Supreme Industries - A strong company (both fundamentally and technically)

Supreme Industries is a very large part of my portfolio. A few weeks back someone I was discussing stocks with asked me why. We discussed the fundamental story for Supreme. But there is another reason why I hold such a large percentage in my portfolio. If you look at the last six months chart, you will realize that the stock touched 165 before its split and has subsequently been consolidating. It does not move down with the Index which provides great comfort. And this has been true in previous minor market corrections also. It simply moves in a very small range but refuses to go down substantially. You need some stocks like these in your portfolio to cushion market movements.

Markets Correcting: Should I buy or Sell?

ttA frantic phone call on my mobile today from a friend from Pune, India today got me thinking. The Sensex has corrected by nearly 1350 points in the last 5 trading sessions. The market participants are appearing on TV and pronouncing gloom and doom. Interestingly, these same people saw nothing wrong with the market a week back!
So, here is the gist of what I had to say to my friend today.

1. I have no idea if the market will go down further from here.
2. I have no idea if the market will go up from here.
3. Think from a overall business ownership perspective and not a stock ownership perspective. The last time I checked Ratan Tata had not sold his stake in Tata Motors or Tata Steel when the prices had collapsed in 2008, neither did Mukesh Ambani or Sunil Mittal. So, why should you start thinking of selling with every 1000-2000 point decline in an imaginary index?
4. If you are holding good businesses in your portfolio, then keep holding them. 
5. Use this decline to add to your holdings. Sure, the prices may go down 10% from here, but it may also go up 20%. I know of people who sold stocks around 18000 (Sensex) thinking that the market was getting overvalued. Unfortunately, for them, the index is still not back to that level. It may get there or it may not. Stop playing this game of prediction. It is a game no one can win.
6. When you invest you need to have a strategy. One which identifies when to buy, what to buy, when to sell and how much of cash to keep in your portfolio. If you have a proper strategy that answers all these questions, then just follow it. Please keep some cash aside to use for better opportunities that may come in the near future.

It has been best said by Warren Buffet, "The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values."

Happy Investing.

Andhra Sugars - A quick look

A friend of mine suggested I look at Andhra Sugars. I took a quick look and here are my observations.

Andhra Sugars is mainly involved in manufacturing sugar, alcohol & alco chemicals, aspirin, chloro alkali, sulphuric acid and super phospate. To support its operations, the company has its own power generation capacity including a wind power generator.

There is some traction in its sugar and caustic soda areas. Caustic soda prices have gone up by nearly 30% in the last few months and sugar prices are also firm.

The company has initiated carbon credit trading benefits.

Financials:-
1. Overall, the company's financial numbers does not inspire much confidence. The revenue growth over a 5-year period is nearly flat.
2. The same situation is present for both operating earnings and Net Profit. The FY06 to FY10 EPS CAGR is 2.57%.
3. There has been no equity dilution in the last 5 years
4. The company pays a healthy dividend and the yield is nearly 4% (Rs 5 on CMP of Rs 120) although the payout has been fluctuating and has been Rs 7.5,6,5,6,5 in the last 5 years.

Observation:-
The company may well perform in the near term due to its twin engines of sugar and caustic soda price realization, but I would be very reluctant to invest here as this is purely a commodity business and it results are hostage to the various commodity cycles. So, if you decide to invest, you need to track the commodity prices closely and pick ear;y signs of topping. That, too me, is a lot of work which I am not very good at.

Annual Result 2010

2010 comes to an end. Sensex started the year with 17,473 and closed the year 20509. It touched a high of 21,108 and a low of 15,651. On an annual basis the gain in Sensex was 21.38%.

My portfolio which started this year has returned a 43.40%. That is a little more than double that of Sensex. Hoping for a better 2011.

Balaji Amines: An Update

Balaji Amines has moved down from around Rs 56-58 the current levels of Rs 40-42. I am actually expecting it to do better than 7 EPS for Fy11. Pre-split my expectation was around Rs 35-38 for FY11 and Rs 44-46 for Fy12. ( I would not be very surprised if it does a little better than that). That means an EPS of 7-7.6 in FY11 and 8.8-9.2 in FY12.

Balaji's core business is doing well. Realizations have improved and the new product Morpholine is likely to enjoy better margins as it may attract anti-dumping duty in India.

This stock is a good candidate for attractive returns for the medium term (2-3 years) with a tentative price target of 70-80 by Mar-Apr 2011 and 95-100 by Mar-Apr 2012.

Goodbye to 2010. Getting Ready for 2011

Its that time of the year when you sit back and take stock. Of the year gone by and plan ahead for the one that is to come. 2010 was in a way a great year. The Indian stock market nearly scaled back to previous all-time highs before giving up some of its gains to catch its breath.

International financial news was dominated by the PIGS (no not the animal variety, but the countries of Portugal, Ireland, Greece and Spain). The domestic economies were on the verge of imploding for these countries. They are still not out of the woods, the problems are now known (atleast I hope so!!) and steps are being taken to bring their economies back on track.

Throughout the year we saw tension between US and China on the currency front. Going by past record, that is one problem that is not going to be sorted out any time soon.

The commodity cycle seems to have reversed in the last 12 months. A lot of commodities including rubber, copper, zinc, steel, gold and silver scaled new highs or are tantalizingly close to their old highs. This may continue and oil may also join the party. The consumption boom in India and China is not going away anytime soon, so commodity prices in my opinion will remain in an upswing in the future.

2010 was an interesting year overall. I am sure 2011 will bring in its own share of ups and downs. It promises to be an interesting year for me as I formally start my portfolio management initiative.

Wishing all a great year ahead :-)

Happy New Year.

Profit from Mr. Market

Recently, Mr. Market seems to be in a bad mood. He is coming and offering ridiculous prices for some good mid cap and small cap companies. The reason he is angry is that some brokers allegedly were trying to rig prices for some companies without or without the management's approval.

The initial reaction for most people when they see Mr. Market behaving like this is to take the price offered and run for cover with their hard-earned money. It is understandable as stock prices for some of the "named" companies have fallen by 40-50% in the last few days. Now, as retail investors we need to understand what is happening around us and why we have invested in the first place. If our time horizon is for the long term (I don't know why it should be otherwise for investing in equities), then these mood swings of Mr.Market is a fantastic opportunity to pick up good, solid businesses in the mid cap and small cap space. Question is can they go lower? Sure they can. But neither you nor I have the faintest idea what will happen tomorrow. So, instead of wasting precious time and effort in trying to predict tomorrow, it is better to be focused on the stock price. If you think you are seeing value in a business, then go ahead and start buying. And follow my golden rule. NEVER BUY OR SELL IN ONE GO. Always stagger your buying or selling.

Happy Investing.