Thursday, May 21, 2009

Best Stocks – Aggressive Investors

Sorry I was unable to write an article when the election results were out as I was in the process of moving into a New Job. Anyways, I have one for you now.
Though most of the retail investors analyze various factors and pick best stocks for the investments, many of them fail to consider their risk profile while selecting the stocks. A stock which looks great in my perspective might be a risky investment for someone else. So, I thought of giving a list of stocks based on my understanding about different risk profiles.

Aggressive Investors
Defensive Investors
Moderate Investors (Mixed Risk Profile)
Value or Contrarian Investors

Graham has given some methodologies to select stocks based on the risk profile in the book “Intelligent Investor”. I have included few of them in selecting this list along with my own inputs as the situation we are in is bit different from what he had experienced then.

Who are Aggressive Investors?

You can consider yourself as an Aggressive Investor if you have the following attitude(s).

1) Willing to take enough risk to realize greater returns even losing some principal in the process if things do not go in your way
2) Concentrating on stocks that have significant potential for growth
3) 80 – 90 % investments in Individual Stocks and Stock related Mutual Funds
4) Close to 70 % of investments in Growth Stocks

So, Aggressive Investors just love to through their hat to fight anything that come in their way and they sure know what they are risking.

List of Best Stocks – Aggressive Investors
I will list out the stocks based on the sector it belongs to. Though aggressive investors mostly opt for growth stocks, they also buy few defensive stocks. So, I will include few defensive bets as well. I certainly followed some rules in selecting these stocks, but I request everyone to analyze more about these stocks before making any decision on it.

Banking / Finance
HDFC Bank
ICICI Bank
Axis Bank
Yes Bank
Reliance Capital

Pharmaceuticals
Lupin Limited
Glenmark Pharmaceuticals
Divis Laboratories
Venus Remedies

Engineering / Electronics


Larsen & Toubro

Elecon Engineering

Lakshmi Machine Works

Bharat Bijlee

BGR Energy Systems

HEG Limited

Thermax

Sadbhav Engineering

Praj Industries

Titagarh Wagons


Software / Services

Wipro Limited
Oracle Financial Services
HCL Technologies

CMC Limited

Shipping / Offshore

ABG Shipyard
Aban Offshore
Shiv-vani Oil and Gas Exploration

Real Estate / Construction
DLF Limited
IVRCL Infrastructure
Jaiprakash Associates
HDIL


Power

Reliance Power
Reliance Infrastructure
Torrent Power

Agriculture / Fertilizers / Chemicals
Jain Irrigation
Kaveri Seeds
Rallis India Limited
Chambal Fertilizers and Chemicals
Deepak Fertilizers
Gujarat State Fertilizer Corporation
Clariant Chemicals or Savita Chemicals
Jindal Poly Films

Textiles / Retail

Pantaloon Retail
Shoppers Stop

Diversified / Cement
Adiya Birla Nuvo
Voltas
Sintex Industries
Ultratech Cement
Shree Cements


Steel

Welspun Gujarat Stahl Rohren
Sesa Goa Limited
Bhushan Steel


Telecom / Technology
Idea Cellular
Tulip Telecom
Financial Technologies


Others

Rajesh Exports
Gitanjali Gems
JVL Agro Industries
Cairn India Limited
Adani Enterprises
Ess Dee Aluminium Limited
Parekh Aluminex
Opto Circuits India
Aegis Logistics

I encourage the readers to share their ideas freely in the comments section.
Kumaran Seenivasan

16 comments:

Siddharth Shukla May 22, 2009 at 2:00 AM  

Hi kumaran,
I feel that the conventional division of investors into aggressive, balanced ,defensive etc based on things like Beta's doesn't make much sense. I feel a high beta stock could also be safe if bought at the right price. I would rather classify people as speculators or investors.Speculators are ones who buy stocks without any fundamental analysis at high valuations hoping to sell them to a greater fool at a higher price. Investors on the other hand as Ben graham says treat stocks as businesses and buy it with a margin of safety. Though the main principal of value investing is preventing capital loss, i think value and contrarian investors also take risks as in they buy stocks which no one does. Also i find the common belief that more the risk you take, more your return totally rubbish(people who bought overvalued stocks at sensex level of 21k thinking they are taking risks wouldn't be rewarded with same kind of returns but rather losses. These are 2 cents from an amateur wannabe value investor.

Kumaran May 22, 2009 at 4:59 AM  

Thanks for your interesting thoughts Shukla. Your points certainly have merit. But I would like to clarify that the Risk we are talking about is with respect to the mindset of individual investor as well as company fundamentals. It's definitely not about Beta or taking risk at 21 K levels. For example,there is a company with just 2 years of track record with a good business potential. Eventhough it is perceived to be good stock in general, not everyone will go for it. Some people would summon that extra bit of guts to try it and some won't. Thats what I am talking about here. Then why did I include large caps? Again it is to capture the mindset. Punj Lloyd versus BHEL. I have certainly mentioned in my article that agressive investors also buy some defensive stocks and vice versa..Buying a FMCG stock at a "right price" would not give you the comparable returns with a real estate or infra stock over a long period of time in a bull market. But during the downside, it would be otherwise. Thats what we are supposed to consider in terms of Risk.

Thanks Again for your comments.

Siddharth Shukla May 22, 2009 at 6:26 AM  

Thanks for clarifying,you certainly didn't mention Betas, i was referring in general to MPT(although i am an engineer and haven't learn't it , only read about it) and other market experts who tend to associate risk with betas. But i may differ on you with regard to your Macro approach of classifying Infra & real estate sectors as growth(hence risky) and FMCG as safe(but lower returns). All tough what you have said is mostly true, i believe good stocks can be found in all the sectors. I believe in the bottom up approach of picking stocks and if i pay a good price for a good company i can make good returns.I am hugely biased towards value investing as you can make out and hence this difference of opinion(I believe you have a growth + value approach).I agree that in bull markets the riskier stocks like infra and real estate outperform, but i believe valuations reach levels unjustified by fundamentals and dealing with these stocks at such times is speculation.I know my approach would result in me booking profits in bull markets and then sitting on cash due to lack of opportunities. But once a crash happens, these precisely super growth stocks of infra/real estate get whacked and they then become attractive buys. But if u shift to FMCG in bear markets you are definitely reducing risk but also foregoing future returns as defensive sectors don't fall much in bear markets. I have just 6 months experience in market and most of all i am saying is what i have learnt from books(not own experience),do correct me if i am wrong,i am still learning and comments from experts like you will be a great help .Thanks for posting and replying to my comments

SheeL May 22, 2009 at 3:00 PM  

Good Analysis and stock pics...

1. Why have you not included Simplex Infra in Construction sector?
it has more growth potential and it performed better in the time of recession also. Consistent performance and well diversified order book.

2. Also Glodyne Technoserve, it is similar company to Allied Digital, infact in recent quarters it performed better than Allied Digital as it is more focused on India.

My Pics: (Please Comment on these)

Bartronics
Geodesic
Tanla Solutions
Allied Digital
Glodyne Technoserve
HDIL
Punj Lloyd
Simplex Infra
Hindustan Dorr-Oliver
Shiv Vani Oil
ICSA
Micro Technologies
Compact Disc

Kumaran May 22, 2009 at 7:30 PM  

Hi Sheel,

Thanks for your comments and also your views on two stocks. Ofcourse I agree with Simplex Infra and Glodyne. I did not include it only to limit the number of stocks in the list. Otherwise, those two are wonderful stocks and the list you have mentioned all have good growth potential. Only thing is, it has too many IT / Tech stocks and I would not give that much weight for IT stocks.

Kumaran May 22, 2009 at 8:11 PM  

Hi Shukla,

I do not know if you have got my point. I will explain you with couple of examples.

Ex 1: My personal experience with two banking stocks. I bought State Bank of India at Rs.920 in March 2009 and the price now is Rs.1731,gain of 88 %.

I bought Yes Bank at the same time for Rs.42 and the price now is Rs.125, gain of 197 %(In 2 months). Why is that?

In this case both were value picks for the price I bought. But the gain with Yes Bank is far more than SBI. Why?

Here are my reasons:

Since SBI is "perceived" to be a reliable stock, people did not panic in selling at any price in the bear market.Hence, the depreciation of the stock value from its peak was lesser than what happened with Yes Bank. People sold Yes bank at whatever price they wanted just because they perceived it to be a risky stock for some reason during the bear phase. But I looked it as an opportunity and I bought it at Rs.42. You can't argue it as speculation as Yes Bank is one of the good banks and it certainly proved it's worth. When the stock market reversed the trend, Yes Bank gained more than SBI simply because it offered me the opportunity to buy at the "right price" (in your terms). But SBI did not offer me the same kind of opportunity as people did not sell to that extent. Both are value picks but one gave better returns than the other in terms of percentage and it will continue to do so.

I can give you numerous examples but you have to do your own research. Compare Rolta india with Infosys or TCS or Wipro. Compare ABG shipyard with Great Eastern Shipping. You name the sector and I will tell you the stocks. You certainly can't name this as speculation. Even if you buy at the "right price" certain stocks tend to gain more than others. There are umpteenth number of reasons for this. Stock price heavily depends on market sentiment. When the market sentiment is positive, then you can't wait for the right price. If you wait for the right price, then you will be left behind. Stock prices reach unbelievable levels when the sentiment is positive. May be you can term this as speculation. But you can also think that people believe that particular stock is worth that price considering the market scenario. But whatever you call it, the difference certainly lies with growth stocks and safe stocks.

Shabu's May 23, 2009 at 12:41 AM  

Excellent again Mr Kumaran and thank you for sharing ur reasearch results to the inevestor community. Keep it up

Viral Rajnikant Dholakia May 23, 2009 at 11:05 PM  

Mr Kumaran,

Can you discuss your views on Bombay Rayon from the contemporary Textile sector?

Thanks !!

SheeL May 24, 2009 at 8:06 AM  

Hi,

I have a query regarding revaluation reserves in the Balancesheet of the Company.

What are the revaluation reserves...?

In case of Gulf Oil CorporationThey have their revaluation reserves at Rs.1800 crores in their Balancesheet. What does that mean...?
and the MCap of company is around Rs.377cr.

So can we say that the company is undervalued...?

The reason for that Rs.1800 crores is mentions below...

Gulf Oil is basically Hinduja Group Company. This is a company is a multi business, multi location company. This company is into Lubricants, industrial explosives, mining services, real estate as well as specialty chemicals. The company has got its lubricants plants which are located in Silvassa. This company has its industrial explosive divisions located in Hyderabad, Rourkela and Bhiwandi. The plant which is in Hyderabad is located on 821 acres of land and as far as company sources this is the second largest detonator manufacturing facility in the world. Last year there has been a slow down in the automobile sector because of which the lubricant business of the company has not logged on much growth. The growth is almost flat as far as the lubricant business is concerned. But the company is seeing good growth in the industrial explosive and mining services business. This company is sitting on huge land bank which is located in various parts of the country. This company is setting up a 40 acre IT SEZ in Bangalore and a 100 acre knowledge park in Hyderabad. This company valued these two pieces of land last year which is FY 08 and the valuation came to more than Rs 1800 crore which they provided in the balance sheet also under re-valuation reserves. When these two pieces of land together translate into Rs 1800 crore this company besides these two pieces have got lands in other areas also. The exact value and the amount of land which they have is really not available in public domain, but the actual valuation couldbe much higher than the current valuations.

The mining services business of the company has got immense potential. What they do in mining services business is that they become the operator and they maintain the mine and also operate the mine and develop this mine. They are currently doing this business for companies like Adhunik Metaliks, for the Aditya Birla group.

What has happened in the recent past is that a lot of these steel companies and other companies have acquired coal mines and iron ore, manganese ore mines in various parts of the country. For most of these companies mining is not the core business. So generally these companies outsource the mining and operational activity to companies like Gulf oil so given the fact that there are so many people who have acquired mines there is a huge potential which alike for the mining services division of Gulf oil.

If one takes a look at the financials of this company, for nine months revenues are up by about 28% to Rs 673 crore. Profit after tax is down by about 90% to Rs 1.73 crore. The decrease of profit after tax is mainly on account of the foreign exchange losses and derivative losses which this company suffered in nine months. Given the market cap of about Rs 373 crore and given the asset base which the company is sitting on under revenue and profit potential of the asset base this could be a multiple bagger in the making. As of now, when people see a 90% decline in profitability not many are willing to touch this stock but I think most of their businesses have got good revenue potential and good profit potential. Moreover their land banks have good potential to get unlocked which means that you do not have too much to lose from these levels. If one sees the price pattern of this stock this stock has been hitting constant upper circuit from Rs 35 onwards.

Kumaran May 24, 2009 at 10:24 AM  

Hi viral,

Thanks for asking about Bombay Rayon. I was looking at this stock some 4 weeks back when I was considering century textiles. To me it certainly looks like a decent bet. As you know, the core "Textile" industry somewhat lag behind other sectors for some reason eventhough it is more important than the most. Even at current price(Rs. 207), it is valued lesser than many of its peers like century, Aditya Birla Nuvo, Pantaloon etc...The stock price is fairly valued considering its Book Value, Profit Margin, Debt-Equity ratio and Earnings. The growth over the years has been consistent both interms of sales and earnings and its retail business is at nascent stage. I believe, the retail industry is going to grow consistently in the coming years and if BRFL is able to outthink its peers, then definitely it is going to be a prime stock. Textile business combined with retail malls definitely will help increase the earnings multifold. I certaily think it is good stock considering its fundamentals, core strength of producing goods according to changing needs and retail potential. Hope I provided some useful points.

Kumaran May 25, 2009 at 6:49 AM  

Shukla,

You are infact talking the samething what I have talked about. If I said that certain sectors would outperform other sectors, then why would I give the example of two banks. They belong to the same sector, right?. I know that SBI is a large cap and YES bank is small cap and all. Thats not what I wanted to convey.I was conveying how "Risk" perception varies to different stocks. Certain stocks will outperform others and thats why we are all researching so much.Otherwise everyone would buy any stock and get profited in the same manner and no one will gain more than other.CERTAIN STOCKS WILL OUTPERFORM OTHERS...FMCG stocks will not outperform as it does not give you the opportunity to buy at a very low price and also does not fetch mad valuations in the Bull market as people tend to buy other sectors. So, selected sectors will outperform others and CERATIN Stocks will outperform others. I do not know how to explain, but you will understand if you watch the market for couple of years. Read your comments and read my comments and you are talking about the samething. I am talking in this article only about "Risk" perception and not anything else. If you interpret the picks as small caps and large caps, then you can say that small caps are risky and large caps are not.

Viral Rajnikant Dholakia May 26, 2009 at 12:28 AM  

Yes... Mr Kumaran.
Thank you for your words on Bombay Rayon. You have indeed provided an useful insight.

Mahesh May 26, 2009 at 1:42 AM  

Excellent Analysis Kumaran. Hope you made huge gain from Yes Bank :).

SheeL May 31, 2009 at 5:03 AM  

Hi Kumaran,

How do you see OnMobile Global, Educomp Solutions and Core Technologies...?

These companies are commanding very high PEs in today's market...

Are these companies having great potential for consistent performance with high growth...?

I just went through the latest concall of OnMobile Global and they really are the leaders in their sector...

Anonymous,  September 14, 2009 at 6:05 AM  

Hello sir,

I just went to your blog and it captured my imagination. I can follow it as i think you do not have any vested interest like any of the brokerage houses. i have bought few shares of Mphasis at cnp of rs 595 and nhpc at rs 33. what is your

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