Five of the Best Shares to Buy in South Africa

Want to get exposure to firms in the mining sector and buy stocks in a country that acts as a doorway into one of the world’s most talked-about growth markets? Then this list of the best shares to buy in South Africa could be very useful.

South African stocks have for a long time been the target of investors who want to gain exposure to highly volatile commodities markets. It’s a high risk-return proposition but talk of a commodity supercycle coming into view has boosted interest and led to a rush of investing by local and international investors.

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The best shares to buy in South Africa extends past firms mining gold, uranium, copper and diamonds. The country is home to more multinational firms than any other in Africa. Its robust regulatory framework and infrastructure networks make it the perfect base for firms looking to take a share of the dramatic growth forecast for the continent.

Emerging markets have historically been sought out by those looking for a little more juice in their trading, and the below five stocks all offer that.

1. BHP Group (JSE: BHG)

BHP Group, also known as BHP Billiton, is a global resources and mining company that produces commodities such as metallurgical coal, copper, uranium, and iron ore. Having a relatively high degree of diversification in terms of income streams is beginning to pay off for the firm.

BHP Group One Year Price Chart, Daily Candles

A strong balance sheet offers a chance to invest in new projects, insure against future issues and return cash to investors. BHP shares (BHG) are a steady dividend payer, with the latest yield as you can see from the chart below more than 5%. The firm consistently returns billions of $ to shareholders each year.

Source: IG

Fundamentals

BHP is the world’s largest mining company with a market capitalisation of more than £100 BN. Its size means it offers a degree of security and because it is a mining stock, it offers a bit more potential than stocks from more sedate sectors. The 5%+ dividend yield attracts a lot of interest from institutional investors and suggests there is a cap on downwards price movement.

The consensus of the analysts who follow the stock is that BHP is rated a ‘Buy’, with six of that group tipping it as a ‘strong buy’. The ratings and price above are taken from the BHP listing on the Australian Stock Exchange, but this does allow for a degree of visualisation in expectations of analysts from the current price, to the high and low expectations. Broadly speaking, you can take a potential percentage expected from the above, and readjust this for the JSE listing.

2. Naspers Ltd (JSE: NPN)

When deciding what South African stocks to buy now, the temptation is to stick with mining firms. However, other companies are offering a different play on South Africa and the continent of Africa as a whole.

Johannesburg Stock Exchange (JSE) listed Naspers Ltd has interests in publishing, online retail and venture capital investing in the consumer internet sector. Its e-commerce, social and internet platforms are well-positioned to capture market share across Africa. Its role as a strategic investor means it can take positions in other firms that might grow into a dominant force in the online African, or indeed, the world economy.

One success the firm has already notched up is the 29% stake Naspers indirectly has in Chinese internet giant Tencent, which operates the phenomenally successful TikTok platform.

Naspers Ltd One Year Price Chart, Daily Candles

Shareholders had to be patient for the potential to translate into improved returns in the Naspers share price (NPN). The previous all-time high of R400,000 printed in 2017 took some time to surpass and acted as resistance, but this year the stock pushed on to new highs on the way to gaining 36.68% YTD. The new 52 week high currently stands at R447,000.

Naspers pays a higher dividend than more mainstream tech stocks such as Apple but is more of a growth stock rather than an income stock due to the firm’s willingness to plough any spare cash into new and exciting projects.

Naspers Ltd – Fundamentals

3. Grindrod Limited (JSE: GND)

Fans of the adage ‘in a gold rush, sell shovels’ would do well to include Grindrod Ltd as one of their stock picks in South Africa. If, thanks to its natural resources, the economy prospers and is seen as the gateway into investing in Africa, this logistics firm will be well-positioned to take its share of the spoils.

Grindrod Limited – One Year Share Price Chart

Source: IG

Grindrod is a long-established, reliable and reputable logistics firm. With operations across Southern Africa, Grindrod offers an efficient service across Southern Africa to importers and exporters. Its infrastructure is designed to handle a variety of bulk, break-bulk commodities, vehicles, and containers. It has solid relationships with big mining houses, commodity traders, and industrial consumers.

Grindrod Limited – Long Term 5 Year Share Price Chart

Source: IG

The firm is used to making the best of operating in a sector associated with tight margins. Still, a general uptick in the health of the South Africa economy could take the Grindrod share price back to the heights of 2014 when the stock traded as high as R 2,819. In recent years, as you can see from the 5 year chart above, the stock has carved out steady gains for holders, along with a solid 4%+ dividend.

The double-top chart pattern triggered a multi-year price slump in the Grindrod share price, which has provided an opportunity for bottom-fishers. The firm has an excellent sized market capitalisation and is a good dividend stock with an annual yield currently in the region of 4.5%.

4. Rio Tinto (RIO)

Mining giant Rio Tinto has a diverse range of global operations and a firm foothold in Southern Africa. Production at the Richards Bay site makes Rio Tinto South Africa’s largest mineral sands producer. But the jewel in the crown is just over the border in Namibia. The Rössing Uranium Mine has been operating since 1976 and is the reason Rio Tinto consistently lists in the top-five of global uranium producers.

Uranium mining stocks are a hot topic thanks to the global move towards carbon-free energy. Nuclear power does have its drawbacks but currently looks like the least bad option for those looking for a carbon-free and reliable source of baseload electricity. Whilst Rio Tinto is listed on the London Stock Exchange, the operational presence in South Africa means it warrants a firm mention on this list.

Rio Tinto 1 Year Chart

Rio Tinto Fundamentals

The slide in the share price has taken the annual dividend up above 6%, and the P/E ratio of 10.27 is particularly low compared to alternative investment opportunities.

5. AB InBev (JSE: ANH)

Global brewing giant AB InBev, which was formed thanks to a sequence of mergers between the industry’s big players, has a listing on the JSE thanks to the Castle Brewery being one of the firms involved. Created during the South African gold rush days, the Johannesburg-based brewer has flourished.

AB InBev is now positioned to build market share across the entire continent of Africa. At the same time, the other global brands in the firm’s portfolio diversify the firm’s exposure in terms of geography and product type.

AB InBev 1 Year Daily Price Chart

AB InBev has reported consistent growth in sales of major brands such as Corona, Stella Artois, Budweiser, Michelob and Becks, but its ‘Beyond Beer’ project is an innovative approach positioning the firm to be more than a beer producer.

New product lines such as low-alcohol and no-alcohol beers are grabbing market share worldwide, with the Beyond Beer division posting $1.2bn in revenues in 2020. The e-commerce and B2B operations are making the most of opportunities created by new technologies and have moved from being potential future winners to contributing to a healthy bottom line on the company’s balance sheet.

The dynamic approach taken by management and scale of opportunities available is best represented by the proprietary B2B platform called BEES. This captured more than $3bn in gross merchandise value in the first quarter of 2021, that number representing growth of more than 50% from the fourth quarter of 2020.

AB InBev – Fundamentals

The strong financials haven’t yet been reflected in the AB InBev share price. This is a stock that has largely traded in a range over the past 5 years, with many looking for a breakout above 120,000 that can hold. A look at the 5 year chart below gives a clear picture of the range trading we are referring to, with an extended period of consolidation.

If this one can break-out, and hold, it could be one to watch.

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What Next?

It’s no surprise that South African stocks have caught the eye of local and overseas investors. Johannesburg’s Stock Exchange offers a safe route to gain exposure to booming African markets. The South African mining stocks have a long-standing appeal for those with an appetite for higher risk-return strategies. Technical and Fundamental analysis can help traders and investors identify such target stocks and the opportune times to buy them.

There are numerous companies and sectors to choose from, but those wondering what South Africa stocks to buy now might find guidance from the above shortlist. Once the hard work of fine-tuning your selection has been completed, following the step-by-step rules of how to set up with a safe broker will take you into the markets in a few easy-to-follow steps.