Tempting SA stock picks

SA’s economy is producing a steady stream of negative headlines. Amid all the bad news, some JSE-traded stocks are beginning to look attractive. Investors seeking value should keep an eye on lenders, diversified industrial companies, healthcare providers and pharmaceuticals, said Feroz Basa, of Old Mutual Investment Group’s emerging markets unit.

“You’re finding some pockets of opportunity in banks,” particularly in Barclays Africa Group following the sell-down by Barclays Plc,” Basa said. The stock trades at the lowest valuation among its peers, as measured by its price-to-earnings ratio and “the dividend yield is very attractive.” After rising 43% last year, Johannesburg’s index of banking stocks has lost 0.4% in 2017.

“For a foreign investor looking into emerging markets, SA isn’t looking like a very attractive prospect at this point,” Basa said. “However, as the growth outlook continues to suffer, pockets of market value are likely to emerge.”

Policies put forward by government have rattled investors, with mining stocks tumbling 3% on the day in June that Resources Minister Mosebenzi Zwane put forward new regulations for the industry. Slow-moving plans to introduce National Health Insurance have contributed to the local healthcare sector index dropping about 9% this year.

“There are good opportunities in healthcare because of the government issues and noises around NHI,” Basa said. “SA companies have derated nicely. While the negative sentiment around SA is slowly starting to feed into the companies, none of these companies have derated to a level that would position SA as a screaming buy right now. A continued decline of SA market performance should create better buying opportunities.”