Types of Listed Companies and Stock Picks

In today’s posting we discuss  a few more basic concepts we need to understand about the stock exchange and a very brief summary of methods used in picking stocks to buy. Finally I recommend a downloadable document that discusses stick picks in detail. Be blessed

Types of Listed Companies

These are grouped according to market capitalisation—small capitalization, medium capitalization, and large capitalization. Small companies over time have more growth potential but also have the largest potential risk of loss. Large companies tend to pay more in dividends than small companies and their stock prices do not tend to fluctuate as much. E.g. Econet when small would not pay dividend but currently pays very good and regular dividends. Its price is fairly stable as well.

They can also be grouped By Investment Objectives.

Growth companies – anticipate good sales and expansion that will result in profits and higher share prices. These growth stocks have a high price, although earnings may be low or non-existent. They are considered as rapidly expanding companies whose sales growth and earnings growth are expected to outpace that of the market. Normally priced at premium and do not pay dividends. Investors expect better returns in the future.

  1. i. Value companies are businesses which may be in a downturn, but the future prospects look good so their share prices are undervalued or priced lower than usual. Value stocks: have a lower price in relation to their earnings because investors may consider them a bargain. E.g. Tourism counters in Zimbabwe mostly fall under this category. They are good to watch and buy whenever possible. Dawn for example although it’s a property counter it was viewed negatively due to its exposure to African Sun as its main tenant. But now with CB Richard Ellis under its wings and its real estate ventures it is definitely a value stock to be monitored.

Income Companies: have a history of paying dividends. They tend to be large-caps and utility stocks, and are an especially appropriate investment for investors who require regular cashflow. Income stocks pay good dividends compared to other companies but there are no guarantees that these dividends will continue.

Methods of Stock Selection

Fundamental analysis. Main belief: a company’s future ability to increase revenues, profits and cash flow determines its share price. Evaluates the basic economic and industry forces that shape a company’s growth as well as the firm’s financial statements.

Technical analysis. Central belief: a company’s past share price and volume of shares traded determines the future direction of its share price. Technical analysis is a mathematical approach.

Index investing. A passive approach to investing that mimics the composition of a major stock index. There is little trading of stocks.

Gut feel – this is an intuitive sense of what to buy. What many people do not vrealise is that behind this, there is a certain level of undeclared analysis that took place.

For  a more detailed review of stock picking techniques I strongly recommend that you check out and download their free stock picking tutorial. A clear understanding of this is critical to investors.

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  • Reply drtaffie September 1, 2010 at 1:52 pm

    LOL I was going to recommend investopedia. I think another area to consider is globalization and the world market trends. For example Bill Gates said that if your business was not on the internet you would be left behind and now travel agents are slowly becoming extinct since its cheaper to buy your ticket online and also banks do not charge for online banking.

    Right now I know Africa is the next emerging market with 950 million people. So which listed company is looking at exploiting the internet and using eCommerce in its 5 year strategic plan. I am reminded of how Strive Masiyiwa was told that cellphones would not work in Zimbabwe (I bet the guy is eating his words now).

    The impact of globalization is being felt by Edgars for example with the cheap Chinese goods flooding the market, right now imported chickens are flooding the zim market and CFI holdings is also in the chicken business.

    My Gut feeling is that the internet will take over soon and companies that thought they were leaders will be left behind. In Australia its cheaper to order books from ebay than go to a book store. What are the implications for Kingstons and Mambo press ( your guess is as good as mine). The internet will open up doors people never thought possible and for businesses that will increase competition and also customer base. Think about it, if the guys who do sculptures in Victoria falls develop an online store, they will expose their products to billions of people and with the right marketing tools will reap a harvest and then list on the ZSE.

    These changes will have an impact on the company growth and income and hopefully the share price.

    • Reply nurturingchampions September 1, 2010 at 2:18 pm

      So true Taffie in analysing company growth and potential you cannot ignore its plan on ecommerce. You would also need to analyse the people behind the company. You invest in the drivers of the business more than in the business itself. Do you understand their philosophy or issues of integrity.
      But an internet presence that is correctly utilised for revenue generation and widen the company’s market is critical.

  • Reply tb mpofu September 4, 2010 at 7:03 pm

    These are extremely relevatn points you raise in this rapport good sirs.I am in Vic Falls and i see the potential for great business by our curio guys.hey you would thy hd that kind of integrity that entices such witty innovations!
    I like the observations about the internet-this is the bane of business in Africa.’Cloud Computing’ is now ‘ in ‘ may we lead the way to the dawn!

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