Stocks for the long and short term portfolio
- Thread starter jamit_05
- Start date
Hello Mr.Garg,
Once your objectives are set, the learning will begin.
Let me illustrate:
My objectives:
1) Establish a portfolio such that over a longer term (5yrs+) its Earning Yield is 25% - 30%.
2) Have minimal activity. Buy and forget kind.
Then research is done to ensure that managements are capable to reflect good EY on the share price. I am willing to wait. But, during this waiting period if something smells fishy then its my job to look into it.
Point being, let your Objectives be your ultimate guide.
Once your objectives are set, the learning will begin.
Let me illustrate:
My objectives:
1) Establish a portfolio such that over a longer term (5yrs+) its Earning Yield is 25% - 30%.
2) Have minimal activity. Buy and forget kind.
Then research is done to ensure that managements are capable to reflect good EY on the share price. I am willing to wait. But, during this waiting period if something smells fishy then its my job to look into it.
Point being, let your Objectives be your ultimate guide.
Something Fishy in Exide?
When retained earnings are diverted into Non-Core ventures, it makes me doubtful. EiL is a leader in its field and it cannot find growth there, how is it going to compete in other fields where it is new? History shows that this often does not bode well for the minority shareholders.
EiL used 550 Crores to buy insurance business. Lets discuss its + or - impact.
This is around 3 years of Free Cash Flow for EiL.
If this venture does not give returns, then the share price will see a correction. I do not anticipate a complete loss of capital, but yes growth will be almost surely be stemmed. This goes to show how rare it is for a company to translate accumulated FCF onto the share price (or further boosted growth in EPS).
On the other hand, I feel it was a smart thing to do:
The Auto sector is on the de-growth. Car sales are dropping. It being the biggest customer, it would add pressures of all sorts if EiL's production capacity was increased. Then what else could it do with accumulated cash?
1) Keep it in FD or such instruments?
Investors do not like this. They see this as the weakness of the management. It drags important ratios.
2) Give Dividends?
Attracts Tax. Plus, to a mid-sized company like Exide FCF is precious and the only "organic" source of liquidity to fuel growth (when the time is favourable). With increasing competition which has shrunk net profit margin below 10%, it is not wise to take on debt. (One reason why I prefer Eil over Amara-Raja).
3) Clear debt?
It has been doing that for last 5 years. Now its (almost) debt free.
In that light, getting into something safe and fairly hassle free business such as Insurance seems like a smart thing to do. It has less operational challenges. It may or may not generate good return on this 550 Cr investment, but safety of capital and decent growth is probable.
Tks to my kind friends CEO Craytheon Rahul, Jain.err TJ, Einstien TJ who are open to such valuable discussions.
Regards.
PS: I see the share price at 2011 low of 98. Its EPS has reduced YoY and there is little hope for a turnaround. A correction is imminent.
When retained earnings are diverted into Non-Core ventures, it makes me doubtful. EiL is a leader in its field and it cannot find growth there, how is it going to compete in other fields where it is new? History shows that this often does not bode well for the minority shareholders.
EiL used 550 Crores to buy insurance business. Lets discuss its + or - impact.
This is around 3 years of Free Cash Flow for EiL.
If this venture does not give returns, then the share price will see a correction. I do not anticipate a complete loss of capital, but yes growth will be almost surely be stemmed. This goes to show how rare it is for a company to translate accumulated FCF onto the share price (or further boosted growth in EPS).
On the other hand, I feel it was a smart thing to do:
The Auto sector is on the de-growth. Car sales are dropping. It being the biggest customer, it would add pressures of all sorts if EiL's production capacity was increased. Then what else could it do with accumulated cash?
1) Keep it in FD or such instruments?
Investors do not like this. They see this as the weakness of the management. It drags important ratios.
2) Give Dividends?
Attracts Tax. Plus, to a mid-sized company like Exide FCF is precious and the only "organic" source of liquidity to fuel growth (when the time is favourable). With increasing competition which has shrunk net profit margin below 10%, it is not wise to take on debt. (One reason why I prefer Eil over Amara-Raja).
3) Clear debt?
It has been doing that for last 5 years. Now its (almost) debt free.
In that light, getting into something safe and fairly hassle free business such as Insurance seems like a smart thing to do. It has less operational challenges. It may or may not generate good return on this 550 Cr investment, but safety of capital and decent growth is probable.
Tks to my kind friends CEO Craytheon Rahul, Jain.err TJ, Einstien TJ who are open to such valuable discussions.
Regards.
PS: I see the share price at 2011 low of 98. Its EPS has reduced YoY and there is little hope for a turnaround. A correction is imminent.
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My recent study of Exide Industries made me realize one thing more clearly.
I want my investments to not only have good earnings, but also be able to get good returns on these earnings that accumulate year after year.
My recent discovery of Exide purchasing the insurance business made me think that accumulating Free Cash Flow every year gives added responsibility on the shoulders of the management.
Now, each investor MUST find answers to these question :
Q. Is the management reinvesting the Retained Earnings wisely?
Q. Is the business a "Cash Hog"? Needing large sums of money just to maintain Status Quo. For ex. to maintain expensive machinery, or paying large sums of salary to employees without getting profits.
Will try to apply these reasoning to my list of stocks and see which ones can be left out.
I want my investments to not only have good earnings, but also be able to get good returns on these earnings that accumulate year after year.
My recent discovery of Exide purchasing the insurance business made me think that accumulating Free Cash Flow every year gives added responsibility on the shoulders of the management.
Now, each investor MUST find answers to these question :
Q. Is the management reinvesting the Retained Earnings wisely?
Q. Is the business a "Cash Hog"? Needing large sums of money just to maintain Status Quo. For ex. to maintain expensive machinery, or paying large sums of salary to employees without getting profits.
Will try to apply these reasoning to my list of stocks and see which ones can be left out.
I had not been open to Amara Raja because Exide was already so nice. But, I believe it deserves a second look.
Its share price is going one way UP and it currently has a PE of 16 (more popular amongst investors). So is the company really that good? Lets see.
One thing I find most impressive about ARB is that it accumulates loads of Free Cash Flow each year... as much as Eil although it has only half the revenues.
This allows ARB to grow organically and even make mistakes. It does not have to resort to Debt or Equity Dilution for growth. It has a little debt but its ICR is very high and so is LongTermDebt/Gross Profit.
ARB is posting a growth in EPS. But, it may not be sustained as the Auto-Industry is showing reduced revenues. This will present an opportunity to buy.
I will wait for investors to sent this stock crashing. There is good amount of expectation grilled into the price which is why PE is 16. When these expectations of growth are unfulfilled the stock will crash and the PE will come down to around 9, which would be a nice time to buy.
Attractive Buy price is in a Band of 160-200; Its a growth stock and likely to give good returns, if the management carries on sensibly.
Its share price is going one way UP and it currently has a PE of 16 (more popular amongst investors). So is the company really that good? Lets see.
One thing I find most impressive about ARB is that it accumulates loads of Free Cash Flow each year... as much as Eil although it has only half the revenues.
This allows ARB to grow organically and even make mistakes. It does not have to resort to Debt or Equity Dilution for growth. It has a little debt but its ICR is very high and so is LongTermDebt/Gross Profit.
ARB is posting a growth in EPS. But, it may not be sustained as the Auto-Industry is showing reduced revenues. This will present an opportunity to buy.
I will wait for investors to sent this stock crashing. There is good amount of expectation grilled into the price which is why PE is 16. When these expectations of growth are unfulfilled the stock will crash and the PE will come down to around 9, which would be a nice time to buy.
Attractive Buy price is in a Band of 160-200; Its a growth stock and likely to give good returns, if the management carries on sensibly.
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It could prove dangerous, this company. There are better companies out there.
It has pumped in good amount of debt to fuel its infrastructural needs. Although, it is posting a strong Net Profit Margin of 20% plus, where is the money! It is always strapped for cash as its Free Cash Flow is strongly negative.
Its debt has increased with increasing revenue. And ICR has taken a beating.
Such companies often have ego-headed maniacs on the board of directors who want keep expanding at the cost of debt. They have to keep pumping in more and more cash just to keep the show going.
Debtor days have jumped 3-folds. This looks much like the Opto Circuits Case.
All in all, unless you have a super strong reason, stay away from Gujarat Fluro.
It has pumped in good amount of debt to fuel its infrastructural needs. Although, it is posting a strong Net Profit Margin of 20% plus, where is the money! It is always strapped for cash as its Free Cash Flow is strongly negative.
Its debt has increased with increasing revenue. And ICR has taken a beating.
Such companies often have ego-headed maniacs on the board of directors who want keep expanding at the cost of debt. They have to keep pumping in more and more cash just to keep the show going.
Debtor days have jumped 3-folds. This looks much like the Opto Circuits Case.
All in all, unless you have a super strong reason, stay away from Gujarat Fluro.
Everything is possible in the stock market. Not to say that we can foresee those possibilities. However, what one can do is continually seek good companies. And leave the rest to time.
Yes, MCX has a unique business model with almost no competition. It does not need increased capital every year to feed the infra. It can easily accumulate FCF. But, before that a lot of junk needs to be cleared.
Yes, MCX has a unique business model with almost no competition. It does not need increased capital every year to feed the infra. It can easily accumulate FCF. But, before that a lot of junk needs to be cleared.
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