Stocks for the long and short term portfolio

Buying Cheap always wins.

A very specific and a realistic definition of Success:

" To get 30% Annual return on investment "

Need to fulfill only three things to be a successful investor:

1) First and most important point: The company should have the potential to survive the bad times (unlike the "King of Good Times"). This is important for only one reason, that we may have to hold for almost a decade.

2) Buy Cheap; This is important for two reasons
a) ROE
b) Div Yield

Knowing the correct definition of "Cheap" is tricky.

3) Confidence to hold, this essentially comes from (1) and (2).

Buying Stock at 2008.

I think I will buy, from my list of selection, only if (except a few heavy weights) the Cos share price reaches its 2008 Low !!

It seems a little extreme, but think about it:

Larger companies are ready to nose-dive due to poor performance, esp auto sector. Once Hero, Maruti and Tata Motor correct 30% it will largely demolish bullish sentiment. This process is clearly underway. Look at metals and Cap goods.

Metals and Captial goods sectors are cyclical and are now going thorough down cycles. So thinking 2008 low is only fair. SAIL, NALCO have already reached 2008 Lows. Tata Steel and Hindalco too have broken very important supports.

The situation is very bad on the fundamental level for all companies. But only a few share prices are reflecting it. A gem of a company like BHEL has demolished its 2008 LOW !!.... heading for 2006, which is the next good support.

Mid-Caps stand no chance. They too are getting crushed. EIL, Voltas, etc will soon be very attractive. EIL has broken a major support too.

I am short listing companies with very good top management. All companies are expected to perform poorly in this down cycle, but only the best will survive it.

Re: Buying Stock at 2008.

Sail story is finished, not a investment script.

Hindalco ultimate downside target is Rs.48.20 is intact.

Voltas downside 55.80 may be attractive.

Re: Buying Stock at 2008.

Please elaborate on your views: Why Sail is no longer a suitable investment?

Thanks.

Re: Buying Stock at 2008.

Having 4,130.53 cr equity and operating business for 4.54 % Net Profit Margin may not be sustain in the long run.

If company is operating business in this healthy environment at 4.54 % NPM, just imagine, if industry goes into bad phase, Sail will be into big trouble, considering higher capacity and lower demand. Capacity utilisation will be into big trouble considering there variable and fixed cost.

Long run SAIL going to be another Suzlon/unitech/GMR Infra/IFCI...etc....... In this list you can add DLF also, ultimate DLF level may be Rs.82.

Re: Buying Stock at 2008.

NPM for SAIL has been far better than TataSteel (consolidated), check out below:

SAIL



Avg NPM for SAIL has been 14% for the past 5 years. Only in 2011-12 has the NPM drastically fallen to 7.70% thus the cyclical nature of the business.

In contrast, TS has 5yr avg NPM of 4.50% !! And in 2007 after Corus acquisition it increased production capacity by 5 times !!

You will further find interesting, that SAIL had a very low interest to GPM of only 5.77 % although gradually increasing due to Cap Ex.

Whereas, TS is is paying almost 30% of its GPM in Interest.

Tata Steel



I can imagine Sail surviving, but TataSteel is gonna go through hell before seeing 400+ levels.

Re: Buying Stock at 2008.

True, let us see after a year.

Definitely, i will not buy even Tata Steel also.

My view is investing scripts will never suits for retails investors, because, will be trapped anyway.

Re: Buying Stock at 2008.

God Bless the nay-sayers.

My assertion is that the lower share price is good. These companies have very solid track records and proven management. The whole point of investing is to buy such companies in their down-cycles when they are unpopular, discarded, washed out and cheap.

Am reading a book by Parag Parikh, he made a very valid point in Chapter 5 of "Value Investing and Behavioral Finance";

Century Textile was a king in its time when Textile Cos had a large stake in the Index, compared to ACC. In other words, ACC had a low PE ratio (14 points lower) than Cent.

So, one would think that staying invested in a gem like Cent is common sense. Right? No.

If one re-invested his Dividends ACC emerges as a clear winner in the long run. That is only because your purchase price was 14 point lower PE multiple.

Check out the following table for precise gyan... tks Mr.Parag

The point is, if you buy a popular stock You have to buy it expensive So you lose on two counts

1) Your Div Yield will be much lower
2) And the long term CAGR in share price will be much lower, since it is so much more difficult to attain and then sustain growth on high share prices.

So the lesson I learned is:
If I buy a growth stock... whose price is (much) higher than its intrinsic value then do not consider it a long term investment. Exit as the momentum fizzes out... it is a speculative trade... treat it that way.

On the other hand, if I make real investment then I should look for companies with:

1) Low PEs
2) Dividend paying
3) Ability to sustain worst down cycles

Hence the Cos should have:

• Brand value, which sells its product (at profit or loss) in all market conditions (maruti, tata steel, sail, nalco, infy, tcs) so that they dont hve to lock down operations when going is tough.
• Low debt as it affects fcf and hence affects price appreciation directly.
• Purchase price should give at least 3.5 to 5% DY to have your investment perform as if they were on steroid.
• Any other important factors which ensure they will survive the next 10 years.

It probably follows in corollary that, when that stocks becomes popular with PE going in the top section then get sell it for best results.

Yes, please do so.