Tread carefully

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Treading carefully......


Markets are reaching all time highs and this leaves the investor (both enterprise and defensive) with the notion that a market correction or bubble might occur soon. So what can you do to prepare yourself for this potential market correction? Here are a few options at your peril:

1. Cash pile-up:
At the current rate of returns on the stock markets, this seems like the worst option as cash savings can not provide returns in excess of inflation. However, there are two main benefits to this:

  • It provides a buffer against any market corrections; and
  • It provides flexibility to buy again after the market has been corrected and prices have fallen a lot.
2. Small Caps:
Instead of focusing on the Top stocks on the market, consideration should be given to small caps that are value stocks and that will not be affected as severely as large caps in the case of a market correction. Some small caps on the JSE to consider include:

  • ISA Holdings Limited (P/E of 10.71; Share Price of 75c; NAV per share of R22.20 thus trading at major discount to NAV; very low gearing)
  • BSI Steel Limited (P/E of 9.80; Share Price of 57c; NAV per share of R53.91; operations across Africa)
  • Reunert Limited (P/E of 11.85; Share Price of R65.30; NAV per share of R229; Turnover of R11bn)
  • Sovereign Foods Investments Limited (P/E of 13.80; Share price of R8.49; NAV per share of R108.52; Turnover of R1.2bn)
Always remember to do proper in-depth research about any stocks you intend to invest in and analyse the financial results for at least 5 years.

to be continued......


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