Friday, November 18, 2011

AAA Stocks

I regret the fact that I did not write anything for sometime albeit with some valid reasons. Several stocks are at March 2009 levels (thanks to the European debt crisis) even though SENSEX and NIFTY are reasonably holding because of few good stocks. In my previous articles I have mentioned about 2011 being a year of opportunities and sure it turned out that way. If anybody had the feeling of missing out in 2009, here is another opportunity to buy some quality stocks at reasonable prices. Personally I made some grave mistakes of trying to find "Undervalued" stocks when the SENSEX was at 20000 levels and bought some ordinary stocks like Lakshmi Energy, IVRCL Infra, NCC etc. Its true that most of the stocks have crashed to 52 week lows, but the fall associated with some of these stocks like KS Oils, Educomp Solutions, Everonn Education etc. would have happened in any case irrespective of the market conditions.

The past 3 years have provided enough opportunities to learn a lot (though hard lessons) and one lesson that I learned for sure is not to invest in stocks with dubious corporate governance no matter what and how big the potential is. Most of the market participants including the Foreign Institutional Investors ignore the corporate governance in a bull market, but as soon as markets reverse direction and situation gets tough, governance issues comes to the light and stocks of the respective companies are dumped like a trash of worthless securities.

Mid caps and small caps of course offer multibagger opportunities but at the same time companies in this segment are the ones involved in illegal practices and we fall victim to these unfair practices whenever the news comes out. So it is better to invest in companies with good management, good corporate governance, low debt, no pledged shares and fundamentally strong business even if these stocks demand higher price. The reason is that we can confidently average on these stocks in times of market crash and expect to get a good return over long term. With this in mind, I have given AAA rating to selected stocks which I will share below.

I was not able to buy all of these stocks as these stocks traded at higher prices, but they are all available at reasonable prices now. Buying these stocks currently and accumulating more on every dip will be a good option for everyone who expect reasonable returns. One reader commented that I am giving here the list of stocks but a good analyst is the one who gives few multibaggers. My answer is very simple that those readers are welcome to listen to an analyst who give multibagger recommendations. If anyone can predict multibaggers that precisely, then he / she would have made millions already and would not be in the business of giving recommendations. I am neither suggesting to buy anything nor giving multibagger recommendations. All I am trying to do here is to share my experiences, learning, opinion and educate people who does not have enough knowledge in equity markets to get the basics in the process and get a decent return of about 15-20% CAGR.

Things I learned in 2011

1. Don't buy stocks which look cheap when the market is ruling high without extensive research.

2. Don't buy any company with dubious corporate governance.

3. Avoid companies with high debt and high percentage of pledged shares which are very bad combination's.

4. Avoid companies with fluctuating revenues unless they are industry leaders (Example: Infrastructure companies, Real Estate Companies).


AAA Stocks

I have assigned AAA rating to the following stocks because of their past history of good corporate governance, strong brand image, good fundamental business and future growth. All these stocks are trading at reasonable prices. If we buy these stocks now, then we should be prepared to average in case the prices come down. Of course there are many other AAA stocks but I am not listing them as they are trading at outrageously high valuations even now. (Example: HDFC Bank, Page Industries, Titan Industires, Asian Paints etc.).


Banks and Financial Companies

1. Axis Bank
2. ICICI Bank
3. State Bank of India
4. Yes Bank
5. Indusind Bank
6. Allahabad Bank
7. Andhra Bank
8. Shriram Transport Finance
9. GRUH Finance
10. Mahindra Finance
11. Indiabulls Financial Service (Excellent Dividend History)
12. Cholamandalam Finance


Pharmaceuticals / Chemicals

1. Torrent Pharmaceuticals
2. Cadila Healthcare
3. IPCA Labs
4. United Phosphorus
5. Gujarat State Fertilizer Corporation

Gas

1. GAIL
2. Indraprasatha Gas
3. Petronet LNG
4. Gujarat State Petronet

Diversified / Others

1. Godrej Industries
2. Tube investments / EID Parry
3. Mundra Port
4. Essar Port
5. Adani Enterprises
6. Savita Oil Technology
7. Bajaj Finserv
8. Hindalco
9. Exide industries
10. Opto circuits
11. SRF Limited
12. Torrent Power
13. Larsen & Toubro
14. PTC India

By just looking at this list, most of the readers would understand where I am getting at. Quality of the management, corporate governance and the underlying business is what drives growth and all the companies that I have mentioned have shown good practices in the past and hope they continue to do so in future too.

Kumaran Seenivasan
www.stockanalysisonline.com

13 comments:

SHARETIPSINFO November 19, 2011 at 1:06 AM  

Hey,
Indian stock market is losing its shine now a days but its still not over for our NSE and BSE. Current market correction will urge many new investors to join the Indian stock market
Its wrong to consider correction as bad for the stock market. Stock market correction is rather healthy for genuine investors.

Anonymous,  November 19, 2011 at 2:00 AM  

Wonderful article..... and market is going down everyday and it is best time to get good stocks for long term ...... ur AAA stocks article is very useful for now........... thanks lot... KR

Anonymous,  November 19, 2011 at 12:37 PM  

Hi Kumaran,
Nice article.
But if you expect only 15-20% return from direct equity investing, why should one go for it when many there are several mutual funds which have given >20% over 10-15 years, like HDFC Equity, HDFC Top 200 etc. ?

Shabu's November 19, 2011 at 12:43 PM  

Dear Kumaran,

Good response with a practical stratum.

Its always better to track Dividend figures rather than cooked P&L numbers as good dividend track record means the profit reported is true and not merely a book entry, investors can feel real cash at times as a result for their investments, by their true business managers, and it seems all the rest are exaggerated tech figures worthless in our scenario at least for now...

Kumaran November 21, 2011 at 10:06 AM  

Hi,

A reader asked if I expect only 15-20%, then why do we need to go for direct equity investing when mutual funds offer the same. It's a good question. The answer is, the figures I gave is a conservative estimate. When you directly invest on your own, you at least have the opportunity to find a multibagger which you will not have with mutual funds. All I wanted to convey was that no one can find 10 multibaggers in a 10 stock portfolio. I am aksing a similar question to the reader. All the mutual funds offer >20percent return over 15 years and some show more than 25%. I agree with that. Then why do people say Warren Buffet is the greatest investor ever when his long term return is only 21% CAGR? Just a food for thought.

Kumaran.

PRADIP December 6, 2011 at 5:49 AM  

CAGR MEANS WHAT...I AM NEW INVESTOR..AND TELL ME AAA STOCKS FOR LONG TERM..IF ONE STOCK I CAN BUY 1000...TELL ME WHEN I CAN SELL TELL ME OPTIMUM MARGIN FOR THAT STOCK SORRY FOR POOR ENGLISH

Shikhar December 9, 2011 at 11:13 PM  

Hi Kumaran,

Nice job of preparing a rather long stock list. Some of these companies have internal problems of their own which will need to be seen through, but a good starting point for an investor.

As part of a virtual portfolio, I have put up a list at my blog which you can visit and leave your comments - http://www.investor-link.blogspot.com/

Corporate governance is indeed an important aspect which markets are very discerning particularly in bear markets.

Keep up the good work,

Regds

Shikhar

Prasanna December 14, 2011 at 12:36 AM  

While scanning stocks with an eye on fundamentals is the right approach, given the current volatility in global markets, investors must take a traders approach while putting fresh capital to work. That's where technicals come into play. Investors must extensively use technical chart patterns such as momentum/strength indicators along with price to judiciously time their entry and exit points.Else, they would end up falling a catching knife and averaging their way down hoping sometime things would turn around.In the absence of an index equivalent to $VIX in India, investors should make use of MACD crossover, RSI, stochastics and other indicators to time the market.

-Prasanna

shashikant Bhise Bijapur December 19, 2011 at 5:27 AM  

Hi kumaran,
Merry Christmas & Happy New Year
Good job keep it up, As on date 19/12/2011 the market is swinging down trend, (its like deepavali for long term investors).Market depth cannot be measured but can be assumed due to forthcoming quarters seems tough for the Indian corporate and the dollar may decline 2wards $55 to $60.This reaction may shed the market down to 11K to 12K (sensex) which may further hurt the sentiments of Indian markets.My query is why not you revisit your said list of stock portfolio and further mention buying price for these stocks which may help the small investors who don’t have sound knowledge like me .Is it possible to modify them to present fundamentals, because some of these companies have some internal problems too.
Shashikant Bhise Bijapur

Macro Analyst February 18, 2012 at 10:00 AM  

A good article with good recommendations. Among banks, I would like to add HDFC, which is the only Indian bank in the global list of ethical companies. In my personal opinion, it should also do well in the long-term.

Joe March 24, 2012 at 10:45 PM  

I enjoyed your commentary in the past. Are you planning to start posting again?

Your site served as a partial inspiration for my own site: Stock Analysis

J.Richmore May 27, 2012 at 8:21 PM  

Good call on the low cost stocks on the open market. When things are cheaper, chances are they won't yield good on the trade binary options.

R Joseph,Mumbai,  August 6, 2012 at 6:05 AM  

Hi Mr.Kumaran,
nice article.do you have any addition /deletion to the above list ? please update your views about the above stocks.It will be very helpful to US

Thanks in advance

Kind regards
R Joseph

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