Vantage Point With KEITH COLLISTER

March has been a month of downward adjustment of expectations, both for our economy and financial markets.

As it happens, at the beginning of March, I reduced my own view of our 'expected' economic growth outlook for this year.

While I still expect real growth in gross domestic product (GDP) to be marginally better than last year's 2.6 per cent, I no longer expect 3.5 to four per cent real GDP growth.

My views are perhaps best summed up by Standard & Poor's recent comment that "real GDP growth is expected to hover around three per cent on the back of strong investments".

This is because I currently don't see any sign of a significant pro-growth measure in the budget, partially due to our very tight budget situation.

STOCK PICKS

It is noteworthy that Grace-Kennedy, while well above its 52-week low of $50, does not seem to be able to stay above $60 at this time, ending Friday's trading at $58.

However, I believe that chairman and CEO Douglas Orane, to whom I recently put the question "Why is your stock price so low?" is correct in believing that the current share price weakness mainly reflects the Jamaican Stock Exchange's continuing bear market.

It is true that GraceKennedy has got something to prove after two relatively poor years, but it is mainly the general market weakness that is capping its share price.

I would even argue that for the past couple of months, Grace-Kennedy shares have arguably done well by being relatively stable in the current environment. In my view, this is because the market has been buying into the logic of Grace as a recovery play in 2007 with a stock price that was already quite depressed. Moreover, Grace-Kennedy's acquisition of WT Foods has a strong strategic logic giving the market reason for long-term confidence. It may not add materially to this year's earnings after "integration expenses" and amortisation, but it should make a positive impact on profitability in 2008.

Other quality companies have also fallen sharply recently, and the market has been punishing even so-called growth companies.

A good example of this punishment is the recent fall in the price of Lascelles, which is a relatively illiquid stock, and pays a negligible dividend despite having a large interest in one of Jamaica's highest dividend-paying companies, Carreras.

A dividend pays investors to wait, while a thin market in one's shares makes a company vulnerable to a sudden fall in share price, particularly during a bear market type environment.

He stressed that over 90 per cent of the spirits business was their own brands, implying that their recent loss of Smirnoff Vodka would have limited impact on the company, particularly as they already had substitutes for all the lost brands.

The presentation emphasised the value of their rum brands, noting that they were the fourth-largest 'international' rum brand (this measure excludes rum brands that are predominantly drunk in their own country of origin) in terms of cases sold at 1.1 million in 2005.

Operational efficiency

It also stressed that for Lascelles at least, sugar had a future as long as they were able to achieve the necessary throughput through greater operational efficiency, and increase the amount of cane under cultivation this would require very significant capital investment.

The congolomerate was also continuing the process of making all its different businesses profitable - reorganising Lascelles Telecom, improving profitability in the motor segment of its general insurance business - and announced that it had now turned around the motor division.

The stock deserves a multiple of at least 10 times last year's earnings of $26.62, and at its current earnings, growth rate should trade substantially higher in any kind of positive stock market. But investors should be aware that Lascelles is first and always a long-term investment and not a 'trading' stock.

As previously mentioned, its negligible dividend and relative illiquidity make it a bad place to keep the rent and grocery money.

Lascelles is a good buy for longer-term investors at its current price of $245. Investors, including traders, should be on the lookout for buying opportunities like its recent fall to nearly $225. Nevertheless, it should be noted that the stock is likely to require better overall stock market performance to reach its old highs.

keithcollister@cwjamaica.com