If you are trying to find best shares to buy in 2019 in Pakistan or best Stocks to invest in Pakistan for the long term in 2019 then you have come to the right place.
Pakistan’s Stock Market has declined significantly in 2019 and KSE-100 index is trading between 30,000 and 32,000 levels.
The economic slowdown in Pakistan, Corporate earnings decline in some sectors, global recession fears owing to US-China trade worries, the outflow of Foreign Investments from Pakistan and persistent selling from Mutual Funds all have contributed to a significant decline in Index which has receded from all-time high level of 53,000 to below 30,000 marking 43% decline.
However, this does not entirely mean there are no Investing opportunities in Pakistan’s Stock market as this kind of weakness is part of the market process.
Stock Market Analysts are of the opinion that Investment Opportunities are always present even in a recessionary environment. An Investor just has to know how to buy the right stock, at the right time, at the right price by properly analyzing and diversifying the portfolio.
Despite the poor performance of the Pakistani Stocks in last couple of years, there are some great long-term Value Stocks in the Pakistan Stock Exchange. There is enough information available related to each stock. But the Investors have to act quick and pick up value investment from this noisy stock market.
Here is a fact, historically equity Investments have outperformed every other asset classes in the long term.
If you are a long term investor, you tend to always make returns in Share Market despite Short Term Volatility.
We at TheMint.PK have highlighted few stocks which offer great buying opportunities for long term investors. These include stocks from different sectors having shown good growth over the years and has the potential to grow over the next many years due to value in them.
These stocks have a huge potential to generate good returns in the long term. But before delving into details of these stocks, we believe that you should read basics of investing int he Stock Market and understand the risks inherent in it. Famed US Investor Warren Buffet’s Investment Philosophy has proved to be most successful while investing in stocks.
We at The Mint.PK want to add few more tips to the above for successful investing experience in the Pakistani Stock Market.
Diversify: Don’t put all your eggs in one basket. Diversify across the sectors and even within the sector diversify across different companies.
Start Investing Early: Your Twenties and even early Thirties is the best time to start investing. Make sure that you set aside some portion of your total income to be invested. The longer you have your money invested for you, the more you will earn. Profits from your investments, particularly in the stock market, will really make your money grow and keep you well ahead of others. So keep investing a fixed amount every month.
Avoid fads: Past performance of a stock is a bad predictor of its future performance. If everyone in the market is talking about some hot stocks, like Cement stocks surge in 2014, or like speculative stocks today, you’re too late.
Don’t let a market decline change your long-term investment goal. Had Investors gotten discouraged and quit investing money in the market in 2008-09, they would have missed out on the spectacular gains of the market rebound in 2014 – 2016. The market is going to go up and down. Even when it’s going up, you may not own the best-performing stocks, but if you remain diversified and stick to your investment plan, in the long run you’ll make out great.
Pay attention to what’s going on with your investments. No stock is safe forever. Even the best blue-chip stocks can turn into a sheep in the market. The old adage of “buy and hold forever” doesn’t work very well in Pakistani economy as vibrant as exists in the world today.
Top 9 Stocks to Invest in Pakistan in 2019 – October Update
We have used Value Investing philosophy to highlight best stock investments in Pakistan. Value Investing philosophy underscores those stocks which have the potential to unlock value in the near future and are trading at a significant discount as the market hasn’t yet realized its potential. This primarily involves growth stocks where Investors bet on the future growth trajectory of the company as evident from its plans. Below is the list of Growth Value Stocks from Pakistan you can invest for Long Term.
1.Hub Power Company (PSX: HUBC)
HUB Power Company remains the jewel of China-Pakistan Economic Corridor (CPEC). If you want to invest in Pakistan’s CPEC Play, then HUBC remains top Investment pick in the Power Sector, given 30% average Earnings growth in the next five years, led by the new coal-based power capacities of 1,320MW and another Investment in Joint Coal Project.
HUBC has recently increased its holding in China Power Hub Generation Company to 46%. China Power Hub Generation Company has commenced its 1,320MW Coal-based power plants which attracts Return on Equity between 28% – 30%. HUBC also holds 38% equity in ThalNova Power which is building 330MW Coal plant in Thar and expected to commence operations by Mid-2022
HUBC has historically shown its ability to create shareholder value in a highly regulated market by having a strong relationship with all the stakeholders. In addition to providing a hedge from Rupee depreciation, HUBC also offers protection from abrupt changes in the country’s tax policies as it enjoys tax exemption. Additionally, HUBC does not face any significant competition. Furthermore, it also has a sovereign guarantee for payments by the power purchaser.
HUBC has previously given generous dividends based on its earnings. While recently it has cut down on its dividends as it carries out its expansion plans where internally generated cash is being utilized. However, with the commencement of Operations at 1,320MW Coal Plant, dividends are expected to rise going onwards.
Final Verdict: Price of HUBC has declined significantly in the last one year owing to broader market decline and cut in its dividend payments. It currently trades around Rs. 73/share. Prominent Research House, EFG Hermes has Target Price of Rs. 168/share for HUBC offering 130% upside over mid-term. The positive on the stock emerges from its capacity expansion by 58% to 2,327MW at end of 2022 which is expected to unlock significant earnings growth with diversified risks.
2. Meezan Bank Ltd (PSX: MEBL)
Whether you wear your Shalwars above the ankle or not, Meezan Bank remains one of the best bet in the Banking Sector of Pakistan.
Meezan Bank has been showing strong growth in its operations, Dominating the Islamic Banking Forte of Pakistan. Having crossed Total Assets of Rs. 1 trillion, MEBL emerges as 6th largest Private bank of Pakistan.
With the broader decline in overall index, price of MEBL has also slumped from its historic high and currently trades at Rs. 72/share providing a good entry point for potential investors.
What sets MEBL above peer banks is its average Return on Equity of 28% expected in the next three years, higher than the Banking sector average of 19%. Robust ROE is expected to prevail despite the economic downturn.
Furthermore, MEBL has a repository of cheap deposits as compared to conventional banks. MEBL cost of deposits is on average 1.4% lower than its conventional peers. This is expected to increase Net Interest Margins of the bank to a historical high level of above 5.5%.
Another positive is Professional management having a track record of bringing value to the shareholders over the last two decades. Furthermore, a perpetual model of growth being derived from increased Financial Inclusion and the possibility of Bank getting acquired/merged with other bank may unlock further value down the lane.
Final Verdict: With MEBL getting transformed into 6th largest private Bank and dominating the Islamic Banking Industry with lucrative Return on Equity, it is not difficult to understand that this giant is essentially money churning investment for the long term. JS Research has a target price of Rs. 125/share for MEBL, offering 71% upside along with a Dividend yield of 8% at this level.
3. Engro Fertilizer Ltd (PSX: EFERT)
One of the leading players in the Fertilizer Industry, Engro Fertilizer has established its position in the Industry with strong Pricing dynamics. EFERT is a beneficiary of concessionary gas, thus benefiting from a series of Urea price hike (Rs. 220/bag) in last one year, taking Rs. 95/Urea bag as additional income (assuming GIDC settlement) much higher than its peers.
The evergreen and recurring Business, increased Fertilizer Demand, increase in Price Gap between Imported and Local Urea, Proficient Management and backing of Dawood Group will leads towards further strengthening of company’s future.
EFERT currently trades at Rs. 72/share, considerably less than its previous levels offering a dividend yield of 15% and target price of Rs. 75/share.
4. Fauji Fertilizer Company (PSX: FFC)
The Market leader FFC is all poised to dominate the Fertilizer sector for foreseeable future keeping in view the Market Share, Upbeat demand, improving agro dynamics, professional management, Support from Fauji Group, higher dividend income from portfolio companies and profit earned on cash and investments.
Strong rating on FFC arises from compelling valuations, high Dividend Yield (13%), and healthy balance sheet position (Huge cash and Investments) in a rising interest rates environment.
Over the years, FFC has turned itself more into a holding company. Its portfolio companies include Askari bank (43% stake), Fauji Fertilizer Bin Qasim (49.8% stake), Fauji Cement Company Ltd(6.79% stake), Thar Energy Ltd (30% stake).
With Target Price of Rs. 116/share (AKD Securities), it offers 28% upside along with a Dividend yield of 13%.
5. MCB Bank Ltd (PSX: MCB)
MCB is the 2nd largest bank in Pakistan with Total Assets exceeding Rs. 1.6 trillion. The flagship company of Business Tycoon Mian Mansha, has cemented its leading position in the Banking Sector with massive deposits mobilization and Branches network spread across Pakistan,
MCB is expecting total of 1,400 branches by end of 2019. MCB’s Islamic Banking Operations are also expected to turn profitable from this year.
The management is optimist about the future and expects ROE to increase going forward to around 21%.
With 5% weightage in benchmark KSE-100 Index, MCB remain star attraction for any future inflows in the market.
Going forward, the Net Interest Margins of MCB is expected to expand further to 3.4% by 2019 end as MCB has highest percentage of Low Cost deposits, making MCB one of the biggest beneficiaries of the interest rate hike. Moreover, low operational cost, a lower proportion of government deposits, Recoveries of NPL and lucrative ROE makes MCB a good bet in the banking sector. With Target Price of Rs. 224/share (AKD Securities), it offers 32% upside along with dividend yield of 9.5%.
6. Habib Bank Limited (PSX: HBL)
The largest bank of Pakistan is all poised for a recovery after couple of years of profit suppression and under performance.
HBL’s profitability remained under pressure over the past 2 years which resulted around ~40% decline in stock price since 2018. However, HBL profitability is all set to recover due to full impact of Interest Rates hike in its Core Margins, improvement in Cost Efficiency and relative stability in currency and equity market. Additionally, HBL’s successful winding up of its New York operations and build up of Capital Base would be considered critical in coming months.
HBL’s Jan – Jun 2019 earnings have been dragged by Equity and Currency Losses where company posted Net Profit of Rs. 3.9 billion as compared to Rs. 8.1 billion in same period last year. However, these one time costs are expected to normalize going on wards as lower currency risk and Stability in the stock market is expected to bode well for the bank. While its Return on Equity (ROE) is all set to converge to its historical average of 18.5%.
The earnings are expected to show 108% growth in next year and 40% increase in 2021 paving way for significant price recovery in Mid-Term.
With Target Price of Rs.170/Share (Foundation Securities) and dividend yield of 5.8%, the stock offers considerable upside in the long run.
7. Lucky Cement Limited (PSX: LUCK)
With Market Size of Rs. 113 billion, Index weightage of 3%, Backing of prominent Business House and promising growth story, LUCK remain center of attraction for Long Term Investors.
LUCK remains one of the best bet in the Cement sector of Pakistan supported by one of the lowest cost of production and strong balance sheet providing cushion to absorb any near term pressures which may arise from weak margins or stressed working capital.
Recently, the company has incurred losses in its Iraq (Rs. 227 million) and Congo (Rs. 13 million) based Cement plants. LUCK is also experiencing stretched working capital cycle, a significant increase in packaging cost and capital expenditure of Rs. 19.7 billion conducted during the FY19. The ongoing venture of Lucky Electric Power (LEPL) and the new expansion of 2.6 million tons capacity contributed to increase in payables.
Despite the near term pressures, LUCK remained preferred stock in the whole cement sector as the company has lowest cost of production and minimal debt. Moreover, the LUCK has diverse Investment portfolio, including Under Construction 660 Mega Watt Lucky Electric Power Ltd, investment in Kia Lucky Motors, and ICI which provides comfort. The stock has highest ROE of 8% in the whole cement sector. While Coal prices at 40% lower from highest level also gives assurance for margins.
With Target price of Rs.516/share (AKD Securities), this gem of Tabba Group offers considerable upside to Long Term Investors.
8. Oil and Gas Development Company (PSX:OGDC)
While investing in Pakistani Stock Market, How can one ignore its Biggest share. OGDC is the largest Government Organization and coincidentally also the mega stock with highest Market Capitalization in the Stock Market (Rs. 522 billion). OGDC has 5.2% weightage in the Index and has historically moved the KSE-100 index with its movements.
Prominent Foreign funds, having exposure in Emerging Markets, also hold substantial holding of this stock while Majority of Local Mutual Funds also keep exposure in it keeping in view their strategies.
OGDC has dominance in the exploration and production of hydrocarbon reserves in Pakistan as it contributes 45% and 29% of Pakistan’s oil and gas production.
OGDC’s 2019 operational performance remained robust where it produced 40,800 barrels per day of oil, 1,014 mmcfd of gas and 802 mtpd of LPG. This resulted in OGDC to post net profit of Rs. 118 billion (EPS: Rs. 27.5).
Going forward, OGDC has plans to spud 30 new wells in 2019-2020 period at a cost of Rs. 53 billion. While its management is also confident of success at Nashpa and Mela fields supporting the earnings.
Rough estimates show that OGDC has around 13 and 15 years of reserves left for Oil and Gas respectively.
OGDC’s revenue is based on Arab Light Crude price which is denominated in Dollar. Hence, OGDC provides hedge against Rupee depreciation. With Upbeat outlook on Crude Oil Prices and well diversified asset base atleast short term prospects of the stock seems promising. Moreover, OGDC is a prime candidate for Governments drive of Privatization. Any recovery in the KSE-100 will also be led by inflows in this stock.
9. Pakistan Petroleum Ltd (PSX: PPL)
The Gas Producing Giant of Pakistan is well known for its impeccable track record of delivering high performance with good Governance. With Market Capitalization of Rs. 300 billion, it is the second largest company listed at Pakistan Stock Exchange. Major Gas fields operated by PPL includes Sui, Gambat South and Kandkot.
PPL had robust operating peformance in 2019 backed by higher Well Head Gas prices, increased gas and LPG production and sharp rupee devaluation. This led PPL to post net profit of Rs. 59 Billion, marking a 30% YoY increase. Despite higher Operating cost booked due to dry outcome of Kekra-1 Well, PPL posted robust profit confirming its resilient profile.
The Management of PPL remain optimist to post 7% average growth in next two years with pricing of new discoveries at higher rates leading to profit growth. Additionally, recent consumer Gas Price increase is expected to benefit PPL the most as it has pending payments from Circular Debt. Hence, resolution of Circular debt is expected to free up liquidity of the company which may increase dividend payout in the future .
PPL is also candidate of government’s privatization drive where it intends to sell out up to 10% of its stake. A higher valuation by the prospective buyer may propel the price in the market. Furthermore, with revenues tagged in US Dollar, any rupee depreciation is deemed positive for the company.
With target price of Rs. 208/share, PPL offers significant upside from its current level.
This article has been published for information purposes only and not to be considered as Investment Advice. Under no circumstances, this to be considered as an offer to sell or solicitation to buy. While reasonable care has been taken regarding accuracy of the facts and figures, we do not make representation as to accuracy or completeness of the subject. Neither The Mint Pk nor its writers are Investment Advisers. Readers are advised to consult their Investment Advisers before Investing in the market.