Category: Johannesburg Stock Exchange

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.

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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7 Rock Solid South African Stocks That Pay Big Dividends

Looking for shares that provide a steady income and also the prospect of solid growth?

Here’s a list of seven of the highest-yielding dividend-payers listed on the JSE and a simple screen to use when looking for similar companies on other African stock markets.

I love dividends.

To me, receiving a regular dividend payment concretizes the rewards of stock investing.

I like to think of them as wages. Instead of paying me to drive a truck, man an assembly line, or sit behind a desk, however, the company pays me to provide it with capital.

To be sure, there’s not much labor required to perform this “job.” I simply need to ask my broker to buy some shares.

But just as I have a limited amount of time to offer an employer each week or month, I also have a limited supply of capital.

So, I want to receive the best wage I possibly can in return for investing it.

The Johannesburg Stock Exchange is home to a number of excellent dividend stocks, but before I share some of my favorites, let’s look at some of the elements that separate good dividend payers from dodgy ones.

Stocks That Pay Generously

Investing in a stock without dividends is like taking a job at a small technology start-up. They don’t pay much at first. Instead, they promise rapid growth and big dividends in the future. Investing in them is risky if you’ve got bills to pay and a family to support.

Stocks with high dividend yields are often a more prudent choice. A share’s dividend yield shows us how much of a “wage” it pays in relation to its price. To calculate it, we simply divide the total dividend per share that the company paid over the most recent 12 months by the current share price.

dividend yield = dividend per share / share price

Stocks with dividend yields above 5% are generally considered to be high dividend-payers. So I’ll screen the shares listed on the Johannesburg Stock Exchange for companies that meet this criteria.

There are currently 71 JSE stocks with dividend yields greater than 5%.

Could I “take a job” with any one of them? Yes, but without further research, doing so may lead to anxious, sleepless nights.

Why? Because some companies are more generous with their dividend payments than they can afford to be.

Beware High Debt Loads

I once worked for a company that paid quite well.

Unfortunately, the company also carried a very heavy debt load.

When the economy turned sour, it could no longer afford to service its debt, let alone pay wages to employees like me. So, it soon went bankrupt.

Similarly, companies with high levels of debt may be forced to cut their dividend if market conditions deteriorate. It wouldn’t be wise to depend on them for steady income.

So, let’s look at our list of 71 companies and remove any with debt levels higher than 70% of their book value. We calculate this debt to equity ratio by dividing all of the company’s interest-bearing debt by its total equity.

Companies like PPC, which took a big loan a couple years back, and most real estate companies have debt/equity ratios higher than 0.7 and are removed from further consideration.

That leaves us with a group of companies that have some resilience to weather tough times without immediately cutting dividend payments to shareholders.

We’re making some progress.

Don’t Forget Growth

Now, let’s add a growth component to the selection process.

Just as we’d like to work for a company that regularly raises the wages of its loyal employees, we want to invest in companies that appear capable of growing the amount of cash they pay to shareholders.

To help us make this judgment call, we’ll remove companies with payout ratios greater than 70%.

The payout ratio measures how much of each rand a company earns that it pays in the form of dividends. It’s calculated as follows:

payout ratio = dividends per share / earnings per share

The higher the ratio is, the less cash the company is retaining for the purpose of growth. A company with a 90% payout ratio, probably doesn’t intend to grow very much. A company with a 10% payout ratio, however, most likely intends to grow quite quickly.

Safety in Size

Let’s further winnow the results by removing very small companies, those with a market capitalization less than ZAR750 million (roughly $50 million).

Such companies face the risk of being crowded out of the marketplace by larger competitors. Thus, a steady dividend from them is less than a sure thing.

This removes some interesting micro-caps like Verimark and KayDav Group from the list of contenders.

Consistency is Crucial

Finally, let’s take a look at the dividend payment history of each company that remains on the list.

We want to eliminate companies that slashed their dividend at any time during that time period. Why? Because if they reduced their dividend one time, they may very well decide to do so again.

The Rock Solid Dividend-Payer Screen

To recap, we screened the market for shares that met the following standards:

1. Dividend yield > 5%
2. Interest-bearing Debt to Equity Ratio < 0.7
3. Payout Ratio < 0.7
4. Market cap > ZAR750 million
5. No dividend cuts in past five years

7 Solid South African Dividend Stocks

When the dust settles, we’re left with a group of seven companies from a range of industries – all of them look steady as a paycheck.

(Note the table below was updated on 24 June 2016.)

  Yield LT Debt/Equity Payout Ratio Market Cap
Combined Motor Holdings 7.7% 9.3% 45.1% R1,271m
Bidvest Group 7.0% 21.6% 51.1% R46,453m
Nedbank Group 6.0% 60.2% 23.8% R91,735m
Liberty Holdings 5.7% 0.0% 48.3% R34,917m
Transpaco 5.4% 16.8% 41.5% R783m
Holdsport 5.3% 0.0% 39.5% R2,589m
Standard Bank Group
 5.4% 17.3% 51.4% R203,957m

Disclosure: I hold a beneficial interest in shares of Nedbank, Liberty, and Standard Bank.

What Do You Think?

What are the essential ingredients of a good income stock? Do you have a favorite that you’re willing to share? Let’s hear your thoughts in the comments.

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How to Invest on the Johannesburg Stock Exchange

South Africa is far and away the most economically developed of African states, and, as such, will likely be the continent’s economic gateway for the foreseeable future.

Truth be told, however, the Johannesburg Stock Exchange (JSE) isn’t exactly the most bullish of markets these days. In fact, the market is now at its lowest point in nearly two years.

But this isn’t necessarily bad news for value investors. Falling prices mean an increasing number of bargains are on offer. Earnings multiples are dropping and dividend yields are rising.

And because the Johannesburg Stock Exchange is one of the most sophisticated in the world, investors can scoop up these deals with a click of their mouse. The market’s accessibility and convenience make it an ideal place for new Africa investors to get their feet wet.

Here’s how to get started.

South Africa is far and away the most economically developed of African states, and, as such, will likely be the continent’s economic gateway for the foreseeable future.

Truth be told, however, the Johannesburg Stock Exchange (JSE) isn’t exactly the most bullish of markets these days. The MSCI South Africa Index has sunk more than 13% over the past 12 months after accounting for depreciation of the nation’s currency, the rand. In fact, the market is now at its lowest point in nearly two years.

But this isn’t necessarily bad news for value investors. Falling prices mean an increasing number of bargains are on offer. Earnings multiples are dropping and dividend yields are rising.

And because the Johannesburg Stock Exchange is one of the most sophisticated in the world, investors can scoop up these deals with a click of their mouse. The market’s accessibility and convenience make it an ideal place for new Africa investors to get their feet wet.

Here’s how to get started.

Comparison Shop South African Stockbrokers

Your first step is to open an account with a South African stockbroker.

Dozens of stockbrokers facilitate trades on the JSE, but only 12 offer online share trading to individual investors.

Online trading platforms are still relatively new to Africa, and they’re not a necessity to invest successfully there, but I find them more convenient. So, I limited my broker research to those that offer them.

I sent an email to each one, asking them if they catered to foreign investors, how much of a deposit they required to open an account, what documentation was required, and for a copy of their fee schedule.

Five of the brokers confirmed that they do take foreign clients and responded to my questions within three business days. I’ve listed them below with their minimum initial deposit amounts, monthly administration fees, and my calculation of the cost of a hypothetical ZAR20,000 trade through each one.

Broker Minimum Initial Deposit Monthly Admin Fee Fees and taxes on ZAR20,000 (roughly $2,000) share purchase
Anglorand Securities $50,000 ZAR121.46 (roughly $12.00) ZAR270.96 (roughly $27.00)
Imara S.P. Reid None ZAR20.83 (roughly $2.00)  ZAR285.96 (roughly $28.00)
Nedbank Online Trading  None (but does charge ZAR250.00 account opening fee) ZAR33.50 (roughly $3.00)  ZAR200.96 (roughly $20.00)
PSG Online None ZAR40.00 (roughly $4.00) ZAR240.96 (roughly $24.00)
Sanlam iTrade  ZAR1,000.00 (roughly $100.00) ZAR50.00 (roughly $5.00) or monthly brokerage in excess of ZAR300.00 (roughly $30.00) ZAR235.96 (roughly $23.00)

As you can see, commissions and fees are pretty comparable across all five brokers, but Anglorand requires a much larger deposit than its peers.

[Be aware that, for South African residents, value added tax is added to many of the above items. If you are not a South African resident, you should not be charged value added tax (VAT). If you do much trading, this can be a significant charge as it amounts to 14% of brokerage and fees. So keep an eye on your trading statements and ask your broker to refund any VAT should it appear.]

Discretionary vs. Non-Discretionary Accounts

Note that some of these brokers offer discretionary accounts. Discretionary accounts give brokers the authority to make trades in your account without the consent of the account holder. They typically are managed in a way that the broker believes is the best way to achieve the investment objectives and acceptable levels of risk that you specify. It’s like having your own personal portfolio manager. You might want to consider this option if you aren’t interested in doing your own investment research.

I’m a bit of a control-freak, so I personally prefer non-discretionary accounts. I want to make my own investment decisions and don’t like the idea that a broker could buy or sell my shares without my permission. If you’re at all like me, make sure you open a non-discretionary or “execution only” account.

What Documentation Will You Need?

To open an account be prepared to provide the following:

  • Certified copy of your passport
  • Bank details (i.e. a canceled check or a certified copy of a recent bank statement)
  • Copy of a recent utility bill showing your physical address (not older than three months)
  • Signed letter to your broker stating that you are not registered with the South African Revenue Service for tax in South Africa (some brokers may require your Social Security number)

You will also need to fill out a form or three for the broker that you’d like to open a trading account with. Here’s a rundown as to what else is required by each one.

  • Anglorand requires completion of a 12-page trading mandate (only the first six are necessary for non-discretionary accounts) and a three-page particulars schedule.
  • Imara SP Reid’s application is a 14-page monster. Fortunately, individual investors who wish to manage their own accounts can skip many of the sections.
  • Nedbank, PSG Online, and Sanlam iTrade all offer nifty online registration applications. Find Nedbank’s here,PSG’s at this link, and Sanlam iTrade’s right here.
How to Fund Your Brokerage Account

After opening your trading account, your broker will provide you with its bank details so that you can fund your account and begin buying shares.

The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Making a Trade

The actual process of making a trade varies depending on the broker you use, but from what I’ve seen their trading platforms look pretty intuitive. You simply buy and sell shares in a similar way that you would through an ETrade or TDAmeritrade account.

Collecting Dividends

In my experience, collecting dividends paid by your South African stocks is a piece of cake. If you bought the shares through an online broker, your dividends will deposited directly into your trading account. You can then decide whether to bring the cash back home or to reinvest them in the market.

Clear as Mud?

Do you have questions about investing on the Johannesburg Stock Exchange that we haven’t covered here? If so, let’s hear them in the comments!

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Is Africa’s Greatest Grocer a Bargain Stock?

If you’ve ever traveled in Southern Africa, I’m sure you’ve spotted a Shoprite store. Whether it be the bright red logo of their eponymous supermarkets, the upscale suburban Checkers stores, or their Hungry Lion fast food joints, the company’s dominant market presence is difficult to miss.

Clearly, Shoprite feeds a continent on the rise.

This reality is anything but revelatory to Africa investors. The company’s share price has risen exponentially as the narrative of the continent’s emerging middle class took hold.

The stock now sports a P/E ratio of 27. Is it worthy of the hype?

If you’ve ever traveled in Southern Africa, I’m sure you’ve spotted a Shoprite (SHP:SJ) store. Whether it be the bright red logo of their eponymous supermarkets, the upscale suburban Checkers stores, or their Hungry Lion fast food joints, the company’s dominant market presence is difficult to miss.

Clearly, Shoprite feeds a continent on the rise.

A Bountiful Harvest

This reality is anything but revelatory. The company’s share price has risen exponentially as the narrative of Africa’s emerging middle class captured investors’ imaginations.

Consider this.

If you had invested $10,000 in Shoprite shares in February 2003, they would be worth $246,000 today. That’s a 37.8% annualized return. And it doesn’t even include the dividends the company rewarded shareholders with throughout the years.

Unfortunately, we’re not time travelers. So, let’s stop grieving over our misspent youth, and figure out if Shoprite stock is worth holding for the next 10 years.

Growing Pains

Like most of Africa’s largest companies, Shoprite calls South Africa home. It operates over 1200 stores there, and they contribute nearly 90% of the company’s total revenue.

Unfortunately for Shoprite, the Rainbow Nation’s economy has been in the doldrums. Unemployment rates are high, credit schemes have consumers over-stretched, and labor strikes have disrupted the supply chain. Sluggish growth in its South African operations is the main reason that the share price has dropped 15% since the start of the year.

“Sluggish” is certainly a relative term. Shoprite’s South African supermarkets still  grew sales at a nearly 12% clip during the most recent six-month period. I know some Western grocers who’d go bananas over that sort of top line growth. (Yes, I’m looking at you Safeway and Tesco.)

Frontier Grocer

While South Africa may be home base, Shoprite’s future lies further north in places like Nigeria, Kenya, and even the Democratic Republic of Congo. The company already operates in 16 of the largest sub-Saharan economies outside of South Africa.

Photo by Nchenga
Photo by Nchenga

The scale of the opportunity in these countries is enormous.

Here are a few figures to put it in perspective:

  • According to research published by Merrill Lynch, 98% of the market for food in Nigeria is “informal.” This compares to a figure of 30-40% in South Africa.
  • Roughly 60% of Nigerian households’ budgets is allocated to food.
  • Outside of South Africa, Shoprite presently enjoys just a 7% share of Africa’s formal food market.

If we assume that between now and 2030:

  1. household income in countries like Nigeria will (on average) grow at 10% annually,
  2. households will reduce their food spend to 40% of their budgets,
  3. the formal market for food will grow to 30% of the total, and
  4. Shoprite boosts its market share to 12%,

Merrill Lynch estimates that Shoprite’s sales in frontier Africa could grow at a rate of 20% per year, reaching a figure of $32.1 billion.

As Shoprite consolidates its operations in this new territory, margins would likely widen, resulting in even more rapid earnings growth.

In the Bargain Bin?

So, what sort of growth assumptions are built into today’s stock price.

I normally cringe at the thought of buying a stock that sports a P/E ratio north of 25. Shoprite’s is 27. But I believe it may be worthy of the hype.

Here’s why.

Let’s say that we will be content with a 10% annual return from our investment in Shoprite over the next 10 years. Using that 10% as our discount rate, an earnings growth rate of 11.5% (in dollar terms) would make buying shares at a price of R177.00 a worthwhile investment.

Is 11.5% annualized earnings growth an easy hurdle to clear?

Given that Shoprite operates in a defensive industry and boasts first-mover advantage in a region with sky-high potential, I believe the answer is clearly yes. It grew headline earnings at 12.5% during the most recent six months in spite of big expansion-related costs and a large foreign currency loss stemming from the devaluation of the Malawian kwacha.

So, while there may be bigger bargains hidden among the Johannesburg Stock Exchange’s hundreds of listings, this is a stock that investors with a long-term view should be watching very closely, if not owning.

[Disclosure: I have a beneficial interest in shares of Shoprite through my work with Africa Capital Group.]

10 South African Stocks Poised to Beat the Market in 2013

It’s time to stick my neck out.

I’ve talked a lot about the past performance of various African stocks, and I’ve asked a number of local experts for their favorite listings. But I haven’t often gone out on a limb and made picks of my own, and many of you have noticed.

So, it’s only fair that I go on record with my best bets.

Here are my top South African stock picks. I expect that, on average, they will outperform the Johannesburg Stock Exchange All Share Index over the next 12 months.

It’s time to stick my neck out.

I’ve talked a lot about the past performance of various African stocks, and I’ve asked a number of local experts for their favorite listings. But I haven’t often gone out on a limb and made picks of my own, and many of you have noticed.

So, it’s only fair that I go on record with my best bets.

Here are my top South African stock picks. I expect that, on average, they will outperform the Johannesburg Stock Exchange All Share Index over the next 12 months.

ARB Holdings (ARH: SJ) — Price: R4.80, P/E Ratio: 13.0, DivYield: 2.9%

ARB wholesales electrical products ranging from overhead cable to light fixtures. It’s not a market devoid of competition, and ARB has the narrowing margins to prove it. But consider this. The South African government has committed to spending R210 billion over the next 10 years to improve the nation’s transmission grid. What’s more? ARB is the largest independent wholesaler in the industry, so it is perfectly placed compete for much of that spend. Factor in an experienced, heavily invested management team and a balance sheet free of long-term debt, and I conclude that this one is a winner.

Bowler Metcalf (BCF:SJ) — Price: R7.86, P/E Ratio: 10.9, DivYield: 4.6%

This 40-year-old family-run plastics and soft drink business reported a drop in earnings during its 2012 fiscal year due to a two-month labor strike and a shortage of CO2. The market didn’t much like this, so the company’s share price has dropped nearly 9% over the past year. But management doesn’t seem too worried, boosting the dividend in spite of the fall in earnings. The reason behind their confidence may stem from a new high-speed bottling plant and expansion into the Johannesburg market. The impact of both these moves is yet to trickle down to the bottom line. But I expect that we will see earnings rebound nicely in 2013.

Calgro M3 (CGR:SJ) — Price: R5.20, P/E Ratio: 7.9 DivYield: N/A

Calgro M3 develops and builds low-income housing in a country with an enormous need for it. Moreover, with low interest rates prevailing, this sector of the population is increasingly able to afford homeownership. Management appears to be capitalizing on the opportunity. Operating profit more than doubled during the first half of its 2013 fiscal year, up 147%. Yet the company trades at less than eight times its trailing earnings. That’s an earnings yield of nearly 13%. And the future looks bright. The company has built an order book nearly twice as large as its total 2012 sales.

Cashbuild (CSB:SJ) — Price: R135.00, P/E Ratio: 10.7, DivYield: 4.2%

Much as its name implies, Cashbuild is a retailer of basic building supplies to low-income, but primarily cash-paying customers. It operates nearly 200 stores throughout Southern Africa. Cashbuild’s share price got hammered last month when it reported slowing same store sales growth, dropping 7.9% in a single day. In my view, this presents a nice buying opportunity at a trailing earnings multiple of less than 10. If the company continues its northward push into the continent and scales up its credit sales, we could see some towering results out of this stock.

Photo by Dave Dugdale
Photo by Dave Dugdale

Ellies (ELI:SJ) — Price: R8.70, P/E Ratio: 11.5, DivYield: 1.2%

Ellies sells television reception equipment and electricity generators, both hot items in a nation with a constrained power supply and virtually non-existent cable television network. It stands to benefit immensely when South African television converts from an analog to a digital signal because thousands of households will need to purchase a set-top converter box to watch their favorite programs. The company is also blessed with a solid management team that has kept the balance sheet essentially free of debt. With earnings growing 102% over the past twelve months and bright prospects, this stock is bargain-priced.

Holdsport (HSP:SJ) — Price: R44.49, P/E Ratio: 12.5, DivYield: 3.2%

Holdsport runs two chains of sporting goods stores. One focuses on athletic equipment and clothing, and the other sells hiking and camping gear. When I first looked at this company last year, I had questions about its long-term prospects given its failure to establish much of a presence beyond South Africa’s borders. But the company is still small with less than 60 outlets currently in operation. This fact combined with strong sales growth and a significantly less demanding valuation than other South African retailers prompted me to reconsider my position.

Howden Africa (HWN:SJ) — Price: R27.00, P/E Ratio: 10.4, DivYield: 2.0%

An affiliate of the global industrial group, Colfax (CFX:US), Howden Africa manufactures fans, pumps, and air cleaning equipment for a wide range of industries. This focus has paid substantial dividends over the past few years, as Southern Africa invests increasing amounts of resources into power production, construction, and manufacturing. Earnings nearly doubled during the first half of 2012 and the business continued to spin off gobs of cash. Couple this with annualized sales growth of 14.1% over the past five years and a pristine balance sheet, and I think we’re looking at a winner.

Hudaco Industries (HDC:SJ) — Price: R95.00, P/E Ratio: 8.9, DivYield: 4.9%

Now marking its 75th year as a listed company on the Johannesburg Stock Exchange, Hudaco imports and distributes car parts and power tools. Selling things like belts and ball bearings certainly isn’t the sexiest of businesses, but it’s hard to complain about a business that has grown earnings at a 12.5% clip since 2008. Because their product line, in large part, keeps vehicles on the road, Hudaco is shielded from economic dips more than an auto maker would be. Management is also making a push north into other African countries. Export earnings have risen 85% over the past two years.

Trustco (TTO:SJ) — Price: R1.10, P/E Ratio: 3.1, DivYield: 1.8%

This Namibian group is one of the strangest companies I’ve come across in Africa, but strange in a good way. It operates in the education, micro-insurance, and micro-finance sectors. The company sells life insurance to low income communities; often by packaging it with mobile phone airtime or as a perk awarded to frequent shoppers at stores like Shoprite. It also provides financing for distance education courses through its own educational institution. Finally, it owns high value real estate in and around the Namibian capital, Windhoek. And did I mention the IFC wants to buy a chunk of shares? This one looks very cheap.

Value Group (VLE:SJ) — Price: R5.68, P/E Ratio: 8.6, DivYield: 3.9%

How could an investor not like a stock with a name like “Value Group”? This logistics company runs warehouses, rents out trucks, and repairs forklifts, and its spent a lot of money over the past few years to upgrade its fleet and infrastructure. Now that this capital spend is complete, management plans to pay down debt and explore opportunities in the rest of the Sub-Sahara. Given the tough business environment in South Africa, I don’t anticipate significant earnings growth over the near term, but at this valuation and yield, I can afford to be patient.

What Do You Think?

Does this group of stocks have what it takes to beat the market? What stocks would you include on this list?

[Disclosure: I have a beneficial interest in shares of Ellies through my work at Africa Capital Group.]