Bellwether stocks are key stocks that serve as a gauge of general market performance or general economic performance. Investors view these stocks as key indicators of the direction an economy is headed to. Investors can also rely on bellwether stocks to predict a bull or bear market.
Bellwether stocks are mostly blue chip stocks and align with the core economic foundation of a country. In Nigeria for example, the Oil sector is the major driver of economic activity in the country and as such stocks in that sector can be considered as bellwether stocks.
The construction industry is also significant in driving economic activity in Nigeria as capital expenditure forms a chunk of annual Federal Budgets. The consumer goods sector is another area of the economy that indicates how well an economy is fairing. Growth in that sector signifies that Nigerians are spending and when they spend it means they are earnings more.
Examples of Nigerian Bellwether Stocks
Dangote cement is the most capitalized stock on the Nigerian stock exchange, accounting for over 20% of the total market capitalization of the Nigerian Stock Exchange. Dangote cement is a bellwether stock because it is Nigeria’s largest cement producer, producing an essential commodity used by households and industries.
Revenue: N140.52 billion (Q1 2016)
Profit: N52.77 billion (Q1 2016 down by 23.52% from Q1 2015)
Share Price: N179.50 (YTD return up 5.59%)
Nigerian Breweries is one of the largest brewing company in Nigeria. It is primarily involved in the brewing, marketing and selling of lager, stout, non-alcoholic drinks and soft drinks. Many believe that when the economy is booming, the demand for drinks would increase as people have a lot to celebrate for.
Revenue: N77.6 billion
Profit: N10.45 billion (Q1 2016)
Share Price: N138 (YTD return up 1.48%)
Nestle Nigeria is renowned for a variety of products that meets the needs of consumers. The wide range of products include coffee, beverages, bottled water, milkshakes, breakfast cereals, infant foods, performance and healthcare nutrition.
When the economy is doing well, more people are buying food products, as the purchasing power enables them buy more.
Revenue: N36.13 billion
Profit: N6.68 billion
Share Price: N850 (YTD return down by 1.18%)
Julius Berger is considered a bellwether stock because of the critical role the company plays in Nigeria’s construction industry. Julius Berger is one of the largest construction companies in Nigeria handling billions of naira in projects across the country. A growth in Julius Berger’s revenues can be seen as a confirmation of an increase in economic activity in the country.
Revenue: N28.70 billion (Q1 2016)
Profit: N251 million (Q1 2016)
Share Price: N50.93 (YTD return up 21.26%)
Zenith Bank and Guaranty Trust Bank
The financial industry can also be considered as a sign of how good or bad an economy is performing. A booming financial sector signifies that businesses are profitable and generate good cash flows. A faltering financial sector is a big sign that the economy is in turmoil. Two banks that comes to mind are Zenith Bank and Guaranty Trust Bank. Both banks are leading banks in not only Nigeria, but on the African continent, and there performances is a strong indicator of how well the stock market and economy in general performs. The government, industries, private businesses and NGOs all need banks to transact and perform one form of activity or the other. So if these banks aren’t performing well, it can be a pointer to the economy.
Zenith Bank Revenue: N84.17bn
Guaranty Trust Bank Revenue: N55.8bn
Zenith Profit: Q1 2016 -N26.5bn down 4% year on year.
GTB profit: Q1 2016 N20bn down 6.6% year on year.
Zenith Share price: N15.37 (YTD return up 9.4%)
GTB Share price: N21.03 (YTD return up 15.68%)