Stocks for the long and short term portfolio

[jamit_05]

Re: Banking Stocks

Looking at the way Yes Bank fell, made me check deeper into the company. And I found out a major negative point, which made me reassess my decision to purchase Yes Bank.

Yes Bank, fell another 10% today.

I have completely written off this stock. I will only take interest in it if it touches its issue price of 2005 provided it has got into any scams, its HC case is solved and it has shown growth all the while... after all it is a growth stock right!

 

[jamit_05]

Some really good stocks are getting revalued by Mr.Market.

Axis bank near 800 ; 50% off ATH.

As the bearish tone sets in prices fall more for the same amount of turnover thus increasing volatility.

Hence, one could infer that the Rs.800 fall of Axis Bank took around 4 months then the next fall of Rs.500 to 2008 Lows could take half the time!

If you think this is impossible, then look back a little and you will come to realize that nothing is impossible in the markets. Early this year only a few people were expecting such good companies to correct >30% and now it is reality.

 

[gmt900]

Re: Banking Stocks

Yes Bank, fell another 10% today.

I have completely written off this stock. I will only take interest in it if it touches its issue price of 2005 provided it has got into any scams, its HC case is solved and it has shown growth all the while... after all it is a growth stock right!

Do you mean NOT got into any scam?

 

[jamit_05]

Reasons will be different, but they all cause only one effect: Re-valuation.

Take another stock of IDFC which is in hands of a very good management. And there is nothing wrong with the company. The sector has tremendous potential since India is an emerging market and sooner or later India will decide to soup-up its Infra without which growth of the economy will be bottle-necked.

And when that happens, I don't know about others but IDFC is well positioned to make the best of it.

The stock crashed because of poor recent performance and FII ceiling limit being reduced from 75 to 55%. It has build super strong bearish momentum and is heading for all time lows, where I am waiting to welcome it with my puny order!

 

[jamit_05]

Study of Asian Paints.

Asian Paints is a great company with a great management at the helms. The numbers are stellar. But, there is one problem... the price. It is too high.

Lets look back into the last 10 years and see where the inflation of its share price started. Since, when did the investor expectation in the stock increase to dizzying heights.

F.Y.	EPS	Growth	Price	PE	PEChange
2004	15		24	1.60	
2005	18	20.00	31	1.72	7.64
2006	22	22.22	51	2.32	34.60
2007	29	31.82	76	2.62	13.05
2008	42	44.83	120	2.86	9.02
2009	41	-2.38	78	1.90	-33.41
2010	87	112.20	204	2.34	23.25
2011	87	0.00	252	2.90	23.53
2012	103	18.39	323	3.14	8.26
2013	116	12.62	491	4.23	34.98
2014	116	0.00	380	3.28	-22.61
					
Avg EPS Growth		25.97			
Avg PE        		26.30

You will notice that in the F.Y.2010 the EPS doubled. The PE reached a height of 4.23 in 2013 (i.e. a PE of 42 before the 1:10 split). Meaning, by 2013 investors started to think "Oh, Asian has potential. It is likely to double its EPS anytime in the next five years." Or something on these lines. Such emotions are often guided by hyperbole of the management itself.

I feel it is not possible. In the last 15 years the EPS doubled in a year (or two) only ONCE. It could be a stroke of luck or some aggressive decision gone right. Surely, it cannot happen again and again... but the investors are expecting it... else why would PE double to 43x?

When these expectations are shattered, when Investors sense that Asian is unable to double their money when it posts couple of quarters of luke warm results and they find another superstar which shows promise all these unrealistic investors/FIIs will rush for the door and that too ALL AT THE SAME TIME.... Leaving its price to dregs.

My estimate, a very rough one, is that if a PE of 20x be taken, then considering the latest EPS of 116, a sane figure for the share price should be around Rs.230;

Needless to add, there is a technical support in the region of 225-250 where I intend to buy this stock. Else, although it is an Amitabh Bacchan of stocks, I will pass on it.

 

[Einstein]

Agrees with Asian paint, its a great business but price is not right,

great value, bad price!!

 

[jamit_05]

Look at TATASTEEL... the share price is up by almost Rs.85... near about 40% gain! That is a ridiculously high PE of 9. Sail has half the pe of less than 5 !!

TS will see a vicious fall. I wish I could buy three months out PUTS.

 

[Einstein]

Im still bearish on metal sector.. Don't expect it to rise, only dramatically increase in GDP data can lift the price. which is about to come on Friday..

 

[jamit_05]

Lets Compare the pricing of Two competing scrips from same sector. Fighting for the same share of the pie: Axis V/s SBI

Axis						SBI				
Shares O/s	467.95					Shares O/s	684			
Year	NP	EPS	Price	PE		Year	NP	EPS	Price	PE
2004	278	5.94	147	24.74		2004	5987	87.53	606	6.92
2005	335	7.16	242	33.80		2005	5733	83.82	657	7.84
2006	485	10.36	356	34.35		2006	5530	80.85	968	11.97
2007	659	14.08	490	34.79		2007	6352	92.87	993	10.69
2008	1071	22.89	781	34.12		2008	8950	130.85	1599	12.22
2009	1815	38.79	415	10.70		2009	10960	160.23	1067	6.66
2010	2515	53.75	1169	21.75		2010	11744	171.70	2079	12.11
2011	3389	72.42	1404	19.39		2011	10706	156.52	2768	17.68
2012	4242	90.65	1146	12.64		2012	15390	225.00	2095	9.31
2013	5180	110.70	1301	11.75		2013	17916	261.93	2073	7.91
2014E		73.26	784	10.70		2014E		195.08	1299	6.66

The logic of using the Estimates for 2014:

It is considering:

1) the lowest PE of the past 10 years!
2) and average EPS of the last 5 years.

These are realistic estimates, they are more bearish as we are considering the lowest PE of a decade; and also because we are considering an EPS of 73 for Axis, which is a 35% drop from last years EPS. This is fairly bearish because Axis has not had a drop in EPS ever. It has always shown a growth of at least 10%.

As per that standard, we are getting the purchase price of

Axis = 784
SBI = 1299

And here comes the most surprising fact (which I did NOT know before I started to type that last sentence and it came to mind). The most recent Low of AXIS bank is 785.60 !!!

Now lets talk profit.

But, how far up can Axis go?

Well, considering a median PE of 24 and a stagnant EPS of 110 , Axis could touch 2700 in the coming years. Not bad eh!

What could spoil this party?

1) EPS could drastically fall if something goes terribly wrong with the company. Other than that, the buyers are safe; the belt of 700 to 800 price of purchase is a very good one.

2) PE could get badly re-rated due to scams or NPA. Well, Axis has very comfortably levels of NPA, which in fact is its strength making it better than SBI.

In fact, I think Axis is probably the best Private sector bank for an investor due to its Low price and it being a very good business for a strong history of growth and low NPAs.

 

[jamit_05]

Banks, no matter how good, one and all will see a cut in EPS this year. This is because of RBI leaving no extra cash in their hands, plus the slowdown is more distinct this year. So, it is wise to consider lower EPS for estimates. And I believe we have used a 35% cut in Axis's EPS from the current EPS-TTM.