5 Hot JSE Stocks That Even a Value Investor Can Love

I hate to jump on bandwagons.

When it comes to investing, however, a mountain of evidence suggests that running with the herd may be more profitable than bucking the trend.

Repeated studies confirm that stocks with momentum – those whose share prices have recently outperformed the market – tend to outperform those that haven’t.

Here are a few high-flying South African shares that can make the trend your friend while minimizing downside risk.

Faddish JSE shares that are okay to love

I hate to jump on bandwagons.

Whether it be clothes, sports, or the latest internet meme, I like to think I’m an individualist – unswayed by whatever or whoever is in vogue at the moment.

I bring this same contrary attitude to picking stocks and take far more pleasure in discovering a hidden gem than I do in piling into whatever hot share is grabbing headlines at the moment.

The Wisdom of Crowds?

When it comes to investing, however, a mountain of evidence suggests that running with the herd may be more profitable than bucking the trend.

Repeated studies confirm that stocks with momentum – those whose share prices have recently outperformed the market – tend to outperform those that haven’t. In other words, the winning stocks keep winning, and the losers keep losing.

The reason for this is still subject to some debate, but confirmation bias is the explanation that makes most sense to me. A critical mass of investors become “married” to their bullish view on a stock and ignore or reinterpret any data that runs counter to this image.

Thus, a snowball effect begins, where price increases beget price increases until hype eventually succumbs to reason and the share price retreats (or crashes) to more sober levels.

5 JSE Shares to Make the Trend Your Friend

The good news is that some stocks allow investors to enjoy price momentum while limiting downside risk. Their share prices have risen dramatically, but they still trade at down-to-earth valuations.

Here are eight high-flying JSE shares that fuddy-duddy value investors like me don’t have to be ashamed of owning. Each one has risen more than 25% over the past 12 months but still trades at less than 1.5x book value and a P/E ratio of less than 15.

Faddish JSE shares that are okay to love
Photo by Jeff Attaway

1. Telkom (TKG)
52-week Return: 157.0%
P/E Ratio: 6.8
P/B Ratio: 1.3

A beleaguered giant, Telkom once ruled South Africa’s telecommunications sector with an iron fist. After being stripped of its stake in mobile operator Vodacom, however, it struggled to survive.

Now, it’s in the midst of a turnaround.

New CEO Sipho Maseko has pledged to slash one billion rand of expenses over the next five years, reduced debt, and put some draining regulatory problems to rest. Investors like what they see and have made the shares one of the JSE’s best performers over the past year.

2. Steinhoff International (SHF)
52-week Return: 85.6%
P/E Ratio: 11.4
P/B Ratio: 1.5

This furniture retailer excited investors with a string of European acquisitions. The new operations boosted sales, consolidated market share, and improved profit margins. Now, with more than half of its revenue generated in Europe, the weak rand has given the company a big earnings boost. In recent months, it also reduced its ownership stake in KAP Industrial, a South African furniture manufacturer, and announced that it would pursue a secondary listing on the Frankfurt Stock Exchange.

3. Cargo Carriers (CRG)
52-week Return: 60.9%
P/E Ratio: 9.6
P/B Ratio: 1.1

Just as its name indicates, Cargo Carriers hauls freight and specializes in mining, chemicals, fuel, sugar and steel. It’s not been a particularly easy operating environment for the company in recent years, but CEO Murray Bolton and his team still managed to grow operating profit by nearly 36% in its 2014 fiscal year. A key acquisition in fast-growing, strategically-placed Zambia helped improve revenue, while the sale of surplus equipment and an unused airplane resulted in a much prettier balance sheet.

4. Sovereign Food Investments (SOV)
52-week Return: 50.9%
P/E Ratio: 12.6
P/B Ratio: 0.9

This is a poultry producer worth crowing about. Long-focused primarily on simply breeding and raising broilers, SOV is now venturing into value-added products, like breaded chicken patties and nuggets. It intends for these higher margin products to account for the majority of sales within the next three years. Recently modernized production facilities, a weak rand, and lower maize costs (thanks to the largest crop in 33 years) have also helped bolster profitability.

5. Mustek (MST)
52-week Return: 50.7%
P/E Ratio: 7.5
P/B Ratio: 1.0

South Africa’s largest personal computer assembler, Mustek, have been on a tear thanks to growing demand for the Acer, Lenovo, and Acer brands that it distributes. Management displayed its confidence in the business by repurchasing more than R20 million worth of shares from cash it had in the bank back in April. And a just-announced 22% boost to its dividend further sweetens the investment appeal.

What Do You Think?

Do you consider price momentum when analyzing potential share investments? How do you make sure that you’re not getting caught up in hype? Let’s hear your thoughts in the comments!

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3 thoughts on “5 Hot JSE Stocks That Even a Value Investor Can Love”

  1. Check out Dorsey Wright Associates (DWA) as exponents of point and figure charts, the ultimate in the trend is your friend, timing for momentum investing. – all the best

  2. Impressive!
    At such prices one would certainly gain quite a bit. Concerns abound that the JSE ALSI is nearing its peak. Some say it will fall off a cliff in the not so distant future. The average guy will flee as stock returns get butchered. I will instead open my eyes wider and draw closer to the carcass and hoard as much of that cheap meat as possible.

  3. I think it would be a misconception to judge the value of the shares based on their price momentum, investors should consider the Price Per Earnings instead. price/ market momentum is more useful to the the issuer of shares, but it becomes clear that when people consider the price momentum when buying shares they are looking at the long term benefits( when they sell shares with a great price momentum they gonna earn more) than receiving a dividends with lower returns while shares are worth much in the market( market momentum.

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