Taking your bets on the JSE: An expert's top stock picks right now

Bruce Whitfield talks stock market picks with Chantal Marx, Head of Equity Research at FNB Wealth and Investments.

Should you ever consider investing in shares  on the Johannesburg Stock Exchange that nobody else seems to want at a particular time?

Bruce Whitfield finds out how to identify the 'dogs' of the JSE in conversation with  Chantal Marx, Head of Equity Research at FNB Wealth and Investments.

Explaining this particular label, Marx says while it is not really a technical term, the industry does tend to use the term 'dogs' for unloved stocks.

"Most people like dogs, but from a market perspective if something is a dog you stay away from it. If something is a dog it's usually 40% off in the year, and it takes a while for investors to get comfortable again."

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

Out of the many dogs seen on the exchange over time, some of them have come screeching past previous highs like a greyhound, Marx comments.

Continuing with the analogy she says others again, remained lying in the sun and perhaps didn't make it to old age.

"What we need to look at, is how do you actually separate the Aspens from the Blue Labels, and the Glencores from the Steinhoffs...and that is a difficult thing to do, particularly when they are still considered dogs."

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

The trick is to get better at choosing she says, when Whitfield asks about employing a 'shotgun' approach.

"There are some stocks that really carry so much risk, especially where they are right now, that it's just not worth putting it in that equally weighted 'mini portfolio' of dogs."

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

Stocks that have lost more than 40% of their value over the last year include previous market darlings like Pick n Pay, Transaction Capital, PGMs, ArcelorMittal, Brait, Sasol, EOH, MTN, Spar, and Metair.

Marx shares her top tips for finding your way around this potential minefield.

1. To identify whether it's worth taking a chance you must first understand why stocks will lose half their value in a year:

• Severe operational challenges – Metair, Spar, Renergen
• Strategic missteps – Pick n Pay, EOH, Brait, Murray & Roberts, Libstar
• Market slumps (macros, sectors, commodity prices, currencies) – PGMs, Transaction Capital, Arcellor Mittal, MTN, Sasol

2. Once you've identified the why, you need to figure out if the company has a chance to recover:

• Stick to good investment principles.
• Should the business exist?
• Market prospects – are they improving? Will the market turn?
• Possible corporate action?
• Will revenue and cash flow be supported? How?
• Exiting loss making businesses/closing shafts, fixing what’s broken.
• Market turns.
• What do the balance sheets look like?

3. Remember opportunity cost/ to not bet the house:

• You could be investing in something with more certain prospects.
• You should be investing in lots of other things with more certain prospects.

4. Who Marx backs and who she will be avoiding:

Scroll up to listen to the detailed advice from Marx