Hitesh portfolio

[hitesh2710]

@ram1984 While talking about bull markets in specific sectors one needs to be clear whether it is a cyclical stock or a more steady business like pharma or speciality chemicals etc. (there can be arguments that at the end of the day all sectors are cyclicals, some have shorter cycles whereas others have longer cycles. That might be true but we dont want to go off track.)

In sectors like textiles, sugar, tea, coffee, steel, metals, polyfilms etc. the cycles turn fast and so do the stock prices. If we get the cycles right we can make tons of money. Can work the other way round too.

In certain other sectors like cement, pharma, speciality chem, financials, autos etc the cycles tend to run comparatively longer.

So one has to position oneself accordingly.

In short term cyclicals the stock prices tend to move much before actual results start being reported. So in such cases, tracking the earnings etc might be a lagging exercise. Technicals tend to work better there. e.g steel, sugar, metals etc in recent memory.

In sectors with long cycles, often we get a chance to see good results for a couple of quarters before stocks tend to take off. e.g pharma, speciality chem etc.

So we have to try to figure out where earnings are important and where expectations of earnings are important. There is a slight difference between the former and the latter.

In long cycle stocks or long runway for growth stocks, the rallies are longer lasting and earnings keep pushing stock prices higher and higher and sometimes often to unreasonable levels, leading to formation of bubbles. These also at some point of time burst leading to a lot of pain.

[hitesh2710]

@saurabhshares

For long term picks, if makes sense to have a rough idea of what to expect in terms of earnings over next 2-3 years. Most of the times these businesses need to be strong businesses with moats and tailwinds and predictable earnings.

One can take help of earnings concalls, or broker reports to figure out what is the expected result and what is then reported. Most often the trajectory of the results is important rather than the actual number. If markets feel that the growth momentum is intact, it will reward these stocks handsomely.

The important thing I see in results are sales, operating profits (often ebidta) , net profit, tax rates, interest paid, margins etc. These give a good idea about the quality of earnings. If a balance sheet or press note is there to give details of balance sheet, it helps to have a glance at it and see if all things are in place. Many a times one offs tend to distort the earnings and one needs to learn to adjust for that. e.g recently dhampur sugar reported reasonably good numbers in terms of operating profits. But net profits did not grow to same extent because of higher tax paid during the quarter as compared to a year earlier. The stock price corrected a day or two post results and then has been a big outperformer when the sugar rally has picked up steam.

[Lynch]

@hitesh2710 ji , thank you for sharing some wonderful insights on this thread.

I am aware from the above the Laurus Labs is one of your investments and as investors it is a thesis which has played out for all of us in the last year. Further, listening to the con call last week makes one even more convinced about Dr. Chava’s orientation to grow this into a large company and focus on growth and diversification.

I wanted to understand what were your thoughts on:-

1. Does a potential mRNA HIV vaccine candidate sound like a credible threat to Laurus Labs? From your extensive industry knowledge - does having a vaccine mean that the sales of pharmaceutical products addressing the issue are greatly impacted?

2. How do you judge the longetivity/investment targets for you for an investment like Laurus? Considering how the company is growing - are there triggers which make you sell/reduce positions?

Thank you

[hitesh2710]

@riddhi Both Laurus and Tata elxsi are good companies and have shown good results. Laurus suffered for a brief period due to some teething problems following a massive capex.

Personally I prefer businesses where I have a better understanding of the variables and where I can make educated guesses of earnings going ahead. Or atleast the trajectory of growth. In that aspect, I prefer Laurus over Tata elxsi. Major reason being I do not understand tata elxsi business too well, whereas Laurus for me is an easy to understand business.

But giving advice regarding one over the other is not my domain expertise. One has to study both businesses and take an appropriate call .

[barathmukhi]

@hitesh2710

The way to go about this thing is to look at hundreds or thousands of charts and try to correlate the fundamentals of the company. Once we master the art of looking at charts and deciphering what charts are trying to say in terms of fundamental story or triggers lined up going ahead, we get enough confidence to allocate decent amount of money to that particular stock or sector.

@hitesh2710 How many charts do you look at, in a day? Asking because having worked on the fundamental side over a decade or more, I need to work on charts as idea generating tools.

And what are the parameters I should be looking at, when I see a given chart? My guess is you wouldn’t be spending more than a minute on any chart, given the depth of your experience?

[barathmukhi]

@hitesh2710

In long cycle stocks or long runway for growth stocks, the rallies are longer lasting and earnings keep pushing stock prices higher and higher and sometimes often to unreasonable levels, leading to formation of bubbles. These also at some point of time burst leading to a lot of pain.

@hitesh2710 bhai, In the case of a growth stock that goes on to become a bubble, what are the triggers to look out for when the bubble is about to pop? Sometimes overvalued can become insanely valued and it can be a bitter experience to sell such stocks early.

For example, Bajaj Finance. Just when most people thought that bad loans are going to kill the golden goose (to an extent, they did, and it has started to show up in their quarterly numbers), the stock hit a multi year bottom, last year. Yet, the market seems to have given it a godly status and the price went up beyond pre-march 2020 levels.

Another example would be Astral poly. The company’s business slowed down drastically in 2016/2017. Yet the stock kept going up, even after it slowed down. What should our future selling approach be in such cases, when business is impacted and yet the stock keeps going up?

[hitesh2710]

@barathmukhi

Earlier I used to look at some new patterns I had learned in different charts and hence ended up looking at hundreds of charts on a daily basis. And there was the beginner’s enthusiasm.

Nowadays, simplest parameters are the 52 week high list, 2,3,4 year high list, all time high list etc. For these one does not even need to go through the drudgery of looking at all charts. Its available in xl files if one knows how to get it.

Nowadays I try to skim through charts at a fast rate especially when looking at sectoral charts. And if I find something really interesting, I try to look at it by putting in a variety of parameters and various time frames. Even after all these things this process does not take too long.

I try to look at the fundamentals of the shortlisted companies I get from technicals. That makes the job a bit easier.

[dinesh111a]

@hitesh2710 … sir it is easy to find 52 week high list as it is easily available… please guide us how to find 2,4 year or life time high stock…
Thank you

[yourraj]

@hitesh2710

the book The Next Apple

Thank you for your time and explaining the things in such plain words that the layman like able to grasp the things . Sir ji Tusi gr8 HO , the book is also not cheap on price when i checked on online stores yet when i was about to order the book than i ask myself bhai ITANI MEHNGI BOOK REhaney DE DOST but than i try to find the online availability of any pdf version as we INDiAN are good at looking the CHEAP things and if possible than in free … even than we ask can we get the TWO free . … Thank you sir i just started one downloaded copy it has completely changed my perception 360 Degree and i must say this must be the first BOOK for every equity investor who want to travel on path of a life long wealth creation … i want to add another recourse for fellow VP https://www.youtube.com/watch?v=OmrVUxTGENw to know what framework one should have to hunt for 100x stocks…
regards

[hitesh2710]

@dinesh111a

Finding 2,3,4 or more year high is more hard work than the 52 week high or the all time highs. I often start looking at list of 52 week high stocks and try to make a list of levels where they will cross 2 year highs or 3 year highs etc.

The key remains to focus on 52 week highs, multiyear highs and all time highs. Multiyear highs can be any range from 2 to 10 years, or more.

Some stocks are found by accident when someone shares ideas and I start looking at charts.

Another option I look at is to find out a list of stocks with monthly RSI above 60 and above 70. This usually happens along with multi year high breakouts or close to these breakouts. Its a bit of reverse engineering but often very rewarding.

Valuepickr threads like the bull therapy where everyone puts in charts and showcase their picks is also a good source of ideas in terms of technicals.

[devaki.tripathy]

@hitesh2710

Finding 2,3,4 or more year high is more hard work than the 52 week high or the all time highs.

@hitesh2710
Sir the chartink.com scanner does that easily for any time frame and saves time. Even the free version scans accurately though there is some time delay of around one hour or so. The only problem is it scans NSE listed ones only and does not scan stocks that are listed in BSE only.

[SwapnilK89]

Hi Hitesh sir,

How would you define tight consolidations in terms of numbers? Would it be like the price shouldn’t fall below 20% from recent high? Or even less than 20%?

Thank you.

[hitesh2710]

@SwapnilK89

Look at the attached guppy multiple moving avg chart of triveni eng. The region encircled between dotted lines is a classic example of tight consolidation. Stock price spent nearly 6 months between price of 65 to 85 on low volumes and then blasted off. This is a chart worth a million words.

[pratikbiyani90]

Dear Hitesh Bhai,

Thank you for the explanation. However, in hindsight this looks very profitable. But, how do you know when there will be a breakout after a tight consolidation phase like the one in Triveni Engg? Also, the breakout can go either way right? How do you judge in such circumstances?

[hitesh2710]

@pratikbiyani90

When stocks undergo consolidation as had happened in triveni, its time to dig deep and put on fundmental glasses. Most of the news related to ethanol was out. Only question was about timeline and when it was going to be implemented. Most sugar companies were reducing debt at a fast pace. Some like balrampur and triveni had done buybacks. And balrampur breaking out above its ATH of 202 was a clear indication of things to come.

And even if the above pointers are not enough, idea should be to buy the breakout or any dip post breakout. One could have bought around 85-90 comfortably after the breakout post 82.

This kind of opportunities are available post most breakouts. One needs to learn from such experiences and take action when the next chance comes about.

[pratikbiyani90]

So basically one should expect to miss the first few % upside after the breakout in most stocks post a tight consolidation phase. Is this understanding correct?

Also Hitesh Bhai, should we consider looking at technicals and then considering fundamentals arising out of the shortlisted stocks (using technicals first) for all sort of stocks (like pharma, chem, auto) where cycles are longer or only shorter duration cyclicals (like sugar, metals, steel etc.)?

[ram1984]

Hitesh Bhai any thoughts on Alembic Pharma. Management feels price erosion in US would continue and that is shown in the results as well. But the non US market and the API seems to have picked up well. Your thoughts

[shashank_Sharma]

Hi Hitesh Sir, in sugar space you mentioned about ethanol production earlier. Is there any specific reason for Cement stocks?

[NK1]

Though the Business is firing from all cylinders, the promoters have reduced the share holdings since last four quarters, I am sure you wouldn’t have missed it, having said that if you can help me clear my worries on the same.

[hitesh2710]

@pratikbiyani90

I have already mentioned before in the post that once we find tight consolidation happening, we should start looking deep into the fundamentals of the company/sector. Many a times the triggers are quite visible on even a cursory look at them. But for those who cannot figure out these things, even buying post breakout may not be a bad idea.

Many a times post breakouts, stock prices tend to come down to retest the breakout zones and sometimes go slightly below these levels also, without actually breaking down. At these times, one can consider entry.

I have seen the above thing happen quite frequently with double bottom/multiyear range breakouts. One has to keep an open mind and keep looking and observing and learning. Price patterns are often repetitive events and the observations and inferences from one winner helps in looking out for the next winner.

@ram1984 Alembic remains a good pharma company with all infrastructure for growth in place. The only thing missing is the audits of new plants which could kickstart growth. Till then for people like me, there remains an opportunity cost involved in these kind of bets.

@shashank_Sharma In case of cement stocks, look at the phenomenal moves in frontline stocks like ultratech, jk cement, shree cem etc. That tells us the sector is in bull run. Next look at the companies that have reported quarterly results till now for q4. All of them have been very good results. This could rub on to smaller and midcap cement stocks. Even chart patterns show consolidation in tight ranges. Some which I follow and am invested in are orient cement, sanghi inds, india cem etc. All seem interesting to look at in terms of short to medium term bets.

@NK1 You have not mentioned which business you are talking about. If you want views on a company make sure you name it.