Investment

22Jul2019

  • Two-thirds Nifty stocks trade at 10-70% discount to their 52-wk highs; should you buy?
  • Sensex stocks are also following a similar trend and 18 of them are trading at 10-70 percent lower than their respective 52-week highs
  • The situation in the broader market is not encouraging either. 56 stocks in the top 500 on the NSE are trading at a discount of 50-90 percent from their respective 52-week highs
  • Below list of stocks though have fallen far from their respective highs and look reasonably valued, but unlikely to see a reversal soon, suggest experts. Hence, long term investors should stay away.

19Jul19 :

  • Foreign institutional investors have been net sellers to the tune of around Rs 7,000 crore so far in July against net buying in previous five consecutive months
  • Over 300 stocks hit 52-week low as Sensex erases 400 pts; Maruti, Mahindra, Yes Bank among top losers
  • The fall was so sharp that more than 300 stocks hit 52-week low including bigwigs such as Maruti Suzuki, M&M, GAIL India, Eicher Motors, Aurobindo Pharma and Yes Bank.
  • Some of these stocks were trading at multi-year lows including Maruti which was facing the repercussions of a slowdown in the auto industry, that is expected not to recover by end of this year.

Sunil Shah Framework of Investment in Stocks

Graph Pyramid

Some key filters to each stock he picks: sustainable return on equity, low debt-to-equity ratio, high cash flow from operations, low working capital,
solid sales & profit growth and prudent capital allocation

Relies on certain non-quantifiable factors to judge the quality of a business. Market feedback on quality and competence of the management, its track record in bull and bear markets, size of business opportunity and the company’s willingness and readiness to seize new ones, the competitive edge the business enjoys are some of the key attributes that can tell where a business is headed 

price-to-replacement cost. “This is one of the ratios that tells you if the assets are available at a bargain. It can largely be applied to cyclical businesses,” 

he typical textbook measures like discounted cash flow, price-to-earnings ratio, PEG ratio, EV/EBITDA, EV/EBIT and peer valuation maths also come in handy in deciding when to enter or exit a stock. 

Investor guide
Shah recommends Poor Charlie’s Almanack, a compendium of lectures delivered by Charlie Munger on core principles of life, as a must read for every serious investor. “This book is full of wisdom that one can get on life, investment and business.” 

He also recommends Mastering the Market Cycle, The Most Important Thing, Education of a Value Investor, Of Long-Term Value and Wealth creation, The Intelligent Investor, Security Analysis, Rich Dad Poor Dad an .. 

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