Ready to Shop stocks ?

Are you shopping stocks ?

My previous video post “Selection by Rejection” was inspired from the learnings in “Beating the Street” by Peter Lynch

Why retail stocks ?

Easy to understand business
You can wait for business to prosper before jumping the gun and buying. I will give you an example

Go watch this

From 1962 to 2010 Walmart opened – 0 to 4393 stores

Now Walmart was and is an exceptional company, however the point is people could have invested in Walmart in 1972,1982,1992 or even 1995 and still would have made multi bagger returns. See the chart below showing returns from as late as 1995

The stock has been a six bagger in last 19 years , even after story being completely known across internationally and I am discounting the huge dividends it pays each year

Where to find these stocks ?

The best place to go for shopping stocks especially retail stocks would be your nearest shopping mall. Many of the biggest gainers come from the places that millions of consumer visit all the times. Given this was not possible for me I started with BSE website and list of companies listed on BSE. I was … Read the rest

October 10, 2014

Select stocks by rejecting

Charlie Munger said Invert always invert, while selecting investments use powerful rejection criterias to remove unwanted research. In this video we show how by spending less than 30 minutes you can reject a lot of department stores companies to invest.

Watch this

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Unable to access link click here

I will update reasons for selecting thumb rules in my next post… Read the rest

October 5, 2014

Evaluating Moats through Floats

Firstly some disclosures the idea of evaluating moats through floats was inspired from this amazing post from Professor Sanjay Bakshi

Secondly the candidate chosen to be evaluated is borrowed from Amit Arora ‘s blog – Poddar Developers Ltd

Now lets begin, Poddar developers ltd is a small Mumbai based real estate developer interestingly the Group is focusing on the value housing segments in Mumbai, within the MMRDA region.
Value housing or Affordable housing as it commonly called has huge demand in India. Poddar developers have a significant presence in Mumbai suburban region through multiple projects, you can access details here

So much so for our candidate now lets quickly define FLOAT – It is other people’s money which company holds temporarily. Durable FLOAT is something which becomes a cost less revolving fund for the company. The common sources for FLOAT are

– Trade payables (Look for companies who buys at Credit but sell in Cash )

– Customer Advances

– Deferred taxes (Companies having advantageous tax situation – unlikely to be durable)

Durable FLOATS create higher ROE and ROCE for the companies, reason – they are using other people’s temporary money to run their operations

How to calculate FLOAT for … Read the rest

October 3, 2014

Learn to create an earnings line

Peter Lynch in his famous book “Beating the Street” talked about buying stocks when they are below earnings line and avoiding to buy when they are above earnings line.

No Indian website provides this information readily like US websites. However with some work you would be able to create this on your own

Go to Screener to get the ten yearly annual profit and loss , copy paste data it an excel

Now get the total number of outstanding shares from latest quarterly fillings or from money control – Calculate diluted EPS , make sure you take latest outstanding shares
Calculate 10 years , 5 year and 3 year EPS CAGR growth
Now choose a fair PE based on EPS growth for page we have taken PE of 38
Create an earnings line by multiplying fair PE and Diluted EPS
Plot actual share price as on 1^st may ( to avoid bias) for every financial year to compare earnings line with actual price

Convert this into graph to get an idea when to buy

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September 26, 2014

Don’t Trust Scary promises

“When one with honeyed words but evil mind
Persuades the mob, great woes befall the state.”
― Euripides

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Glossy stock predictions always makes me uncomfortable, but more than that are the false promises made by analysts. Download below to read two recent such scary ones. As I always say buyers be aware 🙂

Scary Promises

Image source

… Read the rest

September 22, 2014

How high dividend pay-out sets the floor for stock price

How can high dividend payment set the floor price for stock? Let’s look through an example

Noida toll bridge Company – The Noida Toll Bridge Company Ltd (NTBCL) has been promoted by Infrastructure Leasing and Financial Services Ltd (IL & FS) and New Okhla Industrial Development Authority (NOIDA), as a special purpose vehicle (SPV) to develop, construct, operate and maintain the DND Flyway on a Build Own Operate Transfer (BOOT) basis.

What is special about this company – Being a toll bridge company operating just one toll bridge there is no capex requirements for the company, apart from regular repairs and maintenance and finance charges the balance proceeds in theory should be paid out as dividend. The company was not able to pay dividend till FY10 as it was having high debt on its books and was referred to corporate debt restructuring scheme but from FY 11 it has started paying dividends, the pay out in FY14 was more than 70% look at the chart below

Source: icicidirect.com

As you can see the dividend has been steadily rising from FY 11 onwards.

Now if you are an average investor what is risk free return that you can earn today? Assuming … Read the rest

September 20, 2014

Suven Life Sciences – The Embedded Triggers

First of all pharmaceutical business is not my forte, this analysis was done to learn a new industry

About Company – Suven Life Sciences, in the business of design, manufacture and supply of Bulk Actives, Drug Intermediates & Fine Chemicals, catering to the needs of global Life Science Industry.

Business Segment

1. CRAMS – Contract Research And Manufacturing Services – This segment accounted for 95% of the Company’s top line in 2013-14; the business grew 20% CAGR over the 10 years leading to INR 514 crore. This is a very high margin business, reason company is having high ROCE, ROE

2. New Chemical entity – Cash guzzling unit of the company , 338 crore has been spent on drug discovery till 2014, the expected outflow in next 3-4 years is going be high as well as 1 molecule is entering phase 2 and three others in IND and phase 1. Important note no revenue realised till date

3.Formulations development – Suven is engaged in the development of formulations, an extension of its business model. The Company expects to develop and collaborate with a partner, out-license the product in exchange for royalties and revenues. The Company expects to focus on niche … Read the rest

September 5, 2014

Beware of glossy stock predictions

Here it one such glossy stock prediction coming from a guy who has cult following on internet and whose recommendation have hit upper circuits after mentions on his blog

Company

Now let us dissect the recommendation

Generic statements, a promise that Mr.Modi’s new government can be a game changer for sector, good to know that the market opportunity / scale is huge

There could be valid reasons why Asian Granito has always traded below par to above companies but this not explored. Well the real reason is Asian Granito has been reporting consistent decline in earnings compared to above companies which have been doing fantastically well, but that doesn’t fit into story so the author chooses to ignore this, Have a look at profits in below chart

Trading at less than 10 PE , not able to find reason ??? the reason is very simple even if someone had bothered to look at even basic figure of net profits for Kajaria and compared that with Asian, Here it is for your reference

Turnover has increased for both companies, however one look at net profit and you will know why share price of Kajaria has flourished and Asian Granito has declined… Read the rest

August 30, 2014

Finding Stocks with Earnings Power for Long-Term Profits

One size doesn’t fit all is often said for investments. However Hewitt Heiserman has written a remarkable book that gives you a blueprint for finding great growth stocks for the next decade without taking on a lot of risk in the process. His method can be applied to all types of companies.

According to the book there are three key factors which drive long term profits for a successful investment

a. Competitive advantages enjoyed by the firm or what Warren Buffet calls Moats that keep rivals at bay. The book doesn’t provide any tool to determine competitive advantage however it provides a quick check-list to ascertain if a firm is enjoying competitive advantage. You can read our recently posted article on understanding competitive advantage to gain more insights

b. Valuations – Great companies can become lousy investments if brought at wrong price, the book again has little on valuation front. Use our stock price calculator to get first-hand view of value of stock

c. Earnings power – Whether a company possesses authentic earnings power for long-term growth, The 2 earnings power ratios you need to calculate before making your next investment. The Enterprising EPS and Defensive EPS.

The first is … Read the rest

August 3, 2014

A review of The Dhandho Investor

Weekly Digest – The Dhandho Investor, this week focuses first on an investment book – The Dhandho Investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai . This book by Mohnish Pabrai describes the concept of value investing in the simplest terms. Even a person new to investing could get a good idea of how value investing really works. He also shows how he reverse engineered Buffett’s investing mechanism and used it in his investment style.Mr. Pabrai’s idea generation- reworking of older philosophies into a newer framework and language is very thoughtful.

Watch this interactive video with Author , the main concepts from book are shared in video as well

Buy book here
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Students of … Read the rest