Today’s Trading Playbook
KEY THEMES
In 2021 so far, we can split the market into two contrasting periods. The period before 2 September (almost 8 months) was so much different compared to the period starting 2 September. Take the two main market indices as proxies. In the former period, EGX 30 was up by 4%, while EGX 70 EWI was flying by 42%. Alternatively, the latter period saw EGX 30 almost unchanged, up only by 1%, whereas EGX 70 EWI was hammered by as much as 33%. Obviously, the divergence has reversed. EGX 70 EWI has been outperforming EGX 30 through 5 September before it succumbed to the unraveling of skyrocketing stock prices on a sell-off to cover open margin positions. As usual, the domino effect kicked in, pulling more stocks down further in a downward spiral.
Regardless of the trigger, such an outstanding performance by EGX 70 EWI since the onset of COVID-19 was not sustainable. It was a matter of time before the party was over. Now, with the music slowing down, investors should look for cheap stocks with strong underlying business fundamentals that can stand inflation and have the dividend paying capacity. Within this list we could list a few names, such as Eastern Company [EAST] (P/E of 6x / DY of 17%), Telecom Egypt [ETEL] (4x / 5%), CIB [COMI] (9x / potential DY 5%), IDH Holdings [IDHC] (13x / 4%), Obour Land Food Industries [OLFI] (7x / 10.5%), Abu Qir Fertilizers [ABUK] (6x / 7%), and Orascom Construction [ORAS] (5x / 5%). Incidentally, ORAS just announced today its Q3 2021 results, with earnings of USD28.4mn (8% ahead of our estimates). As this Q3 earnings season draws to an end, we think the above-mentioned names should be on investors’ shopping list for 2022.
Now, on to the top news and analysis for the day.