JSE's best performers

"I think you are seeing two very definite trends," says Andrew Dittberner, a senior investment manager at Cannon Asset Manager, "the top companies are smaller-capped industrial companies which mainly derive income from SA." Resources, in particular gold companies, have been knocked hard in recent months, he says (see table). "Over the past few years growth in the industrial sector has been driven by large-cap multinational companies (whose growth) has made the sector as a whole seem quite expensive," adds Dittberner. "But while they have run the small cap local guys have been ignored, you have seen these companies that have been ignored start to stand out".

Bell Equipment (JSE:BEL), Invicta Holdings (JSE:IVT), Super Group (JSE:SPG) and Metair Investments (JSE:MTA) ranked 2^nd through to 5^th of the best performing stocks comprising the JSE All Share Index (Alsi) over the period December 30 2011 to April 26. According to data provided by Cannon Asset Managers, locally based information and technology company, Pinnacle Technologies topped the list.

Investors who had gone proudly SA and invested into these top five performers would have seen capital returns of between 36.1% and 43.4% over the period as compared to a growth of 7.1% in the Alsi. Despite the strong rally in the local industrials Dittberner is of the opinion that there may still be some value left in these stocks. With price:earnings (PE) multiples close to the single digits growth in these companies may continue until multiples in the region of 13 are achieved.

On the other side of the coin, three of the bottom four performers where precious metals producers. Investing in Harmony Gold (JSE:HAR), Anglo American (JSE:AGL) or Wesizwe Platinum (JSE:WEZ) would have cost you between 24.7% and 19.4% of your capital value. This trend may have created some potential value in precious metal stocks. "There has been a de-correlation of the rand/gold price and the stock price," over approximately the last year says Dittberner. "Gold companies as a whole year to date have decreased by -19.5% but the gold price has gone up around 4% and rand around 8%," he said. Gold stocks "have been put down to levels now that are making them very interesting to us … I wouldn't be surprised if there was some consolidation in the sector, some junior miners are looking quite cheap". Although Cannon has not yet begun investing in gold stocks, Dittberner notes that "they have been oversold".

Warren Ingram of Galileo Capital sees good news in the growth trend of local stocks. He views the shift to growth in local industrials, and away from resources, as the return of a "cautious optimism" amidst fund managers as they move away from the state of "absolute fear" that enveloped markets following the financial recession. The growth in local industrials is "directly related to a reduction in fear," says Ingram "fund managers would buy resources if they are fearful". "What it means is that the trend in our recovery from a stock market perspective is moving away from resources and into the broader economy which I think is a very healthy sign," he says.

This article was written by Felicity Duncan and appeared on www.moneyweb.co.za

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