The purpose of this thread is not to make any purchase recommendation to investors on the basis of technical but just to point out to the investors stocks which are making a bottom on long term charts / or those stocks which are showing turnaround signals after long consolidation. It is expected that from the stocks charts put up on this thread, investors would do their own fundamental analysis of select stocks and invest in the stocks whose fundamentals fall into their investment parameters.
Most of the parameters used by investors in selecting stocks for investment such as PEG, ROC, ROCE, low P/E etc may not be applicable to loss making stocks or cyclical stocks which are in down cycle. The consumer staples and defensive stocks have already gone up in price hugely and are now discounting a number of years of future earnings and some more. That means that investing in such stocks no longer provides investors with any margin of safety.
On the other hand around three fourth of the market consists of cyclical stocks. And a lot of such cyclical sectors / cyclical stocks have been beaten down hugely because of adverse economic conditions. Sectors such as PSU banks, Steel, Oil, Infrastructure, Power, capital goods are now trading at very very low valuations.
the purpose of this thread is to bring to the notice of investors stocks which are from these beaten down sectors and which are showing signs of turnaround. Investors may follow any of the following strategies for dealing with such stocks…
- If a particular company is the leading company from its sector and is showing clear turnaround signs, then it would indicate that the sector as a whole is turning around / coming out of down cycle. The investors can then select fundamentally very good stocks from that particular sector and invest in them for magnified gains.
For example, in Sept 2015, the leading stock in the sugar sector - Balrampur Chini gave very clear turnaround signals. It also signalled the turnaround of the sugar cycle. since then Balrampur has risen from 40 to 140 price at present. But stocks in the sugar sector such as Dalmis sugar, Upper Ganges, Dwarikesh etc have given 10x returns…i.e much more than the sector leader.
Another strategy that the investors follow is to deeply study the fundamentals of the sector leader and then keep scaling up the investment in such stocks as their price keeps rising. In this manner, investors can remain invested in safe market leaders but still reap maximum gains through pyramiding( which is not always possible in smaller stocks or can be very very risky in smaller stocks)
The third strategy that investors can adopt is to invest in allied sectors / or companies which are a sort of proxy to the main sector. Thus investors can participate in sectoral turnaround without having exposing themselves to the sectoral risk.
for example those investors who feel that there is a turnaround in wind energy sector due to policies of the Govt but are not comfortable in investing in the market leader _suzlon due to its previous troubles can still benefit by investing in another company such as Sanghvi movers which provides cranes for installation of Wind mill towers.
- Another risk but profitable strategy for investors can by investing in a bunch of beaten down companies from the same sector and statistically bet that not all of them would collapse. Just one or two of them would not perform, while the others would perform superlatively.
Thus there are a number of strategies that investors can adopt to gain handsomely from from cyclical turnaround stocks /sectors.