Wednesday, October 5, 2011

A millionaire’s portfolio - part 1

For the past 6-8 months I have been working on short-listing about 100 – 150 good companies – that have a great past and should have a great future. I now have 5 companies that I recommend that you can invest at the current levels. These stocks are expected to give 300% returns in 5 years – over time, I intend to amass about 20 such stocks and I intend to share my recommendations  to you through this blog.

These are companies that have:
  1. an identifiable durable advantage
  2. products or services that will not get obsolete in the next 2 decades
  3. investment focus solely on it’s core business and does not look beyond into unrelated diversifications
  4. a good EPS growth rate, a high return on Equity and a good return on capital employed in the past 10 years
  5. produced more cash than it used in the past 10 years  -is cash rich and low on debt (preferably zero debt)
  6. the ability to increase the prices of it’s products/service without losing market share

More details of the logic used can be seen in detail in my blog dated 29th Sept 2010 called “Investing in equities  - part -2”.
Needless to say that this is what I teach in my Wealth management course in MBA and this is what I personally use for investing.

As we all know, the stock prices in India are dependent on the mood of FII’s – when the FII’s invest in our markets – the stock prices go up (beyond the normal PE multiples) – when they exit, the stock prices go down (below the normal PE multiples).

As of now, due to the global fears of a crash emanating from Europe, the markets are down (and I expect the markets to dip further). Due this, some of these stocks are at values that I believe are worth buying.

I have bought all these stocks recently and I intend to buy more of these stocks in the coming 4-6 weeks. So here are my recommendations and the current prices where I recommend that you enter:

1.       SBI – there has been bad news emanating from SBI ever since the new chairman took over a few months back – the stock has gone down as well – however, this bank is solid and has a great market reach in India and will surely perform well - At current market price of Rs. 1720 – this is surely a BUY recommendation – even if the price goes up to Rs. 1825 – this is a good buy.

2.       BHEL – again this is a great stock – the stock has not been performing well lately – but India’s power sector will grow tremendously and BHEL will be there supplying in the years to come – at the current price of Rs. 313 – this is a good buy.

3.       Bajaj Auto – when you look at the India’s motor bike market – Hero Motors is doing very well and is over priced. TVS is a laggard and is under priced. Bajaj has a good story, is doing well in India and has a good story in exports and is expected to grow faster than others – At the current prices of Rs. 1500, I believe it is starting to go above my buying price – I have been buying this lately and I still recommended it at this price.

4.       ESAB industries is a market leader in it’s field and has a very good past and a better future – this is a company that many will not notice – but I surely recommend that you invest in this stock – at the current price of Rs 515.

5.       Maharashtra seamless is another company not many people will notice – again a market leader in it’s market and has a very good story. I recommend that you invest in this stock at the current price of around Rs 345.

A few words of caution here –

·         Spread your investments across these stocks -do not invest in just one stock.

·         I do not know what will happen in the next 6 months to these stocks – but I am very confident that in 5 years these will give good returns – I expect 300%. These recommendations are for those who want to invest for 5 years or more -these are not for those who want to invest for periods less than 5 years.

·         You are investing - the reward is yours – the risk is also yours. But remember that I am also putting my money before I recommend it  - I am putting a minimum of 50K in each stock.

As and when other opportunities arise – I will share them – I do believe there will be opportunities in the next few months.