ValuePickr Portfolio


(Donald Francis) #41

Hi Gautham

One way to think about the whole exercise - at a level deeper - is to acknowledge what happens as the stock moves into stronger hands - first into stronger retail /HNI value investors. And then when Institutional Hands move in.

As you have pointed out - stocks holding out - even on negative surprises - flat earnings or degrowth - is the re-inforced belief by the stronger hands in the larger context of sustainability of superior earnings profile (which may or may not be misplaced), but I think there lies the clue. Beyond a point - Management not walking the talk, say - valuations may not sustain for too long - proof of the pudding is ultimately in the eating!

We are all learning and refining our understanding as we go along - with our direct/indirect experiences with some of these strong stocks/businesses. Thanks for triggering a distinct thought process in me for taking this very thought forward in a formal way - in ValuePIckr’s most prized IP Capital Allocation Forum - by energising some of our young turks!

If you haven’t checked that out, please do. All our big leaps in investment thinking/refinement are captured there for everyone to imbibe, participate and embellish


(Soumya) #42

Hi Donald,

Since the valuations are getting stretched and most of the companies in the valuepickr portfolio are near their fair value is it fair to expect them to give same kind of strong returns in future too?


(ashaggarwal) #43

Donald/ Hitesh,

i was wondering if

1). ajanta/ PI/ kaveri are A+ category business, then how would you classify Page/ Glaxo consumer/ Dabur etc. ?

2). if their fair P/E is 20, then what should be the fair P/E of page/ glaxo consumer/ dabur etc. ?

i understand these companies are growing at higher growth, but that alone determines category or valuation band?


(Donald Francis) #44

@Equity - It is NOT fair to expect VP Portfolio to provide similar strong returns in future. However it is fair to expect 20-25% CAGR returns - which is our objective. Anything more is a Bonus.

@Ashaggarwal

I cannot answer in specifics for Page or GSK Consumer, as I have not studied the businesses enough. But it suffices to say there are A++ businesses as well…where one will perhaps peg an ITC or an HDFC Bank firmly in.

Perhaps its not fair to attribute only high growth to businesses like Kaveri Seed, PI and Ajanta for the re-rating that Mr Market has accorded them. - What about the quality of that growth, the Intellectual Property and the substantial entry barriers in the businesses? Not sure if you cared to study these businesses in-depth. Please do.

Also you will be well-advised to read through the entire Capital Allocation Forum threads - to get a flavour of how we go about evaluating Business Quality, Management Quality, Growth Prospects, etc and factor them all in a manner that we have tried to exemplify in ART of Valuation thread. If one takes these threads very very seriously - the answers are then obvious - although to get it right for the next stock/business - one has to progress on the refinements suggested.


(Soumya) #45

@Donald… Thanks for your reply…

With Banks & Infra on boom VP portfolio fell down all together for 3 days consecutive. As I am new to this forum I would like to ask if this kind of an event has happened earlier too when all VP portfolio stocks have fallen together with such intensity…


(Subash Nayak) #46

@Equity

Why bother about short term underperformance of vp portfolio. It consists of awesome set of business, that has very high chance of beating sensex in long term. I would rather advice you to ignore short term noise and concentrate on quality business, and long term wealth creation potential.


(Gaurav) #47

I agree with Subhash. Its mainly a technical pullback after a significant rally. Even after this fall, they are net gainers and outperformers even on 3 month basis, even ignoring the long term multibagger performance.

Most of the stocks that are rallying are on the hopes of a Modi government and on an assumption that he would be able to bring about miracle from day 1. Its highly risky and very optimistic assumption to make, and its better to refrain putting more then 10-15 % on such a trade. Another problem is to select within the cyclicals, as none of them see to be really cheap even after underperformance. If I had to, I would probably put some money on stocks like Yes bank, Indusind, Tata motors etc. Capital goods are trading at 15-20 PE already, and I would much rather stick with Vp stocks that have more or less assured growth irrespective of political landscape.

Only downside here is Rupee can strengthen slightly , it would get negated by the fact that new govenment should surely announce export Sops.


(Ankit Gupta) #48

Hi Gaurav,

Capital goods stock will appear expensive as their earnings are pretty low. Once the economy revives, you will see significant jump in their earning and their valuation will appear cheap (am not suggesting to buy cyclicals).


(Soumya) #49

@Subhash @Gaurav - I agree with your view points and this short-term event had no affect on my portfolio… I still think banks have some fundamental issues which need to be sorted out and with capital goods and realty there is still a while to go before they start flourishing again due to CAPEX cycle being smooth again…


(Gautham U) #50

thanks donald for initiating a new thread on that topic. enjoyed reading it


(Gautham U) #51

to me this looks like a hope rally. i think the chances of NDA coming to power is very high. but i doubt economy will turn around right after that. instead of buying capital goods/infra etc now, why not buy them after its reflected in earnings?. you might be a little late. but i think that should be a better option.


(Raj) #52

@Gautum U

Market always factors in the future in the price before the event plays out. There is easier money to be made in the beginning if the story plays out as expected. However, for those who who are averse to risk what you said makes absolute sense.


(Hitesh Patel) #53

I think before the correction in most of the VP stocks began they had a stupendous run and they seemed to be on the upper limit of fair valuations. Now they seem to be taking a much needed rest.

Looking at the current rally, I think the time might have come to bet on the beaten down names like PSU banks, some stocks like NBCC etc. There might be powerful 20-40% pop ups within a month in these names mainly due to reduction of risk aversion in the markets.

Coming to how much one can bet on these names, I think if risk reward remains favorable one can easily bet 10% on a couple of names.

The other rate sensitives like SCUF and some other quality NBFCs also might make a comeback.

I think one can embrace the Horses for Courses philosophy during the current rally.


(Binu) #54

Hello Valuepickrs,

I am trying to familiarize myself with the FPE calculations in the scorecard to get me out of the price anchoring mode. Thanks to Donald/Ayush for emphasizing on this.

I have this seemingly silly question on the forward PE calculations, for example, If I take a look at the 1 year forward PE for Poly per the portfolio it does look attractive at 12x?

I can’t understand how this number is arrived, for FY14, if I used the CMP 408 and EPS of 18, i get 22.6 and for FY15 to get a PE of 12x the EPS should be around 35 which is 100% growth from FY14.

Are there any other factor contributing to the FPE calculation that I missed? Or is the expected EPS for FY15 is around 35?

Thanks!

Binu


(Binu) #55

After posting the question, I think I found this post from Admin on 25th Feb,

A 6x Fwd PE against Mayur Uniquoters indicates it was available at 6 PE on the reccomendation date viz. 10th Feb 2011.It does not mean it is today available at 6x PE.

Thank you Admin, I think my question is answered, please comment if there is anything relevant to add.


(Administrator) #56

Addl comments on Fwd PE estimates - for learners/wannabe analysts

1 yr Forward PE- we believe should not be spoon-fed.Folks should work out/think about these things - about the business - in their head.

What is the likelihood that the run-rate set in the last Qr can be replicated at similar levels for next 4 quarters. If not what are the reasonable assumptions - why or why not. and then come to some conclusions what looks fairly comfortably achievable.

This is not a very complex exercise at all - once you take the trouble of familiarising yourself - intimately - with the history/performance track of the business in question for last few years - and make some reasonable assumptions - err on the side of caution!

And the recent Reccos (Shilpa and Alembic)- anyways are giving you our estimates of 1 yr Fwd PE - that can be taken as a direct exercise - and worked back on to question/ validate

We never see any debate around that? why is that :slight_smile:


(sandeep) #57

Donald/Hitesh …

VP portfolio has more stocks that are negatively inclined towards rupee appreciation to some extent.

How would shilpa, Ajanta, Alembic and Avanti earnings be impacted owing to the recent rupee movement.


(Mallikarjun) #58

Hi Sandeep, taking a call on macros is tough and most of the time we will look like fools, since we will go wrong majority of the times…

Coming to stocks on vp portfolio, i believe they are in the list based on their individual merit and later few percentage points due to being export oriented cos..

Regarding rupee it may appreciate further if sentiment improves, modi gets a decisive mandate n economy turns around. ( Still it will depreciate, until our imports are more than our exports )

disc- No holdings in the stocks mentioned by you

Regards

mallikarjun


(ARAVIND BODDUPALLI) #59

Why Alembic Pharma is given undue weightage compared to Granules India which has got Rs 40 EPS, 9 PE and a low capital base and ofcourse of late acquired Auctus Pharma as well !


(Subash Nayak) #60

Why compare apples with potatoes !!!.

Alembic at ROE/ROCE at 30+, and Granules at ROE/ROCE of 10-15. They are 2 business of different characteristics from same industry. Plus tell me how many API players quote >10 pe (there might be few exceptions), and their percentage.

Looking at pe as standalone entity is a deadly mistake. Always see pe ratio along with roe/roce, debt-equity ratio, type of business, management, corp governance, future potential. Otherwise it is not very difficult to loose money in stock market.

Regards,

-Subash