Abstract
The Johannesburg Stock Exchange (JSE) is regarded as one of the most advanced financial markets in Africa and is considered the barometer of the continent’s most industrialised economy. The aim of this research was to create an effective framework to identify the most valuable companies on the JSE by integrating financial analysis and Principal Component Analysis (PCA) to address the idiosyncrasies of the situation within South Africa. The research integrates existing traditional financial analysis with the PCA. The problem of emerging market valuation retains a position of importance because of certain formidable difficulties with which it is beset, specifically the existing multicollinearity of financial ratios and the multidimensional conception of company value within South Africa. Consisting of quarterly data from 5 large companies listed on the JSE (Naspers, BHP Group, Aspen, Standard Bank, and Vodacom), ranging from 2015 to 2025, and using PCA, correlated measures of financial success are reduced to single principal components, which are orthogonal to each other. The analysis indicates that 2 principal components account for 99.99% of total variation, explaining separate growth/valuation and income/value dimensions. The beta coefficient analysis indicates that small changes in systematic risk exposure account for considerable differences in stock price. The defensive stocks (NPN, β = -0.003) have little correlation with the random movements of the market. The optimum risky portfolio from the mean-value combinations yields a combination in low beta stocks of 43.41%. Therefore, the framework gives some useful investment criteria for local as well as outside investors involved in South African equities in a volatile post-Coronavirus disease 2019 (COVID-19) environment.