Hi all, I have been an enthusiastic reader of this forum and have thought of sharing my views on stock picking from the point of common man who has only the company balance sheet to go by. Many of us do not have acces to the management or way of working of a company as we have less than 10^-3 % of a company stock. Yet, we do belong to the class of value investors who want to invest for long time and not get affected by the shenanigans of the market. To achieve the above the, one has to look into the past performance of the companies and have to see whether the company has actually performed better than its peers an all speheres. I have attached a file that summarises my method on differentiating a company (or a group of companies) and then going ahead with their DCF analysis to check whether they have potential in them. In this part I am posting just the method of differentiating a bunch of interesting stock from the rest (see attached). This NOT a stock advice and anyone who invests in any company based on the attached method will do so at the peril of loosing his/her money. I have taken auto sector companies just as an example.
Would request all to go through it at your convenience and let me know of your valuable feedback
ScripComp_Auto.pdf (571.2 KB)
Great visual representation. Please apply this to other industries as well.
A common man’s choice for common stocks - part 2:
I am adding the DCF calculations of the top 5 stocks in my final rankings. I have digressed from the usual technique of calculating the terminal value for using Gordon’s formula and have seen what will get added to the current equity value (enterprice Value - Debt) in the next three years. I have then compared the current price.
There are certain points of note:
- big companies such as Maruti , Hero etc have CMP very close to the three year forecasted price
- small company such as Jamna auto seem to have a lot of Value
- MnM, Maruthi is generating lot of negative cash flow (check required?)
- According to the my last upload (section PAT vs Price) the price of Eicher motors have grown relatively faster then the profit growth. On doing DCF of Eicher, CMP is very close to the 3yr forcasted value
With the above information, Jamna Auto seems to be a good long term bet. What needs to be seen is the soft (but important) aspects i.e. Management quality, Promoters Share holding percent age or any other such criterion one can come up with. Maruthi also looks attractive on a smaller time frame of about 2-3 yrs.
Please do share your feedback on the DCF calculations and your views on Jamna Auto and or Maruti.
Maruti_dcfCalc.pdf (216 KB)
EicherMotors_dcfCalc.pdf (220 KB)
HeroMotocorp_dcfCalc.pdf (216 KB)
JamnaAuto_dcfCalc.pdf (224 KB)
MnM_dcfCalc.pdf (216 KB)