- Oil marketing companies - in the next 1 week, all the 3 oil marketing companies (IOC, HPCL, BPCL) will pay out 2-3.3% of their current market value as dividends. This will be tax free in the hands of the shareholder. If one has spare money lying around in the bank, one can earn the equivalent of interest for the whole year in 1 week. And the best part is that it is going to be tax free! Of course the stock price will get adjusted downwards for the payout, but here the bet is on a continuing weak global economy and consequent weak oil prices. If crude oil prices remain below $73 per barrel, I think the oil marketing companies will rise in value at least 5-10% from here. It is a big IF, but I am comfortable with the risk / reward here.
- Tata Motors - sales of the Jaguar and Land Rover are picking up. The domestic business is going great guns - commercial vehicles are on a roll, the Nano is ramping up volumes, and demand for the Indica / Indigo are robust. If Jaguar and Land Rover sales sustain at the current trajectory, it will a) magnify earnings per share because of the highly leveraged capital structure of the company b) allow quick de-levering (high leverage has been a major overhang on the stock) and c) lead to a re-rating in the p/e or ev / ebitda multiples. The multiplicative effect of these 3 drivers could lead to $$$ returns! The rewards should more than compensate for the risk of downside.
- Tata Steel - a sentimental favourite for me. Currently trading at lower than 5 year average valuations due to fears about Corus performance. The brain likes it because a) the India operations are superb (lowest cost producer in the world), b) most of Corus' losses stemmed from the fixed costs at a particular plant, which has since been shuttered and put on the block and c) the Tata group have managed to turn around all of their global acquisitions - Tetley a decade ago to Jaguar Land Rover a couple of years ago. The heart likes it for reasons unknown! Overall risk / reward seems quite favourable.
- Sell or short Suzlon. Loads of debt (approx 10x EBITDA), negative EBITDA (high fixed costs), no new orders internationally in the last 3-4 quarters and general poor perception of quality (broken blades being a big issue with its windmills). The company does not have enough cash to even service its debt, let alone pay the principal back. As of now, seems like a candidate for bankruptcy. Again, I dislike this stock sentimentally for reasons unknown.
- Reliance Industries - because this is the big daddy of Indian stocks and has underperformed the Index by 30% this year. This cannot continue - either RIL should rise or the Nifty must fall. Long RIL - Short Nifty is one trade that suggests itself
Other ideas welcome!
5 comments:
i dint get the last trade : Long RIL and Short NIFTY,
isnt RIL a big chunk of NIFTY and consequently there prices are correlated?
@Roshan: exactly, because RIL constitutes around 14% to the Nifty, they should ideally move in lockstep. However, at the time of this post, RIL had underperformed the Nifty by 30%. This suggested that RIL would rise faster relative to the Nifty to get back to its long term correlation. Indeed, this trade has played out quite well recently. In the past month alone, this trade has returned around 13% in a month (which is a stupendous performance!)
Cheers,
ow.. thats a good trade indeed. i dint read the 30% under performance!
P.S : your blog is intersting and you right really well :)
It's not pyar ka side effect but bacche ka full effect.
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