Yeah you heard it right. Of all the stocks that i advised in last some time, most of them have given a decent return but the stock that would have made you triple your money was Amtek India. I suggested this stock on February 7, 2015 when it was trading at Rs 62.20. And today as I write, it is trading at Rs 182.20. It had good prospects and a decent P/E. Remember my seven rules and you will never go wrong.
Thursday, May 28, 2015
Thursday, March 5, 2015
Qualitative aspects of a stock
The RBI has again cut repo rates by 25 basis points which makes it easier for companies to borrow money and then invest and grow. The union budget declared last week was also visionary and well received. All this creates an atmosphere full of good investment opportunities. Even the foreign institutional investors realize that. That is the reason they are pouring in money in our stock market, But it should be diligently done. So coming to our last rule of investing in stock market, THE SEVENTH RULE.
While previously I discussed about the quantitative aspects that one should consider while investing in a company by evaluating its P/E ratio, P/Book value ratio, debt etc, one can never commit a mistake of overlooking the qualitative aspects of a stock. So what entails qualitative aspects.
When studying a company , one should see who is the owner of the company, who is the CEO, CFO and who are the people handling important portfolios. What are their credentials. If a company appoints a CEO who was in the past responsible for making a company or business hit, isn't it likely he will bring good to this company also! But at the same time do not ignore what the company pays its top employees. Are they being too generous in giving themselves hefty remuneration or buying swanky jet planes for their CEO. Or are they reasonable in spending money.
What is their consumer base? Do they have a significant monopoly in certain segments. Are some of their brands known worldwide. Is the product or service they provide in any kind of danger due to upcoming technologies! In case of pharmaceutical companies, do they spend enough money in their research and developmental activities and are their scientists coming up with new drugs for which they have exclusive patents.
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If you are thinking of investing in a stock of a bank, visit one of its branches. How was the service that was provided to you by the employees. Ask your chemist friends what pharmaceutical companies' drugs are preferred by doctors. Go to a grocery store, see what durable items are more common, which is the company making them.
All these and many more factors decide what will be the future of that company. What we see in the balance sheet is the past.Aa lot depends on these qualitative aspects for the balance sheet to produce consistent and better results.
But that does not mean that the company which is very famous or has a good qualitative aspect is ideal for investing. The previous six rules discussed shows whether the stock is overpriced or under-priced and you got to look for the latter ones, but with the qualitative aspect added to it.
PICK OF THE WEEK: There is no pick of the week. the market is jubilant with a good budget and rate cut by RBI due to the good sentiments, the market is slightly overpriced . So wait for a slight correction and then i will suggest you some more stocks. Till that time have a look at the stocks discussed previously. Some have done good, some are still there. It has been only couple of weeks. money does not grow on trees. so check out those stocks. We will come up with new interesting stocks later. Watch out for our article on how this budget affects different stocks.
While previously I discussed about the quantitative aspects that one should consider while investing in a company by evaluating its P/E ratio, P/Book value ratio, debt etc, one can never commit a mistake of overlooking the qualitative aspects of a stock. So what entails qualitative aspects.
When studying a company , one should see who is the owner of the company, who is the CEO, CFO and who are the people handling important portfolios. What are their credentials. If a company appoints a CEO who was in the past responsible for making a company or business hit, isn't it likely he will bring good to this company also! But at the same time do not ignore what the company pays its top employees. Are they being too generous in giving themselves hefty remuneration or buying swanky jet planes for their CEO. Or are they reasonable in spending money.
What is their consumer base? Do they have a significant monopoly in certain segments. Are some of their brands known worldwide. Is the product or service they provide in any kind of danger due to upcoming technologies! In case of pharmaceutical companies, do they spend enough money in their research and developmental activities and are their scientists coming up with new drugs for which they have exclusive patents.
If you are thinking of investing in a stock of a bank, visit one of its branches. How was the service that was provided to you by the employees. Ask your chemist friends what pharmaceutical companies' drugs are preferred by doctors. Go to a grocery store, see what durable items are more common, which is the company making them.
All these and many more factors decide what will be the future of that company. What we see in the balance sheet is the past.Aa lot depends on these qualitative aspects for the balance sheet to produce consistent and better results.
But that does not mean that the company which is very famous or has a good qualitative aspect is ideal for investing. The previous six rules discussed shows whether the stock is overpriced or under-priced and you got to look for the latter ones, but with the qualitative aspect added to it.
PICK OF THE WEEK: There is no pick of the week. the market is jubilant with a good budget and rate cut by RBI due to the good sentiments, the market is slightly overpriced . So wait for a slight correction and then i will suggest you some more stocks. Till that time have a look at the stocks discussed previously. Some have done good, some are still there. It has been only couple of weeks. money does not grow on trees. so check out those stocks. We will come up with new interesting stocks later. Watch out for our article on how this budget affects different stocks.
Sunday, February 15, 2015
How To Buy Cheap!
In any kind of Investment, The aim is to make profit. That can be done if you buy at a low price and sell at a high price. Selling High is a speculative venture and depends on whether the price of your investment will go up or not. And that is the reason we look into a company's credentials like P/E and book value and its growth . But to buy low is one decision that is in our hands.
How to do it!There is an anecdote in financial world. "If you see a 100 rupees note lying on the road, it is probably a fallacy because if it had been a 100 rupees note, it would have been grabbed by now." That is how rare a good buying opportunity is. If a company is good, people would have stumbled on to it before you, but as it goes, though good buying opportunities are rare, they do exist. A lot of times, some companies go into oblivion not because they are not doing good, but because the investing community has not paid much attention to it. And so with less demand, less price. But gradually people come to realize about that company's good performance and the demand increases and so does the price.
Also at times when the market performs poorly some stocks fall more than others for sometime. It is because of the sentiments. But there is no place for sentiments when it comes to investing. It is all about facts. What one needs to do is look for such stocks. For example , my last pick of the week Amtek Auto and Amtek India had fallen around 6 percent in one day when the market fell by 1.5 percent. But surprisingly it had given a good growth for the december quarter. And so within a week, it came back to its original price and I had a 6 percent return in one week! though i won't sell it for that.
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Now looking at Kwality dairy India limited, it used to trade at around Rupees 180 three years back, but now trades at around rupees 40. It fell during the period of recession and now has failed to take off. It has reported a consistent growth of around 20 percent. It trades at a P/E of around 6. It is only a matter of time that it picks up. When it comes to a decent price compared to its earnings compared to its peers is something that can not be predicted but it is something that can be expected.
Rule 6: Buy low. Buy during dips .Those dips should not be due to a legal case or poor profits.
Never buy a stock when it is trading within 10 percent range of its one year Highest value.
Pick of the week: Kwality Dairy India Limited. It is trading at Rupees 39.45 at NSE. It has a P/E of 6.03 and an annual growth of around 20 percent. It used to trade at around Rupees 180 three years back and has posted good profits since then.
Usher Agro: It is trading at rupees 50 at NSE with a P/E ratio of 2.16 and price to book value of 0.50. It had a high value of Rupees 150 three years back . It has shown a decent growth of 25 percent annually over this period.
How to do it!There is an anecdote in financial world. "If you see a 100 rupees note lying on the road, it is probably a fallacy because if it had been a 100 rupees note, it would have been grabbed by now." That is how rare a good buying opportunity is. If a company is good, people would have stumbled on to it before you, but as it goes, though good buying opportunities are rare, they do exist. A lot of times, some companies go into oblivion not because they are not doing good, but because the investing community has not paid much attention to it. And so with less demand, less price. But gradually people come to realize about that company's good performance and the demand increases and so does the price.
Also at times when the market performs poorly some stocks fall more than others for sometime. It is because of the sentiments. But there is no place for sentiments when it comes to investing. It is all about facts. What one needs to do is look for such stocks. For example , my last pick of the week Amtek Auto and Amtek India had fallen around 6 percent in one day when the market fell by 1.5 percent. But surprisingly it had given a good growth for the december quarter. And so within a week, it came back to its original price and I had a 6 percent return in one week! though i won't sell it for that.
Now looking at Kwality dairy India limited, it used to trade at around Rupees 180 three years back, but now trades at around rupees 40. It fell during the period of recession and now has failed to take off. It has reported a consistent growth of around 20 percent. It trades at a P/E of around 6. It is only a matter of time that it picks up. When it comes to a decent price compared to its earnings compared to its peers is something that can not be predicted but it is something that can be expected.
Rule 6: Buy low. Buy during dips .Those dips should not be due to a legal case or poor profits.
Never buy a stock when it is trading within 10 percent range of its one year Highest value.
Pick of the week: Kwality Dairy India Limited. It is trading at Rupees 39.45 at NSE. It has a P/E of 6.03 and an annual growth of around 20 percent. It used to trade at around Rupees 180 three years back and has posted good profits since then.
Usher Agro: It is trading at rupees 50 at NSE with a P/E ratio of 2.16 and price to book value of 0.50. It had a high value of Rupees 150 three years back . It has shown a decent growth of 25 percent annually over this period.
Sunday, February 8, 2015
In case of doubt, Go for consolidated!
Well first of all, I would begin with a small doubt that one of our follower had about how to trade. With times and technology changing, the necessity of having a broker and a separate trading account and other addendum are no longer there. All you got to do is open a demat account with a bank. I would suggest going for a reputed bank like HDFC or ICICI when you are entrusting your money with someone instead of a cheaper alternative. In he long term it won't have much difference.If you invest around one lakh, it will cost you around 300 bucks extra. That is not much for the ease and assurance that these banks provide.
Now coming to our Rule 5. When you look at the balance sheet of a stock. there are standalone numbers and there are consolidated numbers. Many large companies have some stake in their subsidiaries and depending on the percentage of claim they have in their subsidiaries, a part of profit or loss whatever that subsidiary is making as also its networth and liabilities are added to the standalone number. This gives us the value of consolidated balance sheet of the company. Now most of the trading advisory sites focus on the standalone numbers. But when you buy a stock, you are also buying a stake in their subsidiary and that should always be accounted for.Beware of a large company showing god profits in their standalone numbers and bleeding out through their subsidiaries.
The reverse case is also true. For example. go and check out Amtek Auto's last year standalone and consolidated numbers. Its consolidated EPS(earning per share) is three times its standalone number.
This brings the P/E from around 11 when we take the standalone numbers to 4 when we take consolidated values. Even the book value goes up one and a half times when we consider the consolidated value.
So,its a good practice to check the standalone numbers to see how the parent company is doing, but when there is a big discrepancy between the two, consider consolidated numbers. This is a very important factor for value investors like us, because it is generally ignored by short sighted traders looking for quick profits.
RULE 5: Between Standalone and Consolidated values, Consider Consolidated Values.
PICK OF THE WEEK: Amtek Auto. With a consolidated EPS of Rs 42 last year, It is a good buy at Rs 158.20. Also it is trading at a price significantly less than the book value. There is another important factor. It is an auto ancillary company with a significant presence in Europe and for the first time in last six years since the economic crisis, Europe has shown positive car sales growth. It is making public its December results on 12 Feb 2015. Watch out.
Amtek India also seems a good bet in this regard.It is trading at Rs 60.20 currently at BSE. Check it out yourself.
In case of any doubts on investment decisions in stock market, do write to us. we will get back to you in no time.
Now coming to our Rule 5. When you look at the balance sheet of a stock. there are standalone numbers and there are consolidated numbers. Many large companies have some stake in their subsidiaries and depending on the percentage of claim they have in their subsidiaries, a part of profit or loss whatever that subsidiary is making as also its networth and liabilities are added to the standalone number. This gives us the value of consolidated balance sheet of the company. Now most of the trading advisory sites focus on the standalone numbers. But when you buy a stock, you are also buying a stake in their subsidiary and that should always be accounted for.Beware of a large company showing god profits in their standalone numbers and bleeding out through their subsidiaries.
The reverse case is also true. For example. go and check out Amtek Auto's last year standalone and consolidated numbers. Its consolidated EPS(earning per share) is three times its standalone number.
This brings the P/E from around 11 when we take the standalone numbers to 4 when we take consolidated values. Even the book value goes up one and a half times when we consider the consolidated value.
So,its a good practice to check the standalone numbers to see how the parent company is doing, but when there is a big discrepancy between the two, consider consolidated numbers. This is a very important factor for value investors like us, because it is generally ignored by short sighted traders looking for quick profits.
RULE 5: Between Standalone and Consolidated values, Consider Consolidated Values.
PICK OF THE WEEK: Amtek Auto. With a consolidated EPS of Rs 42 last year, It is a good buy at Rs 158.20. Also it is trading at a price significantly less than the book value. There is another important factor. It is an auto ancillary company with a significant presence in Europe and for the first time in last six years since the economic crisis, Europe has shown positive car sales growth. It is making public its December results on 12 Feb 2015. Watch out.
Amtek India also seems a good bet in this regard.It is trading at Rs 60.20 currently at BSE. Check it out yourself.
In case of any doubts on investment decisions in stock market, do write to us. we will get back to you in no time.
Saturday, February 7, 2015
Interest on debt grows without rain
Debt is a very important factor while considering to buy a stock.A company might be selling at a price lower than its book value and may also have a low P/E. It may also be growing at a decent rate. But what if the company owns a lot of debt and during one year of loss, it ends up selling a lot of its assets to pay the interest.
Whenever anyone takes a loan, he needs to return not only the principal but also pay an interest of around 10-15 percent.So while buying a stock, look at the balance sheet and see the loans a company has, compare it with the networth it has and also the interest it is paying annually.
So where can you find all this information. When you look at the balance sheet of a stock, there are few terms you got to put more stress on.
Networth(Stockholders' Equity) = the value of assets the shareholders hold, which includes the equity capital which was the money when it was raised and reserves , which is the money that is subsequently added to the kitty.
Stockholders' Equity divided by total number of shares= Book value of the share (from our previous article)
Liabilities= this includes secured and unsecured loans
Liabilities and Stockholder' equity= Assets
Liabilities and stockholders' equity is equal to the assets( land, machinery and inventory ) the company holds.
The interest the company pays annually can be seen in the profit and loan section.
Now suppose the company has a networth or equity of 100 crore and debt of 1000 crore. So its total liability and equity is 1100 crore. Its assets also should be 1100 crore. Now, suppose the company is making a profit of 200 crore every year. To pay the interest on debt. the company pays 100 crore(assuming the interest to be around 10 percent). Now one year the company does not make a profit. To pay that years' interest of 100 crore, their entire equity will be used up and all the money of shareholders' would be gone. Though the company would not do that and take some money as loan and wait for the next year to stabilize and return to profitability. But this is what i am talking about. Interest on debt grows without rain.
At the same time, if a company does not take any loan , it is letting go the opportunity it could have had by using that money to make more profits. so what is the ideal debt.
RULE 4: A company's debt should be less than half of its networth or equity.
The annual interest it pays should be less than quarter of its PBIDT(profit before Interest, Debt and Tax)
Now time for the pick of the week: Tara Jewels. It is trading at Rs 77.50 at NSE presently.
It is a decent stock which has a debt around half of its networth. it is trading at less than half of its book value. It has a P/E of around 4. Some sites may show a P/E of 6, but i am using the consolidated results for computing P/E as they are more reliable. The difference between standalone and consolidated results will be discussed in next article.
For any queries about investing in equity, just post us in a comment and we will solve your doubts in 24 hours.
Whenever anyone takes a loan, he needs to return not only the principal but also pay an interest of around 10-15 percent.So while buying a stock, look at the balance sheet and see the loans a company has, compare it with the networth it has and also the interest it is paying annually.
So where can you find all this information. When you look at the balance sheet of a stock, there are few terms you got to put more stress on.
Networth(Stockholders' Equity) = the value of assets the shareholders hold, which includes the equity capital which was the money when it was raised and reserves , which is the money that is subsequently added to the kitty.
Stockholders' Equity divided by total number of shares= Book value of the share (from our previous article)
Liabilities= this includes secured and unsecured loans
Liabilities and Stockholder' equity= Assets
Liabilities and stockholders' equity is equal to the assets( land, machinery and inventory ) the company holds.
The interest the company pays annually can be seen in the profit and loan section.
Now suppose the company has a networth or equity of 100 crore and debt of 1000 crore. So its total liability and equity is 1100 crore. Its assets also should be 1100 crore. Now, suppose the company is making a profit of 200 crore every year. To pay the interest on debt. the company pays 100 crore(assuming the interest to be around 10 percent). Now one year the company does not make a profit. To pay that years' interest of 100 crore, their entire equity will be used up and all the money of shareholders' would be gone. Though the company would not do that and take some money as loan and wait for the next year to stabilize and return to profitability. But this is what i am talking about. Interest on debt grows without rain.
At the same time, if a company does not take any loan , it is letting go the opportunity it could have had by using that money to make more profits. so what is the ideal debt.
RULE 4: A company's debt should be less than half of its networth or equity.
The annual interest it pays should be less than quarter of its PBIDT(profit before Interest, Debt and Tax)
Now time for the pick of the week: Tara Jewels. It is trading at Rs 77.50 at NSE presently.
It is a decent stock which has a debt around half of its networth. it is trading at less than half of its book value. It has a P/E of around 4. Some sites may show a P/E of 6, but i am using the consolidated results for computing P/E as they are more reliable. The difference between standalone and consolidated results will be discussed in next article.
For any queries about investing in equity, just post us in a comment and we will solve your doubts in 24 hours.
Friday, January 30, 2015
Money does grow on trees.
Sell Axis Bank! I generally don't start by giving an unsolicited advice. My idea is that you don't give a fish to someone you care for, you teach them fishing. But today this advice was something that seemed necessary. I made a Rs 50 grand profit each on Axis bank and Kovai medical , both of which i bought 3 months back at around 50 grand each( Infact 65 for Axis and 50 for Koavi medical.) Anyways the point is they are trading at such a level which crosses our safety limit. Their P/E is way above 12.5, remember from our previous lesson and they are trading at way above their book value.
Now we begin with our third rule which pertains to growth. The company should be growing at a decent rate. When i talk about growth, it doesn't mean that the company should double its profit in 2 years. It means it should increase its profit at a decent rate and more importantly it should not have a year where it made an overall loss in last 5 years. There may be times when the company makes a profit less than the previous year but this trend should not be followed next year. As my father ,who is also a good investor, says a company's profit will not slide from 100 crore to 10 crore in 1 year. There would have been subtle signs in the Profit and loss of that company in last 5 years.
RULE 3: Invest in a company with a decent growth of around 5-10% and stable earnings and no year with loss in last 5 Years.
The formula: P/E=8.5+2Gwhere G is the growth of the company in percentage, if P/E of the company is less than 8.5+2G, its worth the buy.
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So how do you calculate growth.It can be calculated by subtracting the last years net Profit from current years net profit and dividing it by last years net profit and multiplying it by 100. Simple maths! The other parameters that can be used instead of net profit are earning per share and Profit before interest, depreciation and tax (PBIDT).
For eg. A company's net profit in 2013 was 10 crore and in 2014 was 12 crore. so the growth of the company would be {(12-10)/10}x100= 20 percent. calculate similarly for last 5 years and take an average.
Be careful when you use EPS(earning per share) for calculating growth. Sometimes the company issues new shares or buy back old shares which can increase or decrease the number of shares and affect the EPS in subsequent years.
Another thing to be noted is that some times a company gets an exceptional profit. eg winning a case and compensation or makes an exceptional loss due to some unforeseen circumstances. As long as that gain or loss is not too huge, you should ignore that from your calculations.
Now time for the pick of the week.Venus Remedies Ltd. The company's P/E is as low as 3.84, which is good. Right!
Monday, January 19, 2015
Its All About What you Earn!
And so the market has hit an all time high of 28202 and as i keep saying its not the best time to invest, and why is that so, i shall brief you later.Its the time to learn some basics. The other day I was talking to a senior who also invests in stock market. When I asked him his style of investing, he told me that he invests in companies whose products he uses or finds in demand. Pretty rational explanation it seems, huh!
Actually its not. Its always good to check which companies are being commonly used by people and that should be an important consideration, which i shall explain in my Rule 5 pertaining to qualitative aspects of investing. But here is the catch, if it was so simple, everybody would have done so and become multimillionaires, but that is not possible since if all people have a lot of money, the importance of money or its purchasing power would depreciate. So much for the moral lecture but actually it is a fact in economics . The catch is that those companies which are popular would be in demand and you know what happens to the girl or guy who is most fancied by the opposite sex in college, his or her rates go up and its not worth the effort. Simple! If a company is already trading at a high price , probably it won't go further up.
So now coming to my second Rule of hitting it big in stock market.
Rule 2: Never Buy Any Stock with a P/E value of 12.5.
Now a lot of people would be wondering what is P/E. P/E means price to earnings ratio. Price is the market price of the share, and NOT the book value( Remember Market price and Book Value from our old post). and Earning is earning per share of the stock in one financial year. Suppose a company earned Rs 1o lakh from its last year's operations and there are 1 lakh shares. how much would the EPS( earning per share) be? yes ,you guessed it right. It would be Rs 10.
Now a company whose share price is Rs 100 with an earning per share would have a P/E of 10 which is okay. Now lets say this same company started having better sales and ended up having an annual earning of Rs 1 crore. That's cool! a growth of 900% in 1 year but its share price sky rocketed to Rs 2000. Now its earning per share(EPS) will be Rs 100(Rs 1 crore divided by 1 lakh shares) and so the P/E becomes 2000/100= 20. Now despite the fact that this company has done very well in the last year it is risky to invest in such a company. I am not saying its a bad company to invest in, it may continue its upward swing but thats a speculation.And I am not teaching you how to gamble. Growth is an important consideration which i will talk about in my next Rule but for now even if the company is growing very fast, if it has a P/E of 12.5 or more, do not buy.
See I already told you that the essence of investing is just like marriage. You don't look for the best features. You rule out the points that make living with that person impossible. So for now if a share has a book value of more than 1.5 its market price or if it has a P/E of more than 12.5, just back off. There are plenty of fishes in the sea.If you are wondering how I came to a P/E of 12.5, just check the rate of return of a bank fixed deposit or EPF and toggle it upside down. you would understand. An FD is the best rate of return which is assured to you in an indian scenario. In other countries the rates are different and so i will go for a different cut off for P/E.
Now time for the pick of the week. even when the market is skyrocketing. There are some stocks which are selling cheap. one of them is Syndicate Bank . At 128 Rupees a piece , it has a P/E value of 5 and book value of around Rs 190 with a Book value to market price of 0.68. Its a public sector bank where average P/E is 12.46 . Ya I know what you are thinking. Its CMD was embroiled in a controversy involving bribery and all. Guess what they are getting a new CMD. See here is how it goes.Its a government owned bank. Can government go bankrupt! No. And even if some rogue elements were indulging in wrong practice, it doesn't matter the entire bank is bad, plus even if they make a little less profit for a year or so because of the bad loans they gave, They still have a cushion of 150% when it comes to P/E of public sector bank. as market sentiments get better. it will pick up.Also the new BJP government is trying to revamp the public sector banks by infusing more money nad increasing its accountability because more than half of its shares belong to government and thus half its earnings
so Rule of the week:Never Buy Any Stock with a P/E value of 12.5.
and Pick of the week: Syndicate bank. it is trading at Rs 128.65 as of today, 19 January 2015
Actually its not. Its always good to check which companies are being commonly used by people and that should be an important consideration, which i shall explain in my Rule 5 pertaining to qualitative aspects of investing. But here is the catch, if it was so simple, everybody would have done so and become multimillionaires, but that is not possible since if all people have a lot of money, the importance of money or its purchasing power would depreciate. So much for the moral lecture but actually it is a fact in economics . The catch is that those companies which are popular would be in demand and you know what happens to the girl or guy who is most fancied by the opposite sex in college, his or her rates go up and its not worth the effort. Simple! If a company is already trading at a high price , probably it won't go further up.
So now coming to my second Rule of hitting it big in stock market.
Rule 2: Never Buy Any Stock with a P/E value of 12.5.
Now a lot of people would be wondering what is P/E. P/E means price to earnings ratio. Price is the market price of the share, and NOT the book value( Remember Market price and Book Value from our old post). and Earning is earning per share of the stock in one financial year. Suppose a company earned Rs 1o lakh from its last year's operations and there are 1 lakh shares. how much would the EPS( earning per share) be? yes ,you guessed it right. It would be Rs 10.
Now a company whose share price is Rs 100 with an earning per share would have a P/E of 10 which is okay. Now lets say this same company started having better sales and ended up having an annual earning of Rs 1 crore. That's cool! a growth of 900% in 1 year but its share price sky rocketed to Rs 2000. Now its earning per share(EPS) will be Rs 100(Rs 1 crore divided by 1 lakh shares) and so the P/E becomes 2000/100= 20. Now despite the fact that this company has done very well in the last year it is risky to invest in such a company. I am not saying its a bad company to invest in, it may continue its upward swing but thats a speculation.And I am not teaching you how to gamble. Growth is an important consideration which i will talk about in my next Rule but for now even if the company is growing very fast, if it has a P/E of 12.5 or more, do not buy.
See I already told you that the essence of investing is just like marriage. You don't look for the best features. You rule out the points that make living with that person impossible. So for now if a share has a book value of more than 1.5 its market price or if it has a P/E of more than 12.5, just back off. There are plenty of fishes in the sea.If you are wondering how I came to a P/E of 12.5, just check the rate of return of a bank fixed deposit or EPF and toggle it upside down. you would understand. An FD is the best rate of return which is assured to you in an indian scenario. In other countries the rates are different and so i will go for a different cut off for P/E.
Now time for the pick of the week. even when the market is skyrocketing. There are some stocks which are selling cheap. one of them is Syndicate Bank . At 128 Rupees a piece , it has a P/E value of 5 and book value of around Rs 190 with a Book value to market price of 0.68. Its a public sector bank where average P/E is 12.46 . Ya I know what you are thinking. Its CMD was embroiled in a controversy involving bribery and all. Guess what they are getting a new CMD. See here is how it goes.Its a government owned bank. Can government go bankrupt! No. And even if some rogue elements were indulging in wrong practice, it doesn't matter the entire bank is bad, plus even if they make a little less profit for a year or so because of the bad loans they gave, They still have a cushion of 150% when it comes to P/E of public sector bank. as market sentiments get better. it will pick up.Also the new BJP government is trying to revamp the public sector banks by infusing more money nad increasing its accountability because more than half of its shares belong to government and thus half its earnings
so Rule of the week:Never Buy Any Stock with a P/E value of 12.5.
and Pick of the week: Syndicate bank. it is trading at Rs 128.65 as of today, 19 January 2015
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