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News : Local Last Updated: Jan 1st, 2012 - 14:33:43


JSE stocks pick 2012
By Marston Gordon
Dec 31, 2011, 14:15

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With all the ducks in line, one would have thought that 2011 would have been a great year for the main Jamaica Stock Exchange (JSE) index. The index closed up 11.8% almost twice the inflation rate, meaning a real rate of return of approximately 6%, and certainly better than the passbook savings rate which yielded negative real returns.

 

 

2011 Review

 

The top 10 performing stocks on the main index saw gains ranging from 38.1% to 210.0% and an average gain of 26.1%.

 

The outcome of our 2011 selection was:

            Berger Paints               59.2%              (5th place)

            Jamaica Producers       18.6%              (19th place)

            Kingston Wharves      48.0%              (6th place)

 

 

2012 Picks

 

-Grace Kennedy
This stock has not been recommended for well over a decade because the company has performed poorly. It has struggled to grow its diluted earnings per share (eps) above the $6 mark and calls into question the employees share option plan (esop) in aligning the interest of management and shareholders.
The pending separation in 2012 of Douglas Orane and Don Wehby bodes well for the company and its prospect in the future.

 

-Hardware & Lumber

With hopes for a revival in the construction sector, this company should do well in 2012 and beyond. The stock price traded up 26.9% in 2011 to close at $5.90 but is still under-valued; our target price is $10 per share.

 

-Palace Amusement

This is a real estate buy with at least 200% upside. The downside is that it is family controlled and therefore highly illiquid but it pays dividend (current yield 3%, payout 21%). Management seems unable or unwilling to control staff cost but as long as Palace continues to turn a profit it might be worth the wait.

 

-Pulse Investments

Pulse was delisted in May 2001 for failure to file four (4) years of audited reports. It took another five (5) years to be relisted (June 2006) and I for one was against readmission. Not to be disappointed, Pulse has fallen back into the bad habit of late filing. In the year ended 2011and Q1 2012 reports were both filed 60 and 45 days late respectively, on the drop dead date avoiding sanction by the exchange. The company urgently needs a competent Chief Financial Officer (CFO) to oversee the preparation and dissemination of financial information; as a qualified accountant and director, Oliver Holmes is clearly ineffective in convincing the board of its statutory obligations and instead of putting his reputation at stake he should in good conscience step aside.

Kingsley Cooper, executive chairman, knows the business well but is not fit and proper to head a publicly traded company. With that said, Pulse is churning out good profits and healthy cash flows. In the 2011 report there was a significant change in accounting policy regarding revenue recognition and removal of the opaque “Advertising entitlements” from the balance sheet. Results for the two previous years (2010 and 2009) were restated shaving $4.59 per share from shareholders equity.

Earnings per share for fiscal 2012 are projected at $0.70 and with price earnings of 10 our target price is $7.00.

 

 

 

Source: Jamaica Stock exchange


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