Stocks for the long and short term portfolio

[jain.er]

Amit why do thing MCX is a fraud company, its parent is a fraud company but MCX has a sound business model and It was a great no brainer by at 300 odd (**** Why the hell I missed) even HDFC invested at those levels.

 

[jamit_05]

Amit why do thing MCX is a fraud company, its parent is a fraud company but MCX has a sound business model and It was a great no brainer by at 300 odd (**** Why the hell I missed) even HDFC invested at those levels.

Nevermind the several other issues that are still unclear, but one problem with MCX that immediately comes to mind is this:

Before the scam was exposed, MCX posted huge turnovers and brokerage gains from them. These were fraudulent and the companies chieftains greatly benefited. However, after the scam MCX is going to have to survive with a much lower turnover. This makes us wonder, does the enterprise have the leadership to restructure expenses (read: top level employees and their perks)? It may, but it is rare that an MD who once had 5 BMWs will now settle for less.

The business model is great, just like Satyam. And on similar lines we may see another corporate move in to buy out MCX from the parent. But, those are all ifs. Nothing is clear.

Moreover, MCX started quoting at around 1400 in March 2012. Then came the scam after which the revenues significantly reduced. So we do not really know at what price should MCX be valued. Who knows, it may even lose another 50% from here.

There are a lot of ifs. The business is good, low in investment and high on consistency. But, it is in a mess.

 

[bajica]

Hi,

Have been following this thread from start.
Had read somewhere that SBI is good for investment below 1500.
So I think you would be ready with a mini war-chest for investment purposes now.

 

[jamit_05]

Hi,

Have been following this thread from start.
Had read somewhere that SBI is good for investment below 1500.
So I think you would be ready with a mini war-chest for investment purposes now.

Right on, my friend.

Had already bought at Rs.1800... and still holding. Will buy more at 900 levels.

 

[jain.er]

then keep holding your war chest with yourself 900 not possible even in dreams

 

[hauler]

Nevermind the several other issues that are still unclear, but one problem with MCX that immediately comes to mind is this:

Before the scam was exposed, MCX posted huge turnovers and brokerage gains from them. These were fraudulent and the companies chieftains greatly benefited. However, after the scam MCX is going to have to survive with a much lower turnover. This makes us wonder, does the enterprise have the leadership to restructure expenses (read: top level employees and their perks)? It may, but it is rare that an MD who once had 5 BMWs will now settle for less.

The business model is great, just like Satyam. And on similar lines we may see another corporate move in to buy out MCX from the parent. But, those are all ifs. Nothing is clear.

Moreover, MCX started quoting at around 1400 in March 2012. Then came the scam after which the revenues significantly reduced. So we do not really know at what price should MCX be valued. Who knows, it may even lose another 50% from here.

There are a lot of ifs. The business is good, low in investment and high on consistency. But, it is in a mess.

Change in ownership and sooner the management almost looks inevitable. The big discounting for that process is good enough in my understanding.

 

[jamit_05]

Change in ownership and sooner the management almost looks inevitable. The big discounting for that process is good enough in my understanding.

In this process of changing it becomes speculative to judge the depth of pessimism amongst investors. MCX is fairly newly listed and we do not really know what price the big investors see as fair. Just like in RPower.

It is a company with a good business model. I will wait for it to sufficiently consolidate.

 

[jamit_05]

Need to add more to the list of growth stocks. Rejected three companies this week. Companies that generate Free Cash, with low debt, decent net profit margins, organic growth and such a history are hard to find, low PE and a easily saleable product without need for continuous innovation.

Growth Stocks:
------------------

1) Petronet LNG
2) Gruh Finance
3) HDFC Bank
4) Axis Bank
5) Cummins India
6) Greaves Cotton
7) Gujrat Gas
8) Swaraj Engines
9) Amara Raja

 

[jamit_05]

Having settled on Amara Raja as a better company than Exide in terms of promise for growth, the primary concern is still not addressed: Which can be bought?

ARB is near all times high in price and PE. It is expensive, where as Exide's EPS is shrinking/correcting. But, PE is still high, around 17.

Since, Exide's EPS has topped out in Rs.5 to Rs.7 per share range, I do not place it under the growth stock section. Hence, purchase at such high PE is not warranted.

In conclusion, both, Exide and ARB are expensive.

 

[jamit_05]

There is one stock in that list which attracts immediate attention: Gujarat Gas.

Following are the reasons why I think it may be ready for purchase:

1) Its PE is at all time low in recent history.
2) Inspite of steady increase in EPS .
3) FCF is steady too
4) Capex is in proportion to FCF
5) Dividends are regular, although subdued this year.

My target for Earnings Yield is around 10% for bigger and established companies, for smaller ones its 15%.

So, to meet this requirement, with an average EPS of Rs.25 Gujrat Gas would have to trade at Rs.166 to become a purchase.

Importantly, considering an average Dividend of Rs.10 per share and Rs.160 per share of purchase price, Annual Dividend Yield becomes around 6%. That is very nice. As good as returns from FD (minus taxes, Div are tax free).