Dubai: If you are looking to strengthen your portfolio through diversification or add more growth potential to your investments, stocks can be an ideal part of your overall investment strategy.
Given the strong possibility of an economic recovery in 2021, it might be alluring to fill your portfolio with all the lagging stocks that collapsed during the pandemic in 2020. However, 2021 does not promise less uncertainty than it does. its predecessor, investors must therefore remain cautious. , like always.
The pandemic has resulted in global dependence on technology, from e-commerce to teleconferencing, and hence the actions of the five largest global tech giants, under the acronym FAAMG – Facebook, Apple, Amazon, Microsoft and Google – more than 50% monetary growth returned in 2020.
This growth is compared to just 6.3% for the other 495 members of the US benchmark S&P 500, an indicator that is tracked by movements of other key indices around the world. Together they now have a market value of $ 7.2 trillion (Dh 26.5 trillion).
What if you only invested in Big-5 Tech Stocks in 2020?
Suppose you kept your entire portfolio in an S&P 500 exchange-traded fund (ETF), then that would imply that 23% of your assets would now be parked in those five stocks only.
U.S. tech companies have attracted the highest transaction volumes among investors in the UAE and globally in 2020, analysts at Saxo Bank recently noted.
While allocating space in your portfolio to stocks from the UAE and international markets is a decision experts reiterate that many investors should seriously consider, there are a number of other factors to consider as well. .
What stocks should investors keep in mind or look for?
The top winning stocks often continue to soar and reach new highs when their underlying fundamentals indicators are strong. However, when a stock continues to hit new highs, it is also important to watch it closely, as there may be a retracement of the value of the price.
Here are the top analyst picks for international and UAE stocks that you should consider investing in this year, based on the metrics used to identify the stock’s true value, future earnings, and growth potential. the share price in the coming months:
1. Swedish telecommunications company Ericsson
With the deployment of 5G requiring a lot of new equipment, Huawei and ZTE are Chinese companies at the forefront of the production of 5G equipment and devices.
However, in both the United States and other markets, factors leading to political uncertainty have hampered investments by these companies related to 5G, which is why analysts cite two growing competitors, namely Samsung Electronics and Ericsson.
Ericsson has also been hit by European regulations, labor challenges and tax code issues, but investors are in awe of its turnaround despite being hit. This translates into revenues (which should increase further because it is one of the essential alternatives to Huawei and ZTE) up 8%.
The main advantage of a stock like Ericsson is that the company has very little debt, which analysts say could be tapped to accelerate development of 5G products, prompting a “strong buy” recommendation on the action.
However, it has a value of only 1.6 times lagging sales (sales over the previous period) and 4.7 times book value (i.e. the true value of the price of a stock). But it’s dividend yield (how much a company pays dividends each year compared to its share price) is in the lower 0.7 percent. All of this, analysts add, makes the stock part of the turnaround for 5G because it has a lot of value and opportunity.
2. South Korean electronics company Samsung Electronics
Stock of Samsung Electronics, one of South Korea’s leading tech companies and one of the world’s largest companies in everything from electronics to chips, returned 332% in the past 10 years .
In addition, this streak has continued throughout 2019 to date with a return of 47.4%, outperforming many peers in the United States as well as the global benchmark S&P 500.
Although it has faced a certain challenge as the prices of memory chips in the world are lower – which has reduced the turnover of the last quarters – the overall revenues in the last 10 years continued to increase.
Operating margins (profit made by the company on the dollar after deduction of costs) are widely viewed by analysts as being strong for such a huge company at 12 percent and in turn, even with all the capital investments going on, the return on equity is good at 7.8 percent.
Another key pull for tech stock is that it has a dividend yield of almost 2.5%, but the real draw is that despite the stock price gains, it’s a bargain at only 1.50 times sales and 1.32 times book value.
3. Canadian telecommunications company BCE
BCE or Bell Canada is Canada’s largest communications company and is commonly referred to as the Canadian version of US telecommunications giant AT&T.
The company is called upon to play a pivotal role in the deployment and evolution of 5G in Canada, even though its wireless business contributes a lower overall percentage of revenue than its data and wired connections.
Revenue continues to grow at a reliable pace, currently 2% in the past year, while the operating margin is strong at 23%, contributing to a return on equity of 15% .
Additionally, the stock is earning a generous 5.8%, which continues to rise, and the stock is reasonably priced at 3.07 times book value and 2.2 times trailing sales.
4. Nestlé, the Swiss food and beverage conglomerate:
Many large consumer products companies have disappointed their shareholders considerably in recent years, but that has changed with the novel coronavirus and the stay-at-home trends that have resulted from it.
As households around the world demand more and more consumer products, from snacks to pet food, one of the beneficiaries of the trend is Nestlé, a Swiss-based company that offers a variety of products ranging from food to pet products.
Although revenues continue to grow more slowly, at a rate of 1%, over the past year, it is comparatively much better than many of its peers.
Additionally, the firm’s strict cost control measures are obviously working with operating margins reaching a whopping 17.3 percent, which in turn is fueling a huge return on equity (a measure of profitability relative to a company’s assets, less debt) by 28.7 percent.
Although the dividend yield is minor, it is better than the benchmark US S&P 500 average at 2.4%. In addition, stocks have returned 81.7% over the past five years, outperforming the S&P 500 benchmark.
What are the top UAE stocks to watch?
In the United Arab Emirates, the stocks currently approved by analysts as a “definitive buy” are Dubai National Insurance Co and Emirates Refreshment, currently known under its new name Emirates Reem Investment Company. Investors are also recommended to purchase Aramex shares at this time as well.
Here’s why it makes sense to buy these UAE stocks:
Dubai Insurance Company: The first local insurance company established in the United Arab Emirates has a cost per share of 4.8 Dh, but has increased by 15% on average. It has a strong dividend yield of 8.2% and an operating margin of 38.7%, with a moderate price / earnings ratio of 8.2%.
What is a good P / E ratio?
This is the company’s share price relative to its earnings per share. A high P / E ratio can mean that a company’s stock is overvalued, or that investors expect high growth rates in the future, which means that investors are willing to pay a price. of higher action today. The average P / E has historically ranged from 10 to 15.
Emirates Refreshment: The Dubai-based bottled water and soft drink company has grown 15 percent on average, and the main draw of the action is that it has grown over 1,000 percent over the course of the year. for the past six months.
Aramex: The courier services company has a dividend yield of 3.7 percent, while an operating margin of 10.9 percent. The stock has a P / E ratio of 17.9, which is considerably higher than the industry average.