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Cape Town - Momentum investing can be a very dangerous game, cautions Overberg Asset Management's Kirk Swart in this week's "five shares to watch".
History has shown that investor exuberance drives share prices to very high levels. This is then followed by a pullback, that finally results in underperforming shares.
A case in point is the top five performing shares on the JSE Top 40 in 2015. Of these, four have fallen by more than 8% for the year to date ending last Friday. When contemplating the fall in their share price, one must take into consideration the 2.49% fall of the JSE All-share Index as well as the JSE Top-40 Index which has fallen by 4% for the year to date (YTD) last Friday.
These 5 shares are:
Brait [JSE:BAT]: (2015: 118%, YTD: -9.1%)
Brait is an investment holding company that has a number of investments in unlisted businesses that operate in the broad consumer sector. In 2014, Brait sold its holding in Pepkor to Steinhoff for cash and shares which were subsequently used to invest in the gym group Virgin Active and the high street fashion chain, New Look. Brait shares are listed on the EURO MTF market with a secondary listing on the JSE.
Brait ended 2015 at R170.08, an increase of 118% for 2015. However, it seems that the beginning of 2016 has marked a halt in the momentum in the Brait share price. Trading at R154.53, the share price is down by 9.1% for the YTD.
PSG Group [JSE:PSG]: (2015: 76.9%, YTD: -23.6%)
The PSG Group has seen its share price drop by 23.6% for the YTD. This is the biggest drop among the top 5 gainers in 2015. The PSG Group ended 2015 76.9% higher on R229. On Friday the share prices closed at R174.97.
PSG's biggest investment is a 30.7% interest in Capitec. Capitec, along with all of the other banking shares, are trading down as the fear of a possible South African rating downgrade is still imminent. PSG's other noticeable investments include PSG Konsult, Curro, and Zeder.
Capitec [JSE:CPI]: (2015: 65.2%, YTD: -14.61%)
Capitec has seen a big increase in its share price since African Bank was delisted. The market drove higher Capitec's share price as it was expected that Capitec will take on a lot of the unsecured clients of African Bank.
In November 2015, Capitec was trading at an all time high of R615. It ended 2015 trading at R561, up 65.2% for 2015. However, since the firing of Nhlanhla Nene as finance minister, the fear of a possible rating downgrade has not evaporated and Capitec's share price has fallen by 14.61% for the YTD. It is currently trading at R479.
Mondi [JSE:MND]: (2015: 64.4%, YTD: -8.68%)
Mondi is an international packaging and paper group with a duel listing on the London Stock Exchange and the JSE. It operates in central Europe, Russia, North America and South Africa.
Mondi delivered a solid set of results for the year ending 2015. Underlying profit and earnings per share was up by 25%.
Mondi's share price reached a high of R337.31 in 2015 and ended the year up 64.4% trading at R309. For the 2016 YTD, the Mondi share price is down by 8.68%. It closed Friday's trade at R282.78.
New Europe Property Investments [JSE:NEP]: (2015: 55.7%, YTD: -1.5%)
The New Europe Property Investments Group is a property company listed on the JSE, the Bucharest Stock Exchange (BVB) and the Alternative Investment Market (AIM) of the LSE. The group has various retail and office properties across Romania and Slovakia. They follow a strategy of investing in European property which offers a high growth potential.
New Europe Property Investments has traded 2016 relatively flat, only down 1.5%. However, investors must be cautious as the share is trading on a price to earnings ratio of 41.8 times and offer a dividend yield of 2.8%.
Do you agree with Kirk's stock picks? Tell us why and send us yours.
* Kirk Swart is a director at Overberg Asset Management (OAM), an authorised financial services provider (No 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.
Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
