In our country, there is lot of good companies, unfortunately, everyone else also knows how good they are and hence, most of the time, their stock prices carry a premium. So what does retail investor like you and I do? Do we pay the premium and cost average our way in? Nope. There is a better way! Equity markets will not always behave in a rational manner. On any given day, the news of the day will drive it up or down – sometimes there is no basis to it. We all know it – it has happened, it is happening, and it will continue to happen. As a long term investors, we always have patience on our side which we can use to our advantage.
Preparing for the Hunt
I haven’t talked to any tiger, but based on National Geographic and Discover Channels, I have noticed that a tiger would never just get up in the morning and go for a kill. Same way you should not attempt to purchase company stock unprepared. Here are few steps.
- Buffalo or Boar? Cow or cat? We must know what we are hunting for. A tiger goes for cows and buffalos based on his appetite, hunting capabilities, associated risk. Have you see them going after elephants (too risky) or cats (not worth the effort). Our homework must be done in advance to identify what company stocks would be good fit in our portfolio.
- Where is the best place? Tiger knows the watering holes or grazing fields. We should understand the business and what price we are willing to pull the trigger. Tiger is less likely to chase his kill on mountain tops. We won’t find right prices for our company stocks in mass media.
- Do you have sufficient bullets? Tiger does not stalk his kill when exhausted; neither should you stalk your companies without cash on hand. We must plan ahead and make sure we have cash accessible when that stocks’ price falls below our target. Tiger does not go full speed from start – tries to run down the prey for few seconds. Likewise you should start with starter positions with less cash. Don’t jump with all the cash in hand.
- Tiger gets the Kill. A tiger does not expect to get their kill at every stalking or within few minutes. Sometimes it has stalk on multiple occasions or it has to stalk for few hours. Saves energy like cash and goes after only when confident of own instincts. Stalking a company and waiting for dip to our buy price can take months or years, but in the end you will get an opportunity.
Does stalking work?
Yes, it does. I keep a watch of stocks along with their buy price range. I patiently wait for prices to fall in my buy range. Following are few companies on my watch list that I am stalking for quite a while.
- Blue Star Limited (BLUESTARCO) is India’s largest central air conditioning company. It focuses on the corporate and commercial markets. Blue star has a good brand image and leading market share in Indian central air conditioning industry. It is well positioned to take part in infrastructure growth and office building construction. I expect the company to grow along with the growth in Indian economy. My buy price range is Rs 175 to Rs 225.
- Gujarat Gas Company Limited (GUJARATGAS) is India’s largest private sector company in natural gas transmission and distribution for industrial/domestic customers. Few key aspects that I like about Gujarat Gas are its business model of gas distribution and practically debt free balance sheet. My buy price range is Rs 137 to Rs 156.
- Asian Paints (ASIANPAINT) is India’s largest and Asia’s third largest paint company. It is a vertically integrated paint company with in-house manufacturing facility. The industrial coating segment consists of automotive coating, powder coating, and protective coating. One notable aspect that I like about Asian Paints is that, it has been able to expand globally without taking on too much debt. My buy price range is Rs 626 to Rs 826.
- Lakshmi Energy and Foods Limited (LAKSHMIEFL) is engaged in manufacturing and processing food grains and related products. It has taken quite a bit of debt to fund capacity expansion and entering new markets. An intriguing company, which could be an opportunity, depending upon price paid. Since it is in transition, stock price in the market is battered down. My buy price range is Rs 63 to Rs 73. I got my kill!
- Praj Industries (PRAJIND) provides turnkey plants and equipments for fermentation and distillation systems used in bio fuels processing. It has been battered by slow down in its primary product segment. But, I like company’s recent moves to diversity its product base, negligible debt, focus on environmental engineering projects, and management’s profit sharing philosophy. My buy price range is Rs 63 to Rs 68.
- Visaka Industries Limited (VISAKAIND) is engaged in two businesses viz., building products and textile synthetic yarn. The area of concern is recent debt binge. It has more debt than its ability to generate cash from its operations. I consider this as risk which needs to be monitored. This increases sensitivity to economic downturns. My buy price range is Rs 153 to Rs 186. I got my kill!
- NIFTYBeES ETF is low cost fund that tracks NIFTY index. I invest in index fund to track the growth in Indian economy. My buy range is below PE17 which is historical average for last few years.
All stocks go on sale at some point in time. We need to exercise little patience, stalk them, and let our greatest wealth building asset work for us.
What companies are you stalking? At what price will you pull the trigger?
Disclosure: Long on LAKSHMIEFL and VISAKAIND at the time of this writing.
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