Company Watch # 3

I found the following compnies listed in the Economic Times as good Mid and Small cap stocks. I noted them down and my take is that the PE's of many companies is too high to pass down my filter.

- gsk consumer (PE = 14)
- PVR - (PE = 20)
- Bartronics - (PE = 11)
- Jain Irrigation - (PE = 27)
- Piramal - (PE = 21 )
- IPCA - (PE = 10.52)

- Numeric Power Systems - PE = 7.56, but I feel the UPS industry would have low entry barrier

- Indian Overseas Bank (CMP = 83, PE = 3.87, PBV = 1) -
Looks attractive, but I feel that the banks are still not going to interesting
to investors for some more time, say 5-6 months till the RBI eases the repo rate and the Interest rates. Reduction in Sales (i.e amount of loans) is possible for some time from now due to higher interest rates. Revisit after some more months.

LIC Housing Finance ( PE = 6.13 )
Will wait for a fall for the reasons same as Indian Overseas Bank

Bharath Electronics (PE = 10.48)

A closing note:
In his book, "One up on wall street", Peter Lynch mentions that high growth companies need to be treated differently. You look at the PE Growth instead of PE. i.e PE / (expected growth). He recommends a value of PEG which is less that 0.5
Bartronics, which specializes in RFID and biometrics technology solutions looks like a growth company, but I am not looking at growth stocks at present due to uncertain economic conditions.

Eastern Silk - Result Update Q1 FY09

Eastern Silk is involved in manufacturing of value added silk textiles. The company had made a loss of 15 crores in the last quarter and the stock got beaten down badly. The huge drop in sales from 168.96 to 31.34 crores did not look good at all. One of the FIIs (Merill Lynch if I remember it correctly) also emptied it's entire stake. Within three months, the stock fell down 60% from 42 to a 52 week low of 12. I had looked at it 3 months ago, but deferred buying the stock so that I can buy the company once it gets beaten down fully. I had forgotten about this company until it figured in 52 week low list in moneycontrol. It was trading at a 50% discount to it's book value, the company was in existance since 1958 and the company had implemented capex plans over the past few years.

Though no reason was given by the company for the loss it made in the past quarter, I speculate that the losses would have been forex derivative losses. Since it is an export oriented company, it needs to peg the indian rupee against various currencies. Grapewine also talked about disruption of silk supplies. I did not analyse the company completely due to lack of information, but the discount to the book value looked attractive and so did the age of the company. The PE of around 2.5 was also attractive.

In the results announced today, their Q1FY09 sales turnover was 481 crores leading to a net profit of 58 Crores. They have also announced a dividend of 45% which turns out to be Rs 0.9 per share of face value 2. So far, so good. I am eager to get hold of some Analyst Report or a Investor Call transcript which will tell me the reason for the loss they made in the previous quarter. As they say, lack of information is also considered as RISK.

UPDATE : An article in moneycontrol gives the reason for the Q4FY08 losses, and I had "speculated", they were forex losses.

Analyst Recommendations and You!

The reason I write this post is that even though I go through the analyst reports that are accessible for free on the internet, I do not go by their buy / sell / (whatever) recommendations. They help me with more information of the company and the factors that can affect the company.

For instance, the following document recommends a dozen Midcap stocks:
Edeweiss MidCap Stocks
But none of them filter through my criteria.

Even analysts can go wrong. Analysts have an edge over retail investors as they have access to the company management, other market research, etc. In spite of this, I feel that even they cannot predict the infinite factors that could seem to affect the markets correctly. Ask anyone who invested a large amount of his money in Sasken when it was hovering around 500 in Jan 08, following one of the many "analyst reports". Here is one of them where Merill Lynch has a buy recommendation with a price target of 600!. Sasken had hit a 52 week low of 88 after the Jan crash and is still hovering below 160! Personally, I use analyst recommendations to supplement the information about a company and add companies that are doing good to my watchlist.

No wonder that any Analyst Report has a last page that boils down to "Invest at your own risk!"

UPDATE : fellow blogger Rohit Chauhan puts it in a humorous way.

Portfolio Performance [Update # 2]

With the recent market meltdown and uncertainty, I have become even more conservative about my stock selection process. I look for lower PE's, strong and simple business models, aggressive growth strategies and limited downside. Sometime amidst the market mayhem, my portfolio had returns of around -25%. I have to take some time to recheck the fundamentals, and clean my my portfolio. The Indian Stock Market had become too costly (@ a PE of 18 when the sensex was at aroound 18,000, India was the costliest emerging market). I feel that even at the current level of 14,300 it is costly. Add Political Uncertainity, Government Intervention in pricing, decreasing dollar reserves, highly volatile FII in/out flows to this and life does not seem easy.
This is the time to pick up a magifying glass and choose companies with great care. Not all stocks that were going up will go up. Since, the number of stocks I can manage with the time I have in hand is limited, I am planning to keeps the stocks in my portfolio limited to a maximum of 6 - 7 stocks. Here is my portfolio as of yesterday. I added Eastern Silk Today and I must confess that I bought this stock without putting it under the scanner. This company had made a loss of 5 Cr last Quarter. The company had not released any information on the cause of this loss, but I feel that this was due to the currency losses. The sales too had dropped substantially over the last quarter. The things I looked at were Low Debt, Low PE (2.7) and it is trading at a 50% discount to it's book value. It had fallen to it's 52 week low of 12 a couple of days ago. And SBI MF had added this company last month (after the results had been announced) and I felt that they must be knowing better than me :). I'll post about eastern silk once I get more information and some time.

Here is the performance of the above fund as compared to the BSE Sensex.
Another company I am looking at is Prajay Engineers. This company is into real estate development and has a large land bank and had made a loss in the previous quater. It rose close to 20% today after being beaten down due to selling by GE funds.
I am also looking at applying some physics principles to exploit the volatility of the stock market. Something similar to Maxwell's demon and the perpetual motion machine.
Any suggestions are welcome

Risk Tolerence, Risk capacity and your Asset Allocation

I like the new Money Control portfolio manager which is based on AJAX. The interface is sleek and responsive. The Fund Allocation Charts are informative. One of the features that I decided to try out is the Risk capacity and Risk tolerance assessment. They have provided a quiz based upon which your Risk Tolerance and Risk Capacity is Calculated.

The tool came up with the results for me as person with a Moderate Risk Tolerence and High Risk Capacity. According to this article,
"Risk tolerance is the amount of risk you WANT to take.
Risk capacity, is the amount of risk you NEED to take.".

Which means that, I can look for higher risk :). And guess what, I am acutally doing that :)

The tool recommended me a portfolio of 48% equity and 52 % debt, while, as of now, My portfolio consists of 66% equity and 34 % debt (NSC's bought in my first year of job when I had no clue of investing, making money grow, work for you).
The sensex surged 800 points today, and I regret that the orders that I placed early morning did not get triggered [:(].

Company Watch # 2

Steel Sector : Price controls lifted. Possible opportunity.
SAIL (CMP: 127):

India Bulls Analyst Report Dated June 1 [buy recommendation at 137]
http://www.business-standard.com/pdf/TU556%20SAIL%20080701.pdf

+points
Debt Equity : 0.22
PE : 6
07 - 08 PAT growth : around 16 %
Steel Prices rising
85% promoter holding

-points
Government Control
5.41 % FII holding - could lead to a further call
Expansion Project overruns
Higher Raw material prices eating into margins

Conclusion : I am not very comfortable with capital intensive industries. Could wait for a further fall. Will take a look at this if I do not find better companies.

Company Watch #1

Company watch is a series of posts on the companies that I scan through when I scout for investment opportunities. Maintaining a record helps me save time in the future as that I can quickly refer to the recorded information when I come across a stock that I had already looked at.

Gayatri Projects : (CMP : 203) - buy at 150
Construction, Infrastructure projects.
+ points
PE : 5, BV 180, 07 - 08 growth = 50 % .
promoter holding 56 percent (increased by 1 % YoY)

- points
debt / equity = 2

Could look good, but wait for a further fall due to high interest rates which lower margins
FII hold 17%, their sell off will give rise to a further fall

Conclusion : Will buy(look) at 150

Kilitch Drugs : (CMP : 108) [look at 40]
Manufacture of Injection Medicines, biggest player in this space(?)

+points
no MF Holding
high YoY growth as compared to previous years., could be a turnaround
promoter holding : 64 % (reduced from 66%)

-points
PE 13.51
USFDA approval this year, could wait for a fall if this does not happen
debt / equity = 1.46

Conclusion : PE is high, Debt is high. Look at 40.

--
Facor Alloys (CMP : 10.16) [can buy provided company is clean]

+points
PE = 2.81
promoter holding = 48.68 (reduced from 50.9)
high YoY growth. Looks like a turnaround

-points
retained earnings are negative ( -306.56 crores). Not sure what this is
owners fund as % of total soource : -37.6%

Conclusion: Something goofy. Look at this in detail.
--
Neha International
Flowers.
PE 66 - forget it.