The last bull market peaked with the main index at 120,385.49 points on Tuesday, April 26, 2005; the ensuing retracement took four years to bottom out at 47.7% on Tuesday, April 28, 2009, and prices have since risen by 36.7% to the end of 2009. This appears to be the beginning of another bull cycle given several factors, not the least of which is considerable growth in profit by listed companies in 2009.

2009 Review

The main index managed to eke out a gain of 4% in 2009, with the ten best performing stocks appreciating between 17.6 and 100%.

The two stocks we selected for 2009 were Pan Jam (up 44%) and Palace (down 1.6%).

2010 Picks

-Berger Paints

Berger has no doubt suffered from the general downturn in construction activities. The stock has lost 70% of its value over the three years ending in 2009, and currently trades below its net book value of $1.96 per share. The company has done some innovative things to weather the storm and is again generating positive cash flows. I think the stock will rise to a more realistic price in the short term.

-Hardware and Lumber

This is another company that has been battered by the fall off in construction. The share price has fallen by 80% in the last three years and is way below its net book value of $11.58. The main risks are foreign exchange exposure and interest costs. While I am not confident in the ability of management to turn a profit on its own, it should survive this spell. The current price is too attractive to pass up, but investors will need to be very patient on this one.

-Kingston Wharves

Global shipping activities is showing some improvement and with it shipping rates. The main risk is slippage in the exchange rate, and with continuous reduction in interest rate the management should consider switching the debt to local currency.

-Pegasus

This is the second best publicly traded company on the Jamaica Stock Exchange in terms of price appreciation in the last 10 years with a cumulative return of 2,369%, and yet, the stock is still undervalued. The stock closed 2009 at $19.99 which is below its net book value (excluding the land) of $23.10; if the land is included at the half price paid to government by Pan Jam right across the road by National Housing Trust, it would add another $16.30 to the value. My guess is that investors fear that the government might give away this prime asset in its divestment-that would be a pity.

Source: Jamaica Stock Exchange