With the nse 20 share index fast approaching the 5000 psychological mark, my stock picking strategy for 2014 will rely on three main factors which are earnings growth, dividend yield and an event driven strategy whereby I intend to take advantage of discounted counters which will have rights issues in the course of the year. With this regard, my selection for 2014 is as follows in order of prioritization.
1) Pan Africa Insurance
The company is the king of life insurance in Kenya. With insurance penetration at 3%, there is vast room for growth in the insurance sector. The company has recorded phenomenal growth in earnings in the last three years. In its last financial year, its net profit increased by over 100% which was sterling performance compared to other insurers. This year's half year results tell the same story. The company's half year results were an increase of 266% from the previous year. This means that the company has already made all last years profits in half of this year. Last year, the company issued a final dividend of Ksh 3 per share. This year due to the excellent results, I expect a minimum of Ksh 5 per share in dividends and an earnings per share in excess of Ksh 12. This shows that despite the rally to Ksh 90, the share is still undervalued. With its parent company (Sanlam SA) aiming to get more shares in the market after insurance rules are reviewed, there is a guarantee of constant demand for the shares which means the price can only go up. At a dvidend of Ksh 5, the dividend yield is roughly 5.55%. My target price is Ksh 150 by mid year upon which I will review the prospects of this counter. In my opinion, the company is awash with cash and should reward the shareholders with handsome dividends or bonus shares.

2) Housing Finance Company

The mortgage lender may have lost its position to KCB's S&L Mortgages as the top mortgage company in Kenya, but it is worth a closer look. A quick delve into its books exposes massive debt in form of syndicated loans, but this is half the story. Housing Finance has recorded the best increase in earnings over the last five year period. The earnings have increased consistently year on year and this year's half year results tell the same- that this year the company will perform better than last year. I expect a final dividend of 0.75 and an interim dividend of 1.00 for 2014. At a price of Ksh 32.5, that is roughly 5.4% dividend yield. The real estate sector has more than enough room for growth. There is a demand of over 100,000 housing units against a supply of just 20,000 which means that there is enough money to be made by all players and there is need for more players in the business.

3) CFC Stanbic Holdings

The subsidiary of the Standard Bank of South Africa has been recording impressive earnings growth in the last three years. This counter does not have an impressive dividend yield but its earnings growth is wonderful. Most of the cash meant for dividends is used by management in expanding the banks presence in Kenya. Its main earnings driver has been transaction income which is from its core-business. This means that the good results are sustainable over a reasonable period of time. With the launch of its online share trading platform, the bank will see an increase in transaction income in the near future. The presence of an anchor shareholder (Standard Bank of South Africa) means that it is a less risky investment than other smaller banks. The bank has the best earnings growth in the banking sector in Kenya. With the presence of a banking bonanza in Kenya, this is one of the best counters to stash your cash. The share currently trades at a price of Ksh 88.50. It is one of the fastest growing banks in Kenya.

Overall Commentary:

1) Pan Africa Insurance - Ksh 90 (40% of portfolio)

2) Housing Finance - Ksh 32.50 (30% of portfolio)

3) CFC Stanbic Holdings - Ksh 88.50 (20% of portfolio)

4) Cash - 10% of portfolio

Why not invest all the money? This is because one of my three picks may record a reasonable price decline enabling me to pick more shares at a more discounted price. I believe that any investment bank that gives you more than 4 stock suggestions does not help you. What is the point of 10 stock recommendations?
This is my 2014 portfolio which will be adjusted periodically.

#Good Luck#

HFCK target is 44 by mid year and CFC target is 120 by mid year.

I will look into this stock if the dividend famine ends this financial year. I will use dividend as my yardstick to this stock. If disappointing, I will ignore

I am aware of that. I just happen to know that past performance does not influence future performance

These picks may turn out to be stars this year. I hope your portfolio does not have over 5 stocks because it begins to look like guesswork

My picks

Safaricom- 15% of portfolio-entry was ksh 5@ IPO,been exiting but remaining with some awaiting results in June.

Pan Africa- 75% of portfolio-looking at a minimum exit of ksh 120 end of Q1

HFCK- 10% ;currently accumulating this one awaiting ksh 40 by end of Q1

I do plan on exiting the last two counters at end of Q1 and possibly accumulate some KQ or more Safaricom and await their release of results at some point in June and hopefully make another 30% then.

CCK is acting tough on safaricom on the license renewal issue. If they stick to their word, we should expect a dip in th eprice in the coming months. The results will still be impressive though which will lead to another rally. Opportunities to buy are on the horizon.

With pics drying up, this laggard maybe a good play with the oil contracts. But the bonds, convertible bonds, whatever??? those scare me

Kenya Re on December 31 2013 price was 15.5
February 14 2014 price is 19.15
Gain 23.55%