Saturday, August 22, 2009

Market Watch: Opinion Piece

Market is range bound these days as investors are very cautious to go long. Though Excess liquidity helps the upward movement, any sort of bad news pulls the market back significantly. Also traders and Foreign Institutional Investors book profit at higher levels and this will continue till the global cues form a definite direction.

IPO View

IPO season has also started and personally I am not investing in IPO’s. I believe that money is made in secondary markets better than in primary markets these days. Though pricing of recently announced IPO’s were reasonable, I thought the prices were not in line with the market scenario. It seems they price it as if the condition is back to normal but we have a long way to go. I think stocks like Reliance power and NTPC are better plays than Adani Power and NHPC. I would be interested in IPO’s only if the IPO price offers significant discount to the prevailing market price of concerned peers. Oil India IPO is next in line and I would buy only of the price is at least 10 - 15 % discount to the ONGC stock price. My contention is if the price of Oil India is going to be the same as current trading price of ONGC, then what is there for us to try our luck? I would rather buy tried and tested ONGC.

Stocks with Reasonable Valuations

I have published many posts with stock names and most of them are priced in and it is very hard to find good stocks at a great price in the current market scenario. At the present valuations, I would consider the following stocks for accumulation rather than digging deep to find “Hidden Gems”.

Reliance Power

With planned capacity of 33500 MW, Reliance Power is going to be the giant in power space in the next 6-7 years time period. If we assume that Reliance Power maintains the same efficiency as that of TATA Power, then the stock is going to be trading at least 10 times the current market price. Even in worst case scenario, it would be at least trading at 5 times the current stock price. Notwithstanding the Congress Government’s biased attitude towards ADAG group, current market price (Rs. 156) offers reasonable entry point for accumulation (Great if you had bought it at Rs. 100 or even less than that). It is available almost 50% lesser than the IPO Price (If we revalue the IPO Price by including the initial bonus shares). This is strictly for long term investors who intend to have concentrated portfolio.

Accumulation Range: Anything less than Rs. 175




PSL Limited

Largest producer of HSAW pipes, they have significant operations and orders from US and UAE. With the booming infrastructure sector in few months time, this company is going to attract more orders for oil, gas and water transmission. One should have bought this at lower levels, but current market price is not bad either considering the company fundamentals.

Accumulation Range: Rs.100 – Rs.150

Gitanjali Gems

Largest diamond jewellery manufacturers in the country, they operate in three segments namely diamond jewellery, lifestyle products and SEZ’s. Gitanjali Group’s SEZ business has not started yielding anything. With an improved disposable income among consumers in a year or so, this stock is going to do well in the long term. Closest competitor Titan Industries is trading at a PE Value of 30. Current market price of Rs. 107 is not attractive but a fair price considering the fundamentals and growth prospects.

Accumulation Range: Anything less than Rs.125

3i infotech

With all other large IT Companies trading at peak valuations considering Market situation, we are left with only midcap IT plays. 3i Infotech is Trading at about 5 times the FY2011EPS (Rs.17) and I think this stock is Available at a discount to her peer’s. High debt is a concern but ICICI Bank being the promoters, they are in decent hands.

Accumulation Range: Anything less than Rs.100


Madras Cements
This company is the fifth largest cement manufacturer in the country with 10 million tonnes of production capacity. They also operate in wind power and ready mix concrete segment. Ramco Super Grade is one of the most popular cement brands in south India with a good brand presence. One of the very few companies with captive power plant that reduces the production costs significantly. Increased infrastructure spending in the coming years will help this company grow at a decent pace. Again current market price is a fair price if not great to accumulate this stock.

Accumulation Range: Anything Less than Rs.110


Parekh Aluminex

Parekh Aluminex is the largest producer of Aluminum Foil Containers and I personally feel that this business is going to be growing at a faster pace than ever. I very much like this business and the stock is trading at a mere 3.3 times the current EPS. They supply the product to the well established clients like Indian Railways, Air India, and Singapore Airlines. This stock is available at a decent price and long term investors can accumulate.

Accumulation Range: Any price less than Rs. 120

Genesys International Corporation

Company is in a niche geospatial, engineering and IT solution services and it is going to gain strength in the coming years. This stock is trading at 5 times the current EPS with almost no debt. Long term investors can accumulate this stock if they have increased risk appetite.

Accumulation Range: Any price less than Rs.100


All the above mentioned stocks are for long term investors who have the practice of accumulating at every fall. Most of these stocks are under performing currently and that’s why I have picked up these as I see good growth prospects. One may also consider Federal Bank and Value Industries in this list.

If there are other good opportunities, please share it in the comments section.

Kumaran Seenivasan

www.stockanalysisonline.com

Read more...

Friday, August 14, 2009

Investment Prudence: Dividend Paying Stocks

Before I begin with, I would like to thank all the readers for their support. The Blog now has more than 100 readers which I am happy about. I am unable to post more articles these days as my work does not leave much scope to do so. But I will try my best to share my opinions whenever I have time and something in my mind as well.

Investors follow many different approaches towards investment and this post is for the investors who would like to preserve the capital first and gets satisfied with decent return through capital gains. In fact many legendary investors have followed this strategy and they have been mostly successful. Yes. I am talking about investing in the “high dividend paying stocks”.

What is Dividend?

It’s the portion of corporate profit paid to shareholders by a company. High dividend yielding stocks usually have high reputation among defensive investors. It’s widely believed that a company is effectively managed if the shareholders are paid dividends continuously.



Approach

The notion that high dividend yielding stocks do not appreciate much is not entirely true at least if we look at the stocks I have mentioned below. All of these stocks performed well over the year apart from paying out decent dividend yields.

Madras Cement
Graphite India
Varun Shipping
GE Shipping
Ambuja Cements
MIRC Electronics
Chambal Fertilizers
HCL Technologies
Tata Steel
Tata Tea
Lakshmi Machine Works
Shipping Corporation
GAIL India Ltd
Sesa Goa
Canara Bank
Bank of Baroda
Punjab National Bank
Hindustan Unilever Ltd
Marico Ltd
Indian Overseas Bank

If you are a long term investor and do not have high appetite for risk, then investing in the “high dividend” yielding stocks not only protects part of your capital but also gives you decent return. I will explain with an example.

Ex: Varun Shipping

Assume that you bought 1000 shares of Varun Shipping at Rs. 40 / share. Total investment comes out to be about 40000 thousand rupees. Assume that you are a long term investor and have plans to hold the stock for next five years. Varun Shipping has the history of paying Rs. 5 – 6 per share as a dividend (50 % of the face value) every year and we assume Rs. 5 / year as the dividend for next 5 years.

First Year Dividend: Rs. 5 / share (Rs. 5000 / 1000 shares). The dividend yield itself is 12.5%. Even if your Cost price was Rs.50 per share, the dividend yield would be 10 % which some stocks do not even give as a capital gain. Suppose you deposit this Rs. 5000 in a bank and you get 7% as interest. You get Rs.350 as interest and the total amount for the first year is Rs.5350.

Second Year Dividend: Rs. 5 / share (Rs. 5000 / 1000 shares). Add this amount with the first year amount. Rs. 5000 + Rs. 5350 = Rs. 10350. Interest at 7% for Rs. 10350 is Rs. 725 and the total amount at the end of second year is Rs. 11075.

Third Year Dividend: Rs. 5 / Share. Do the same calculation. Rs. 11075 + Rs. 5000 = Rs. 16075. Interest at 7% for Rs. 16075 = 1125. Total amount at the end of Third year = Rs.17200.

If we follow the same calculation, we will have Rs. 31000 after 5 years which is 78% of your initial capital investment. This will go along with the capital gains that you get because of appreciation in stock value. If we assume that Varun Shipping matches the market performance which is around 15% CAGR, then we will have Rs. 81000 after 5 years and adding that with dividend + interest income will give Rs. 112000 as the total value of the investment after 5 years. The calculation is based on a conservative approach which gives 180 % return. But if the stock performs better than the market, then the return might well go above 200 % which should make most of the investors happy.

Similar stocks are available with similar dividend yield and investors with less risk appetite may opt for these kinds of stocks and follow the above explained strategy. In fact most of the stocks I mentioned above have performed better than the market and some are even in the aggressive investor’s portfolio. So, we just need to try this approach once to see the effectiveness.

Kumaran Seenivasan
http://www.stockanalysisonline.com/

Read more...

Saturday, August 1, 2009

Investment Prudence and “Multi Bagger” Concept

Investment in Stocks has been increasingly becoming very popular and one reason that everyone invests in stocks is to make money in multiples or at least better returns than any other form of investment. But do they end up getting that “dream” return in their investment? Yes and No. Some people do and some don’t. Investors who are very prudent with “stock market” patience usually complete the race while people who just come with expectation of making in millions by investing in mushrooming “Multi baggers” or doing futures and derivative trading, end up as a sorry figure. Stock investment can be compared to a Marathon rather than 100 meter dash.

Though I have not made in millions, I do feel that my investment has generated decent returns and more importantly, I have not lost single penny during one of the most difficult investment climate in history. From my experience, there are three important things that influence the “health” of a stock market investor. What are they?

1)What price you paid for the stock?
2)Which company or stock you have bought?
3)How many of the same stock you bought?

Investment Prudence

The price you pay for the stock is the single most important factor that not only decides your short term return but the long term success as well which is why I have mentioned it first. Why? Simply because, if we buy, even a average stock at a dirt cheap price, there is a chance to end up getting a decent return. But if you buy a great company at an exorbitant price, then you have dug a grave for yourself. But to be successful in stock investment, all three has to be in harmony with each other and may be that’s the reason Warren Buffet has mentioned I quote

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and “Wide diversification is only required when investors do not understand what they are doing”.

Real Example:

Investor Name: Rakesh Jhunjhunwala.

First Big profit stock: TATA TEA

Price paid for Tata Tea: Rs.43

Selling Price: Rs.143

Number of Shares: 5000

Profit Made: 5 Lakhs (715000 – 215000)

Duration: 3 months

My Experience

I actually had a similar experience recently but I have not made 5 lakhs simply because of the third reason (How many bought).

Investor Name: Myself

First Big profit stock: YES BANK

Price paid for YES Bank: Rs.42

Current Price: Rs.160

Number of Shares: 500

Current Profit (Still Holding): Rs.59, 000 (80000 - 21000)

Duration: 4 Months

Hope you see what difference the number of shares makes. So, all I want to mention here is not to go for too much diversification. If we find good stocks at a great price, we should buy it in huge quantities without even flinching for once. Had I bought 5000 shares of YES Bank, I would be worth 8 Lakhs from YES Bank alone. But I failed to take that extra risk which now gave me a lesson and good experience.

Had investors applied the above three things in the last 1 year period, I am pretty sure they could have found many “Multi Baggers”.

The concept of “Multi bagger” has been misinterpreted by many people. I read many articles where Small Cap stocks with good business potential have been mentioned as “Multi Baggers” and that’s where I beg to differ. Multi baggers can be found among large and midcaps as well.


Multi Bagger

By definition “Multi Bagger” is a stock that goes up in price multiple times of the initial investment. So, if we apply the definition as it is, then almost half of the big companies have been the “Multi Baggers” in this recession leading up to the current rally.

Example:

GRASIM: The price of GRASIM when the SENSEX was around 8000 in 2008 November - December period was Rs.831 and current price of the same stock is Rs.2740. It has appreciated more than 3 times.
BHEL: Rs.1000 to Rs.2300, 2.3 times appreciation.
Educomp Solutions: Rs.1400 to Rs.4100, 3 times appreciation.
Aban Offshore: Rs.250 to Rs.1050, 4 times appreciation.
Axis Bank: Rs.300 to Rs.900, 3 times appreciation
Asian Paints:Rs.700 to Rs.1415, 2 times appreciation (Defensive Stock)
Tata Steel: Rs.150 to Rs.460, 3 times appreciation
Sterlite Industries: Rs.170 to Rs.650, more than 3 times appreciation
ICICI Bank: Rs.255 to Rs.760, 3 times appreciation
Jaipraksh Associates: Rs.50 to Rs.250, 5 times appreciation

So, the notion that “Multi Baggers” are found only among small caps is wrong and I hope I have provided ample proof for that. In the above 10 examples, I have purposefully left out small caps and even if we take small caps into account, not many small caps have appreciated as much as what I listed above. Hence, I strongly feel that any stock that fits into the definition of “Multi Bagger” should be considered as a “Multi bagger” and my suggestion for retail investors is to practice the three things that I mentioned in the first section which will give an opportunity to find less risky “Multi Baggers” from the pool of large caps. Only thing is investors need to grab the opportunity that "Mr. Market" presents.

Your sincere comments and discussions are invited.

Kumaran Seenivasan
http://www.stockanalysisonline.com/

Read more...

Disclaimer

This is a blog about stock market investments, investment strategies, and related topics. Any statement made in this blog is merely an expression of concerned authors opinion, and in no case should it be interpreted as an investment advice to buy stocks, sell stocks, or for that matter advice for any other issues be it money related or not. By using this blog you agree to (i) not take any investment decision, or any other important decisions based on any information, opinion, suggestion or experience mentioned or presented in this blog (ii) verify any information mentioned here, independently from your own reliable sources (for e.g. a registered investment advisor) and thereby check for possible inaccuracies. This blog is to create investment wisdom among general population and the authors are not responsible for
any decisions that you make based on the information provided here.
Creative Commons License
Stock Analysis Online by Kumaran Seenivasan is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 India License.
Based on a work at www.stockanalysisonline.com.

  © Blogger templates The Professional Template by Ourblogtemplates.com 2008

Back to TOP