Monday, March 5, 2007

Buying opportunities in a plummeting market

Over the last few days the JSE, in sync with the world markets, has fallen sharply from its all-time high. The All Share Index, having reached 26,932 on 26 February, fell 7.5% to close 24,919 today. The Top 40 index fell from 24,284 on 26 February to close 22,416 today. The market has given back all its gains this year.

Keen readers of this blog may remember that, in early January, I published an article titled “At what level should the JSE Alsi index be?” I mentioned in that article the JSE is some 30% to 48% overvalued. I believe that, even after the current pullback, the market is still very overvalued, and another 10% to 20% decline would not surprise me.

But it is time like this, when panic selling forces prices of all stocks down, great buying opportunities start to present themselves. Undervalued companies become even more undervalued, and smart investors will buy more of these companies.

Right now, we find the following companies on our watch list offering value:

BHP Billiton - the Chinese growth story is not reversing, so prospects for Billiton are good. At a PE of around 9, it is a buy at or below R140.

Telkom - High dividend yield, low PE, growing earnings.

Astral Foods - has pulled back sharply, now trading at below 8 times PE. Also high dividend yield, this one is a gem.

Metrofile - buy at R1.25 or lower.

Sasol - strong support level at R220, its fundamentals are sound.

PSG - buy at R25 or lower.

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