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    Recipe to bake a JSE income cake

    Round up all shares on the JSE that have grown earnings-per-share and/or dividends per share on a consistent, ever increasing, basis for at least the last 5 years (10 reporting periods including interims.) This gives you about 45 shares. Discard all shares that do not trade at least 10 times per day on average, to ensure decent liquidity. This leaves 27 shares. Now show those remaining that have fallen at least 10% from a very recent high, to ensure we are getting a bargain (margin of safety) and/or high yields. That leaves about 10 shares. Buy any of these shares that we issue trough reversal signals for. Repeat during each small market correction (buy on the dips.) Hold shares until we issue sell signals or flag a bear market/recession. Smile as the superior market-beating capital gains and dividend cheques come in for duration of bull market.

    Now the JSE has currently corrected a puny 2.5% recently, but that is not to say that under the surface there are not such bargains about. Have a look at the "income cake" we baked only yesterday:

    The "HI" column shows how much lower each share is trading than its more recent 3-month high (in other words, how much it has recently "corrected".) This is an idea of how much of a "bargain" is currently presenting itself. Up to 15 to 17% in some cases! It is not often we see this many consistent dividend/EPS growers popping up in this type of "bargain" screen. In fact we are lucky to see any of these shares, as in most instances these quality shares are bid up to the heavens and too expensive. Some of these issues are not "bargain basement" yet (look at the Powerstocks Valuation Metric, or PVM scores). Only LEW and GRF are registering more than 1 on the PVM, so they are the "well priced" shares when one looks at P/E, Price/Book and Price/sales figures together as a whole. There are a lot of retailers in this list, obviously the foreigners have been taking profits.

    We are not saying now is necessarily the right time to be buying these shares. We have other tools in our JSW program that will issue the appropriate BUY signals for these shares based on their price action and that of the market as a whole. But the point is nobody ever regretted buying quality stocks after a nice sell-off such as this. Buying on a dip, coupled with safety of consistency of these companies to grow earnings and dividends is the recipe to bake an income cake. The trick is to buy a small basket of them. Some will perform better than others but our research shows the basket as a whole will comprehensively out-perform the market on both capital appreciation and dividend income.

    For more innovative uses of fundamental data coupled with timing tools to deliver superior investing and equities trading results, see our JSW Videos.

    Dwaine van Vuuren
    Founder, PowerStocks Equity Research

    Permalink2011-01-24, 19:50:00, by dwaine Email , Leave a comment
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