Have you heard that all the stockbrokers and analyst are talking about how the big guns are behaving? Have you seen them talking about how the prices are deteriorating?  

In a short run prices move independently of all these underlying stock. So lets encourage markets to decline!! As a value investor you should be happy to pick few good companies.

Looking over financials of around 30 A1 companies, little have changed. Indraprastha gas (IGL) and Amar Raja Batteries (Amarajbat) still looks great and we can notice a wave of all the banking stocks going up which people were dumping from last 4-6 weeks. The fundamentals of almost all A1 (and indeed A2 and B1) companies are resolute. Do you think all these businesses are worth 10 –15% cheap in last couple of months? I don’t think so.

So what has changed?

Only investor’s perception has changed. Perception about global economic outlook has been changed. Perception about slowdown of china will impact the over all whole economy of the world.

Investors are simply reducing their appetite for risk.

People are talking about recession in US. But always remember that recession is not going to stay permanent. Our job at Valueoperations is not to do the guess of gyration of economy. We know it is vital to know about economy to translate the effect of it on return of equity of any business. But many of the world’s best investor don’t even employ economist. (They employ former Federal Reserve chairman).

Your mantra should be to list down 10 companies which you believe the value of the business will grow in next 5, 10 and 20 years.

I know it is tough to keep track of financials and then toughest job to rate its performance (A1, A2, B1, B2 and C), as there are already so many things in life to be taken care of. But then you can’t just ignore your investments as you are harvesting those for your retirement, cars, travel, marriage and house. That motivates us to start this service and this blog for all serious investors.

Here is the list of few out of favour companies. Warning – out of favour does not mean they are at bargain.

Indraprastha gas (IGL):

People won’t stop using gas in their day-to-day activities. With lot of reforms happening within this sector, I don’t see any hurdle for this company in future few years. Financially the company is strong.

Amar Raja Batteries (Amarrajbat):

I don’t see cars and two wheelers disappear from the road in near future. The business looks rock solid and company financials are intact.

Canara Bank (Canbk):

In India banking sector is divided in two parts. One belongs to Public sector and second private sector. I believe that end of the day banking business is done same way by both the sector. But still we value private sector bank as quality banks. The only difference I find is that the service in private bank to its client is exceptional. But the products offered by public sector are affordable and cheaper. In future I don’t think that public sector wont catch up with private sector in their entire endeavour.

Bank of Baroda (Bankbaroda):

This is another public sector bank I think is better off then its competitors.

ONGC:

A lot of talk is going around about the subsidy burden for this company. Any extra subsidy burden will definitely affect its profits but then if you study in detail about government plans then you will realize that the government is thinking of offloading its equity from this sector. That means in future there is a probability of not having subsidy at all. With 33% subsidy burden the ROE of the company is 30% and with subsidy burden of 38% the ROE is still expected around 24% by many analyst.

Let me know what’s on your list. Many stocks are hitting 52 weeks low or just have reversed after hitting those targets. They all need your attention.

Something to remember about quality and performance ratings…

Rated A1, A2, B1, B2 and C, every listed company is rated based on a series of over 30 separate metrics, measured at both a point in time and over time. Most importantly, the Quality and Performance Rating is applied without any subjectivity. All companies are judged according to the metrics they generate. A1s have the lowest probability of a liquidation event. “Lowest probability” however doesn’t mean a liquidity event won’t occur. It just means far fewer A1s will have a liquidity event imposed on them compared to C. A liquidity event includes a capital raising, debt default or renegotiation, administration, receivership etc. An A1 company could of course raise capital if it needs to fast track construction of a new factory. Sticking to A1s and avoiding C’s should, over time, produce better returns.