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Stocks Corner: 4 BIG BETS for investors
We asked readers to mail their queries about stocks they want to buy, sell or hold. Here's the response to their queries.
Narendar Lokwani of StockFundoo advises about good, bad and ugly stocks.
You can mail your queries to stockfundoo@rediffmail.com.
Can you please cover some large-cap stocks which will make good profits over the next 3 to 6 months. Since large caps stocks are available at good value, which are the stocks that we can invest currently in?
Here's a small list for you:
1. Reliance Industries
Reliance Industries or RIL is truly a forgotten story. Behemoth among Indian giants, leader through market cap, and crown jewel of Indian stocks is today languishing in terms of stock price performance. The stock which has seen a highs of Rs 1600 in December 2007, and highs of Rs 1200+ as recently as 2010 was languishing at Rs 750-850 kind of range during most of 2012.
Nothing really has changed on the ground, fundamentally speaking, for RIL. Its performance from 2008 to 2012 has been stellar, with revenues growing each year and profits following suit.
In a period of 4 years, the revenues have more than doubled from Rs 1.39 lakh crore to Rs 3.29 lakh crore, which is terrific for a company of this size, this delivering an annual CAGR of over 20 per cent.
Even on a quarterly basis, over the past five quarters, RIL's performance has been stellar. Revenues have shown growth on a quarterly basis, growing from Rs 85,135 crore in quarter ending Dec, 11 to Rs 93,886 crore in quarter ending Dec, 12. Profits and EPS have been improving, which shows a growth of net profit to Rs 5,502 crore in Dec, 12 over Rs 4,440 crore recorded in Dec, 11 quarter. Net profit margin has improved to 5.75 per cent from 5.11 per cent over five quarters and EPS has improved from Rs 13.56 in Dec, 11 quarter to Rs 17.04 in Dec, 12 quarter.
Thus what we see is that this behemoth is able to clock solid growth in revenues, and recently even on the profit margins front there is a visible improvement. One key parameter which value investors look for is the book value. This represents the amount a firm brings to the table in terms of its tangibles, i.e. simply speaking, if you sell the firm piece by piece, what is the amount that can be realised.
For RIL, the book value is at Rs 507. Thus if you own one share of RIL, you actually own 507 rupees of value that you can realise when the firm closes down its operations, simply speaking. Making investments closer to book value is a smart thing to do, as you avoid overpaying for a security.
For large caps like RIL, amount closer to 2X the book value is not a steep price to pay either. There are times when market goes over board and investors end up investing in firms trading at 4-5 times their book value. That's the time one should step back and make slow careful exits from the heated markets. Not at 2X the book value. This is the time to step in and make investments.
One simple thing to look at, and most investors miss looking at this parameter, is dividends. Firms which pay dividend on a regular basis are good companies. Period!
For RIL, the firm has never missed a dividend payment in last decade. One also needs to confirm the amount of dividend paid over the price you are paying to hold the share. That's the only payout you receive, if you are a long-term investor and hold the scrip for over a year. e.g. for RIL, a share holder will receive 85 per cent of dividend and this is calculated on face value of a share. So a shareholder receives Rs 8.5 of dividend for holding a share for one year.
On a market price of about Rs 850, this stands to about 1 per cent rate of return for long-term investors from dividends alone.
Technically speaking, Rs 750 is a strong support and firm is making higher lows on charts. Recent lows of Rs 804 would be another good support for RIL on charts. The profit levels to seek on charts are Rs 900 as first level profit, Rs 960 as second level of profit and Rs 1150 as medium level profit target for RIL.
RIL is also in midst of heavy expansion plans in its core and new ventures and is planning entry in telecom business through Rs 10,000 crore investment its 4G ventures. RIL is also in the process of doubling its petrochemicals capacity and upgrading its refinery business by setting up a pet-coke plant. Also, Reliance Retail is already the largest food and veggie retailer for India, despite the stiff competition in Indian retail space.
RIL, fundamentally and technically, thus looks like a safe, solid long-term investment for an Indian investor.
Disclaimer: This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients.
Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
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Stocks Corner: 4 BIG BETS for investors
2. ICICI Bank
In 2013 and for couple of initial quarters of 2014, interest rates are expected to decline throughout the year, which increases profitability of banks like ICICI Bank, as lower rates prompt more loans and borrowing and hence greater business and net margins for banks.
ICICI Bank being one of the most successful banking brands in the country, its topline and bottomline is showing an uptrend whether one looks at its annual or quarterly trend. EPS has grown from Rs 37.37 per share in 2008 to Rs 56.08 in 2012. Latest quarter revenues are Rs 10,138 crore for quarter ending Dec, 12 and EPS for the quarter is staggering Rs 19.51. Hence ICICI Bank is profitable and continues to do well on a QoQ basis. The company pays regular dividends and at current market price of Rs 1138, it is trading about 2X of its book value of Rs 524.
Interesting fact about ICICI bank is that if you look at FII holding of ICICI bank, it is going up quarter on quarter, from 34.93 per cent to 37.18 per cent in last two quarters. General public shareholding is as low as 5.16 per cent and is going down. Hence knowledgeable folks about ICICI's business are accumulating the stock in a stealthy manner.
Technically speaking, Rs 1038 is the nearest support, so one can hold the stock till Rs 1038 is intact. Rs 1100 is another good support for ICICI Bank. Rs 1165 is a good place to book partial profits and another place to book partial profits is around Rs 1200.
Stocks Corner: 4 BIG BETS for investors
3. Tata Motors
Domestic growth for commercial vehicles and car manufacturer companies like Tata Motors is under stress due to overall slowdown in Indian economy and high interest rate environment. However, internationally, Tata Motors continues to do well with its acquisition of Jaguar-LandRover (JLR). JLR is also planning to manufacture its products in India, from scratch, whereas right now only two of their cards get assembled in India.
Firm's growth has been staggering from 2008 onwards where the sales have grown from Rs 31,884 crore in 2008 to Rs 54,306 crore in 2012. Firm is a regular dividend paying company and FII shareholding in Tata Motors has been increasing on a QoQ basis.
Technically speaking, Tata Motors is close to its support of Rs 280, from where it has received several rejections. Rs 310 is a resistance level for the stock, crossing which the stock can see levels of Rs 340 which is a recent high. If Rs 280 does not hold, stock will receive good support at Rs 250 and Rs 224 respectively.
Stocks Corner: 4 BIG BETS for investors
4. Punj Lloyd
Punj Lloyd is among the handful of infrastructure firms which have not turned loss-making during the painful years of 2011 and 2012 for this sector. The firm has shown decent growth in performance, and revenues have grown from Rs 1533 crore in Dec, 11 quarter to Rs 2053 crore in Dec, 12 quarter.
Firm is also a regular dividend paying company and promoter holding has remained consistent for this scrip, unlike many other Infra sector firms. FII holding in the scrip has actually gone up in past two quarters, signifying fundamental strength of the company.
Punj Lloyd is currently available at less than 50 per cent of its book value of Rs 114 and is trading at Rs 45.95 currently. For most of year 2012, the firm has traded in a narrow band of Rs 40 to Rs 60 and on breakout of this band, one can see levels of Rs 65 and Rs 77 respectively.
Technically speaking, support is at Rs 41 and immediate resistance level is at Rs 59. Rs 65 can be an achievable upside target for the firm in next 6-12 months.
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