[mobydick1983]

Does anyone have an idea about this stock Pricol Ltd? I am new to the stock market and this was recommended by an acquaintance. It is trading at its 52 week low currently.

[SmartCat]

Originally Posted by mobydick1983

Does anyone have an idea about this stock Pricol Ltd? I am new to the stock market and this was recommended by an acquaintance. It is trading at its 52 week low currently.

It is trading below book value and paid dividends despite losses. Other than that, I'm struggling to find any other positives in this stock. In these markets, stocks like Pricol can go down 90% (Rs. 100 stock becomes Rs. 10) before recovering.

As a new investor, stick to well known brands.

[cyberwhizs]

@smartcat .Really good thread.


I do know of some folks who invested in the stock market at the right time - 80s/90s for the long term and successfully converted their thousands to millions. But bulk of it was pure luck rather than a detailed technical analysis we see being done these days.

Today, bulk of the general folks are into day trading, akin to standing on a platform and getting onto a train blindfolded and then betting which direction the train will move. Your thread and investing approach was a welcome break from typical hare brained schemes offered as advice free & paid by self proclaimed investments experts.

A couple of years ago or so, someone close to me asked how was tata motors doing, it was just around the launch of zest, so I mentioned about new product line etc etc. and how tata motors was turning a new leaf in the passenger car business etc. Net result was a stock purchase - not a very large sum but substantial all the same.

Subsequently, when the stock went up - i got a nice smile for my "advice/inputs" - and then started the downward slide, with tata motors hitting 220 - a new 52 week low.

So, i started my research to find out what is happening and in the process stumbled on this thread.

Few things
1. Most brokerages houses have put a "buy" on tata motors
2. Tata sons seem to have bought back shares worth 700 crores @270/share from the market in august.
3. The last quarter earnings were negative
4. Debt to equity ratio seems to have improved.
5. No dividends for a while. Very few companies have paid dividend since 2016.


I do not trade in the stock market but am currently considering investing - long term buys. Though all stocks peaked in Jan/Feb 18 and have come off their peaks by atleast 20 % - 25% Tata motors seems to be on faster downward spiral. Can you help me understand what is happening with Tata Motors in specific here.

Has the price bottomed out and is worth picking up this stock?

PS: I do own a Tata vehicle. :-)

[vahss_11]

@smartcat - Just a suggestion, I dont think it would be prudent to give stock recommendations as one has to avail SEBI registration as Investment adviser before giving out stock specific views. Just dont get yourself into trouble from SEBI or other regulators.

Also, We should avoid giving specific stock ideas as to when and what to buy. Better would be to just discuss the business model and other economic views instead of price and entry/exit prices.

I'll suggest all new participants to kindly buy Mutual fund units after checking their cost/charges and the fund manager's background/history. Direct investing isn't for everyone nor should be taken as a mode for deploying cash if one can't put in the time and efforts required to understand the business and risks involved.

Also, please understand that investing should be viewed as how much risk you can accept and only after that you should think about gains.

[SmartCat]

Originally Posted by cyberwhizs

I do not trade in the stock market but am currently considering investing - long term buys. Though all stocks peaked in Jan/Feb 18 and have come off their peaks by atleast 20 % - 25% Tata motors seems to be on faster downward spiral. Can you help me understand what is happening with Tata Motors in specific here. Has the price bottomed out and is worth picking up this stock?

Till recently, Tata Motors was a like a cricket team with strong batting lineup (JLR) and weak bowling (Tata cars & CVs). But now, Tata Motors has weak batting lineup (JLR business) and strong bowling (Tata cars & CVs).

Tata Motors India business recorded an impressive profit of Rs. 1000 cr last quarter, but JLR story has soured a bit. There are 2 issues with JLR right now -

1) Tariff wars between USA and China. This has messed up JLR's supply chain. This issue has affected almost all the global car manufacturers.
2) Uncertainty regarding exit of Britain from EU without a tariff deal. If no free trade deal is sealed, then exports of JLR cars from Britain to EU will take a hit

To me, both issues look like they are temporary in nature. If tariffs stay, production will eventually move to countries where the market is.

[cyberwhizs]

Originally Posted by smartcat

Till recently, Tata Motors was a like a cricket team with strong batting lineup (JLR) and weak bowling (Tata cars & CVs). But now, Tata Motors has weak batting lineup (JLR business) and strong bowling (Tata cars & CVs).

Thanks for the explanation. I had no idea that JLRs fortunes would impact the Indian Tata Motors script to such an extant, always thought that JLR would impact the NYSE/NASDAQ or wherever Tata Motors was listed. My misunderstanding.

How does one figure out that a script has bottomed out ? Be it tata motors or maruti which has tanked quite a bit over the last couple of weeks. Actually if you look many automotive stocks have dropped by around 20 - 25% since the peak. Is this downtrend on account of factors specific to automobile sector or is it just general market correction?

Somehow I feel mutual funds are akin to letting your driver take complete control getting you to your destination. And Team-bhpians like to drive
Mutual funds esp. growth funds are also similar to direct investing, very few funds have offered sustained returns year-on-year, They are as risky as direct investing, if one does not exit at the right time.

I have a few more questions, in terms of valuation i have observed that

1. companies having lower debt to equity ratio have higher PBV and many times higher PE.
2. profit making companies with significant financial institution holdings have higher PBV irrespective of PE. these stocks are significantly more volatile.
3. What are good PBV , PE values? is it purely a comparative score for an industry? shouldn't one at the basic fundamentals that justify that valuation?
4. What does the buyout by Tata Sons to the tune of 700 cr indicate?
5. In not so distant past, some of the good engineering companies did a buy back and exited the market - alfa laval, sandvik, atlas copco etc. Most of them were based in pune and had swedish origins. Alfa laval was a good stock, Any reason why they wound up from the indian stock market?

Would love to hear your views on the same. Thanks

[SmartCat]

Originally Posted by cyberwhizs

How does one figure out that a script has bottomed out ?

I don't think anybody can figure that out. You buy when you find "value". And don't bother looking at how much you are in the red because everybody else is in the same boat. Eventually the stock will be back in the green, provided you did not buy a poor quality stock.

Is this downtrend on account of factors specific to automobile sector or is it just general market correction?

The entire market is down. And this happens quite often, so remember the famous Gabbar Singh dialogue - Jo Darr Gaya, Samjho Mar Gaya

1. companies having lower debt to equity ratio have higher PBV and many times higher PE. 2. profit making companies with significant financial institution holdings have higher PBV irrespective of PE. these stocks are significantly more volatile.

I don't think you have got this right.

1) Brand names like Maruti, M&M, TVS, Bajaj Auto, Castrol etc trade at higher PBV ratio & PE ratio than most other stocks. Because they have something called "BRAND VALUE" that does not show up in the networth of the company. An outlandish but relevant example -

Premier Rio:



Now, this is obviously a flop model. But had this been sold by MARUTI instead of Premier Automobiles, probably this car would have clocked 2000 to 4000 units per month. Because Maruti has invisible strengths like -

- Large dealership network
- Assumption by general public that Rio will offer troublefree, reliable and low cost ownership.

The stock market considers the above two 'invisible' advantages Maruti has, and gives it a valuation premium. Now, lets look at another example: Bharat Petroleum



Sure, the company tries to advertise their products on TV as brands - but we all know that petrol or diesel bought from BPCL is pretty much the same you get at Hindustan Petroleum and Indian Oil. Basically, HPCL/BPCL/IOC will not trade at high PE or high PBV, because they have little or no brand value. Ditto with majority of auto component makers. They have close to zero brand value and in an ideal world, trade at low price to book value and PE ratio. There are few exceptions though, like Bosch or Motherson Sumi.

3. What are good PBV , PE values? is it purely a comparative score for an industry? shouldn't one at the basic fundamentals that justify that valuation?

It's not a rule but these are my investment preferences:

1) If it is a brand like Maruti or Hero Moto, I will buy if PE Ratio is less than 20 and it offers a minimum dividend yield of 2%. I chose 20 because historically, almost all the solid brands have grown at 15 to 25% per annum over a long period of time.
2) If it is not a brand (auto component makers, fuel retailers etc), then I would buy it when its market price is equal to networth (PBV<1) and it offers a minimum dividend yield of 3%.

But then, I'm quite a conservative (when it comes to valuations) and patient investor, and my strategy is to wait for stocks I like to get into my "buy zone". Aggressive stock market investors have different strategies that work. Eg: They look at high RoE, no debt and high 30 or 40% profit growth. Such investors will buy even it the stock is trading at 40 or 50 PE.

5. In not so distant past, some of the good engineering companies did a buy back and exited the market - alfa laval, sandvik, atlas copco etc. Most of them were based in pune and had swedish origins. Alfa laval was a good stock, Any reason why they wound up from the indian stock market?

They got listed in the stock market long time back because it was compulsory for MNCs to do so. Now that rule is not there, so management decided to delist from Indian markets. That's because they are already listed in their respective home countries.

[sgiitk]

I will repeat there are too many uncertainties in the auto sector. Anything you buy may go the way of photographic film. So I will best stay out till dust settles.

[cyberwhizs]

@smartcat : wonderful insight, Thank you. The Premier Rio example was spot on.

Come to think of it Premier is trading at 12-14Rs, having accumulated loses over the years and having almost shut shop...

I do agree to your conservative strategy to grow with the company, however i am not sure if there are any companies that meet the criteria today - i.e right valuations and dividend yield. dividends have all but dried up.

On the long term @sgiitk is right, a kodak moment is very much possible in the auto sector.

@smartcat thanks again for your wonderful explanation and suggestions.

PS: I know you intentionally left out my question no 4. but its bugging me as to why would Tata sons buy Tata Motors stock worth 700 cr from the market @270/share unless they are sure that it will bounce back or they simply wanted to halt the slide. This happened in Aug 2018 -- value research insider trades
https://www.valueresearchonline.com/...ign=vro-search

[bhavik.1991]

Very nice thread Smarcat. Thank you & all other contributors

Originally Posted by cyberwhizs

I do agree to your conservative strategy to grow with the company, however i am not sure if there are any companies that meet the criteria today - i.e right valuations and dividend yield. dividends have all but dried up.

Quoting Led Zeppelin, 'If you listen very hard, the tune will come to you at last '

You are not finding such companies today because even after all these corrections during this year, most of the stocks are still overvalued. Nifty 50 is still trading at >27 p/e (statistics indicate that >24 p/e means market is overvalued and it will correct in due course).

I came across following script a few weeks backs & found it fairly valued ( dividend yield of ~5%).

https://www.screener.in/company/BANC.../consolidated/

You might want to have a look at it. I have done fair bit of research on the script & if you have any query regarding business/business fundamentals, I will try my best to answer. Also, I would love to hear your views regarding it.

Disc: I am invested in the script so my views may be biased. This is not a recommendation & please do your due diligence before investing.

[cyberwhizs]

Originally Posted by bhavik.1991

I came across following script a few weeks backs & found it fairly valued ( dividend yield of ~5%).

https://www.screener.in/company/BANC.../consolidated/

Interesting stock. Will definitely dig in more once i comprehend the nuances. I am a newbie to the stock market, so just doing my homework before i get my feet wet.

Thanks for bringing it to my attention all the same.

[bluevolt]

Originally Posted by sgiitk

I will repeat there are too many uncertainties in the auto sector. Anything you buy may go the way of photographic film. So I will best stay out till dust settles.

Please let us know what are the uncertainties (except e-vehicles being the future etc) that you see in the auto sector. This will help us evaluate what specific stocks we need to stay away from.

[joslicx]

Originally Posted by bluevolt

Please let us know what are the uncertainties (except e-vehicles being the future etc) that you see in the auto sector. This will help us evaluate what specific stocks we need to stay away from.

One big uncertainty is that people may stop buying automobiles for personal use! Once ride sharing companies launch autonomous services (which is not too far really) there should be no need for anybody to buy a personal car! At least not 2nd or 3rd or nth cars! Autonomous vehicles would be a reality (commonplace) once 5G is rolled out. Basically this should mean sales would come down in future. Auto companies might have to come up with new (and very different from now) business models. Like they may want to buy their own vehicles and then lease them to the ride sharing companies! Its all a world of possibilities right now so thats why the uncertainities

[bluevolt]

The uncertainties are everywhere in the market. In all sectors. If the things were certain, then the stock market would have been so easy to play with.

There are possible disruptions in various fields, be it automobile, technology, retail or any other sector.

Each one of us has a different understanding of the market, the uncertainty is not specific to the auto sector IMO. While there are disruptions that can occur and this will favour those companies who will sense & counter those disruptions on time. I believe the auto sector is still a good sector to stay bullish with.

[adithya.kp]

Maruti reported a MoM (2017 vs 2018) degrowth in volume for the last 3 months. Before that, they used to do a healthy 20%+. July degrowth was attributed to the truckers strike. I thought it was a one off. But even August and September showing a degrowth in volume.
I dont think the base was high. So high base effect ruled out. What could be the reason?

Disclosure: I dont hold Maruti