Stocks not to buy in 2016 as fundamentals remain in shambles


Friday, January 01, 2065 3.38 PM / TheAnalyst

It has become imperative for investors to develop and realign strategies that would deliver moderate returns in both mid and long term period as companies are under intense pressure to outplay mounting economic challenges in 2016. When stocks sustained falling patterns, and the unimpressive trading fundamentals remain unchanged in the last three years despite 2.01% gain recorded by market, it is advisable to avoid such stocks in this current prolonged bear market. This simple approach could be taken as one of the key defensive factors that can be employed or deployed as filtering mechanism as we preach value-driven trading approach in 2016..

Nigerian equities market closed the year 2015 bearish, recording 17.36% loss to extend 16.14% loss recorded in 2014, on the back of active sell-down that started around May 2015, which had put investors on cautious mode till year end. The unprecedented apprehension during election period, followed by double devaluation of naira had stoked active sell-down on assets, particularly in equities market.


In addition, the unfavourable trend in the crude oil market had worsened the economic fundamentals of the nation, which had heightened the uncertainty and risk profile across business lines as macroeconomic challenges continue to grow could not be isolated from the unimpressive market performance.


The economic outlook in 2016 remains bleak, with strong indication of heavy headwinds, which further point to possibility of sustained bearish trend in 2016 till mid-year. 


However, on the back of new economic direction and policies, which is characterised with heavy spending by government, the slow growth of Nigerian economy is expected to change pace by half-year in 2016 as oil price is likely to retrace from its new low, coupled with low interest rate environment and tax holidays to specific sectors, which may boost or renew fundamentals of certain stocks as highlighted in where to invest in 2016 article.


In the light of this, we remain optimistic towards return of bulls back to market in the New Year. Nevertheless, we solicit cautious trading as investors are advised to remain value driven in their respective trading.


Analysis had revealed stocks that have been on steady decline without positive returns in the last three years on the back of sustained falling fundamentals, which may persist in year 2016 as we move into season of increased macroeconomic headwinds.  As a guide, below are list of stocks that we put on ‘keep-off list’ for now as bear market may continue to reign due to anticipated effect of falling fundamentals experienced so far.

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