these information yourself. It is extremely dangerous investing in stocks of companies without results.

STOCKS TO WATCH

We have always advised that investors to take position in fundamentally sound stocks as they stand the test of time.  As the market is anticipating the release of Q2 results, the best strategy is to take position before the release of these results.

To mention a few among cheap stocks with strong fundamentals and uptrend potentials, the following may be considered for strategic positioning:

ZENITH BANK

Zenith Bank is trading below trading far below its intrinsic value. It closed on Friday at N22

In the last one year, the share price of the financial institution has touched a high of N27.50 and a low of N21.25.

It is trading 20% away from its 52 weeks high of N27.50, which implies an uptrend potential of 20% for the share price of the bank.

Going by its Book Value of N42.37, relative to its current price of N22, Zenith Bank is very cheap and embedded with growth potentials.

GTCO

The share price of GTCO is currently at N20.40 and it has touched a high of N30 and a low of N20.20 in the last 52 weeks.

It is trading 32% away from its year high of N30, which implies an uptrend potential of 32% for GTCO.

The Book Value of N30.88, relative to the current price of N20.40 is a confirmation that GTCO is underpriced.

ACCESS HOLDINGS

The share price of Access Holdings Plc is currently trading at N9.50. In the past 52 weeks, the stock has touched a high of N10.60.

Based on the impressive Q1 result of the bank and past Q2 earnings history of the financial institution, Q2 2022 earnings of Access Holdings is expected to grow beyond the previous year’s record.

With the Book Value of N30.84, Access Holdings is considered very cheap, relative to its current share price of N9.50.

FBNH

The share price of FBHN is currently trading at N10.60. Within the last 52 weeks, the share price of the big elephant has touched a high of N12.90 and a low of N7.20.

It is trading 17.83% away from its year high of N12.90, which implies an uptrend potential of 17.83% relative to its year high of N12.90.

With the Book Value of N24.51, relative to its current price of N10.60, FBNH is underpriced.

UBA

UBA is currently at N7.55 with a 52 weeks high of N8.85. It is trading 14.69% away from its 52 weeks high of N8.85.

With good outing in their Q1 earnings, UBA is expected to return a positive Q2 2022 result to the market.

Considering its Book Value of N24.14, relative to its share price of N7.55, UBA is grossly underpriced. A position in UBA has uptrend potential.

PRESCO

Currently trading at N165, the share price of Presco with a year high of N200 and year low of N70.

There is an uptrend potential of 17.5% in the share price of Presco, relative to its 52 weeks high of N200.

Based on the past growth trajectory of the company, the Q2 2022 earnings per share of Presco is expected to grow beyond the previous year record.

NIGERIAN BREWERIES

The share price of Nigerian is currently trading at N55.85 and it has touched a high of N78.5 and a low of 39.9 in the past 52 weeks.

It is trading 28.85% away from its 52 weeks high of N78.5, suggesting an uptrend potential of 25.1% for Nigerian Breweries.

GUINNESS

Currently trading at N90.50, the share price of Guinness has touched a high of N110 and a low of N29 in the past 52 weeks.

Guinness has an uptrend potential of 17.73%, relative to its 52 weeks high of N110.

Source: Earnings Season: Guide to profitable investment decision – StocksWatch (stocksng.com)

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