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Friday, October 17, 2008

L&T, ICSA Stocks Views - Results Analysis - Types of Investors

Why L&T fell by 11%?

L&T posted impressive growth in sales and new orders but fall in operating margin and increase in debt worried investors. If a Company like L&T is facing the fall in OPMs, what about small construction companies? Bear market takes notice of only negative things. 74% growth in sales and 81% increase in orders failed to save the Company from fall due to increase in interest rate due to rising debt. I will continue to accumulate but you need to wait until value will be unlocked in subsidiaries in bull markets. L&T decided to concentrate only on high end orders for better margins. Its restructuring will yield results in the next year due to better focus.

Investors are also forgetting about positive things like fall in crude oil prices to $ 74 levels etc. These are really extraordinary times.

ICSA India Quarterly results: ICSA India announced 86% increase in net income and 66% increase in net profit in Q2 FY09. ICSA provides software and products to monitor and reduce transmission and distribution losses in the power, oil and gas sectors.

CMP: 190;  P/E: 5.5. Growth stock at P/E of 5- that is all about bear market. This stock will cross 500 in 3 years but not recommending for short term investors.

Quarterly results analysis:

1. Axis Bank announced very good results. These results are more significant in the International context where more banks are dealing with bailouts and bankruptcies. Stay away from IFCI.

2. Real Estate segment is moving from bad to worse situation. Mumbai property exhibition attracted muted response. Investors should stay away from this sector.

3. Indotech Transformers announced decent results while Tata Investment Corporation posted poor results.

4. CRAMS player Dishman Pharma may post good results while Wockhardt is the dark horse. Use these crashes to accumulate good Pharma stocks like Lupin, Glenmark and Sun Pharma. Jubilant Organosys and Biocon disappointed investors.

5. Hero Honda is a safe bet in automotive space while Maruti Suzuki and Mahindra and Mahindra may give negative surprises. Stay away from Tata Motors-more pain is still to come due to overseas acquisitions (bad decision).

NDTV Profit Awards: This business channel announced Business Leadership awards for best companies in their sectors. I picked some good companies in that awards list. Please do not treat them as short term stock recommendations. But I like most of them for long term accumulation.

1. 2 Wheelers: Hero Honda Ltd.

2. Banking (Public): Bank of India

3. Banking (Private): Axis Bank

4. Building &Construction &Infrastructure : Punj Loyd

5. Consumer Durables (White Goods): Whirlpool of India Ltd.

6. FMCG-Food: Nestle India Ltd.

7. FMCG - Personal Hygiene: Dabur India Ltd.

8. IT – Software: Infosys Technologies Ltd

9. Logistics : Blue Dart Express Ltd

10. Oil &Gas (Private): Reliance Industries Ltd.

11. Pharmaceuticals: Sun Pharma Industries Ltd

12. Telecom: Bharti Airtel Ltd.

Good articles:

1. Some investors are asking me a simple question about money- "who are the beneficiaries when we are losing money? Read this article by Economist John Sloman to understand about "how banking system works and why confidence is crucial in the financial system". This crisis in confidence is responsible for panic situation while overconfidence in the system leads to bubble. Contra investors treat these situations as investment opportunities as both leads to over selling (panic) or overbuying (bubble) situation.

2. Read this article to know about the lessons from 10 financial crises of the past. Similarity among financial crises is people generally tend to underestimate the impact on their lives.

Different types of investors:

1. Yahoo type: Yahoo is making new lows almost every day. But why some investors are still buying this stock. These investors are high risk takers. Their opinion is "Yahoo is a strong acquisition target" and Microsoft will buy it within one year at above $25 per share and we will 100% returns. What will happen if Microsoft will not buy Yahoo? They will lose heavily. Small banks will fall under this category.

2. Microsoft type: Microsoft lost just 15% in this market mayhem. Value investors buy stocks like Microsoft, Coca-Cola and Wal-Mart. Because Microsoft has huge cash flows, reasonable visible earnings and good track record. Its reasonable valuations and buyback offer are other attractions. Bharti Airtel and Hero Honda etc. will fall under this category.

3. Google type: Google shares lost 60% of value despite good growth prospects due to high valuations. Growth stocks fall heavily on bear markets and gain heavily in bull markets. Glenmark and Punj Loyd etc. come under this category. Fall is more and recovery will also be high in these scrips.

Who is wrong among the above 3 types of investors? If you analyse their minds, everyone is right in their perspective. It depends on your risk profile, your patience levels, investment principles and greed-fear levels.

Psychology of the Stock Market investors:

1. Yahoo Investors: High risk takers (greed but no fear)

2. Microsoft investors: Value investors (less greedy-more fearful)

3. Google investors: Growth investors (greedier-less fearful).

4. Visionaries: Patient investors. They buy stocks when no one think about that sector or stock and forget about it for 4-5 years. These investors generally get exceptional returns but how many of us have such patience levels. Motilal Oswal bought Bharti Airtel at Rs 25 and legendary investors bought Sesa Goa in 1991 and Infosys in 1997. That's the vision.

5. Contra investors: These are ultimate investors. One needs to have extreme guts to become a contra investor. Legendary Investor John Templeton invested in Japanese stocks when Japan is reeling under severe financial crisis. Japan took 11 years to recover from that crisis. Templeton waited patiently and got wonderful returns in 1981. How many of us have such vision, guts and patience?

Advice: One should choose their investment styles according to your needs and psychology. It is better to have all kinds of stocks in your portfolio.

Final advice: Frankly to tell that no one in the world knows about the severity and depth of current credit crisis and its implications on the economy. If you are a long term investor with two year horizon but don't have money, just forget about your investments. If you have money, gradually deploy the money in good stocks to build a great portfolio. Closely follow the quarterly results to find great stocks. It is waste to track your investments on daily basis in these painful days. Those who show vision and strong resolve will be rewarded but take time. Instead of developing knowledge and learning from mistakes, you continue to rely on tips- you will continue to lose money in stock markets.
Exerpts from article on Krishna's blog

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