Vantage Point with KEITH COLLISTER

My current view is the market will probably drift sideways for the next few months, or even fall a bit further, as it awaits the catalyst of either significantly lower interest rates or the end of uncertainty as to who will be in charge of the country for the next five years.

As part of my preparation for a speech for Barita stockbrokers last Wednesday morning, I reviewed all the local shares on the Jamaica Stock Exchange (I will review the Trinidad shares specifically in a separate column), and recommended the following select group of shares at between five to 10 per cent below their current prices.

I have outlined about half of my picks for Barita today (many of them will be already known to readers of this column), and I will outline the other half in next week's column.

RECOMMENDATIONS

Financials: FirstCaribbean (with the caveat that the float is very limited), NCB, and Scotia Group Jamaica (formerly BNS), in that order.

Unlike the securities dealers which are far too dependent on Government securities for their earnings, I believe the commercial banks should be able to grow their earningsthrough loans, despite the fact that they are also all still massively overweight government paper by international standards.

The two current exceptions to my 'no securities dealer' rule are Pan Caribbean - which is planning to go into commercial banking - and Dehring, Bunting & Golding, if it falls significantly further.

Conglomerates: Lascelles (the rare stock that is both growth and value); Carreras (good for income); and, GraceKennedy (turnaround).

Historically, Jamaica Producers (JP) becomes a buy at its current very depressed price based on discount to asset value, but its management needs to provide greater visibility as to its future earnings potential before I can consider recommending the company as a buy.

Having since spoken to management, I believe that Jamaica Producers does have a long-term strategy to grow the business, and is a buy at its current price of $25.

AGGRESSIVE SHARE LIQUIDATION

JP reached a low of $22.50 on Wednesday, apparently as a result of aggressive share liquidation by a broker, but strong buying by a major institutional investor Thursday may have capped the fall.

It is worth spending another moment to look at JP's first quarter to ascertain why the stock has responded so negatively.

It is not merely that JP lost over $100 million (JP has a history of earnings volatility, some of which is due to the vagaries of the weather), but that the fresh and processed-food segment lost $91.3 million this quarter versus a profit of $112.9 million in the comparable quarter last year.

Producers faces the legitimate fear that not only had its historic banana business become a commodity, but that its former star U.K.-based 'fresh juice' business, Sunjuice, was also being commoditised as U.K. supermarkets continued their march to own label, squeezing their suppliers along the way.

JP believes, however, that it has the correct strategy, targeting the 'sweet spot' of the U.K. food market - the freshly prepared food sector catering to consumers requiring health, freshness and convenience.

I agree, and while there is significant execution risk in trying to grow a portfolio of brands (as well as start-up costs from building factories, etc.), at a share price of half of its book value, one is already compensated for much of this risk.

In summary, not only is there a clear shortage of growth stocks in our market, but the stock market is also reflecting our poor current growth prospects, with first-quarter GDP up only two per cent, according to the PIOJ's latest figures, and the same anaemic rate of growth projected for the next quarter.

keithcollister@cwjamaica.com