Just a piece. What if you are wrong and the stock rises before you get the opportunity. You may have missed a valuable opportunity presented today
Right @Malkd
Your calculations are really strong After going through your reply I was reading some related reports on morning star got the same linkage related to ITC as a FMCG Giant
But If any expansionary policy is introduced by our Government there is no chance of benefiting ITC out of it
But truly satisfied with your reply on ITC now feeling very calm and cool from such irrational trade setups in last week in ITC
But once again you have proved that your research and analytics are amazing which makes me in jaw dropping again and again
Which instantly motivates me to read some new research papers or something related to it
Burning for ITC is expected as cigrattes makes people burn in and out 
And for such risks I like to go for SIP in ITC when holding idle cash
Thanks
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@Shankar You are right but taking risk is expected in such a volatile market and earn handsome profits
Agreed. Hence why Iām debating so much. The thing about small cap stocks is they provide small safe windows to buy them. Alembic and Kaveri are currently at low valuations(for sectors with tailwinds in them). if I do not buy them now I will not be able to buy them later since itās a slippery slope buying small/mid cap at high valuations. I donāt mind buying at low valuations and holding through carnage long term but il never ever buy or add a small/mid cap at 25+ PE valuations. The carnage in 2017/18 of the small cap and mid cap space will never be forgotten. Hence why the urgency to buy those. Near the bottom the risk is low whereas it increases astronomically at higher levels if earnings drop for a year or two. Even with 10 year visibility of growth holding small/mid caps when they fall by 50 percent etc is difficult to stomach . With ITC I can comfortably buy it even at higher prices(and again, there will be dips every year to buy it) knowing that in the long run my money will be safe and will Compound well even with a few years of pain in-between. My plan with Kaveri, Alembic(Laurus, Deepak, Granules) is buy in bulk now at lower valuations at the start of tailwinds and let them get a huge MOS while the tailwinds last. The cycle wonāt last foreverā¦ they will get beaten down in a few years from now but by then Iām hoping Iāve got enough of a cushion to handle the drops when the headwinds/cycle falls and even add more at the bottom of the next cycle so Iām ready for the next bout of tailwinds and keep repeating that as long as the fundas remain strong. I am pretty confident in the companies Iāve pickedā¦ but I donāt want to be over confident or stupid about it either so getting them relatively cheap is a priority 
. Earnings visibility is good for 2 to 3 years atleast so by then my cushion will be big enough hopefully by buying low
Update: Decided not to time the market. Left everything as it is. Will not let greed get in the way especially considering Kaveri is still a turnaround story with issues with huge flags from before and so Iād rather not go all in with itā¦ and I have enough pharma already so I donāt need more alembic. ITC is my retirement plan so if anything il be adding more when I get the chance and not going to be selling. The only person who will destroy wealth creation is me now. Will just sit back and let time and compounding work their magic now. Cheers.
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Hi malcolm,
Since you have a large allocation to Deepak nitrite, Wanted to know your thoughts about Deepak wrt their abnormally high profits due to the dasda shortage due to temporary disruption in China supply chain. It feels like their pe ratio is optically low and might increase b next year if the ebitda margins are lower due to lower realisation due to higher supply from China. Also, given that they have already captured 65% of market share in pheonolics, is there any scope for any reasonable or significant profit growth from that subsidiary? Where would future growth in Deepak nitrite come from, specifically?
Thanks!
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I wouldnāt buy deepak at its current valuations. At valuations of around 11 to 12 or so the risks were priced in so I was comfortable buying. As mentioned above I see basic chem contributing more or less the same for the next few years with Performance products and Phenolics/IPA providing explosive results based on pricing which would lead to huge profits on average over the next 5 years as a lumpsum though these are not predictable. I was certain about 2 things though. .
- Make in India benefitting them and thatās been priced in since(Anti dumpting duty).
- The brilliant blue chip management giving increasing priority towards specialty chemicals ie agro/pharmaā¦ and the management has all but confirmed that future capex will be for these and that their current growth driver will be spec chem(and that looks priced in too)
However, I took the plunge betting big at sub 550 or so in anticipation of all of this and now all of this looks priced in so I am not even considering averaging up since they are just a Lollapalooza away from a bad year(IF Prices and demand do not work in their favor). One thing Iāve noticed about deepak Nitrite is it never falls for too longā¦ infact it reminds me of blue chip company in the nifty 50. Over the past 5 to 6 years it has barely dipped without huge interest coming in. So I feel very safe at my position with my MOS of 50+ percent. If buying now id be a bit worried about the price staying flat for a few quarters (imo Deepak should be at 30 PE plus so even a drop in profits for a bit will be fine since itās still around 20 or so) if results arenāt upto standard but I wouldnāt worry about loss of capital long term at all if you plan on holding 5 to 10 years since the management is just that good.
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Hey @Malkd Finally decided what to do with my current portfolio
- Will exit from United Spirits and buy CUPID instead of it
- After one quarter exit Deepak Fertilizer and enter Kaveri seeds
Is this right
Thoughts
Thanks
It is good to see this update as I was surprised initially to see your decision to come out of ITC at a time when all long term investors should be buying more. Although not comparable, it reminds me when Tata consumer touched 100 after long wait and I bought a meagre amount only to buy more at 300 levels again. At 100, I decided not to think of selling but will not buy more as wellā¦in hindsight I feel it was not the best decision. Again few years later, it fell from 396 to 185 and I did nothingā¦all 200 DMA level concepts for selling I never followed and in hindsight I feel that forget selling, instead I should have bought moreā¦
ITC is no Tata, it will follow its own path. I believe if I am sure I will buy it later at 250 then why not buy more at 180 nowā¦Also, these consumer franchisees once fire, are hardly available at same prices again. If anything to hold for long term as a coffee can, for me it has to be top quality FMCGā¦look at the multi decades straight line graphs of P&G, Colgate etc in USā¦Top Quality FMCG companies when fall, its been great opportunities for all coffee cansā¦
Disc: Invested in Tata consumer and ITC hence biased. Above purely my personal views and no recommendation to buy/sell and I can be completely wrong in my logic & assessments
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@Dhanesh_Chauhan
The 2 riskiest stocks I own imo are:
Cupid and Kaveri seeds. I wouldnāt recommend them to anyone tbh. Cupid is a microcap that Iāve invested just 1 percent of my portfolio in. Iām betting on Us fda clearance for female condoms, succession issues being sorted, no tendor issues with developing countries due to covid and a new growth driver in medical devices. ā¦ thatās a lot of things to wait on and at the current price itās very risky. Iād advise you to not allocate too much here. Itās almost like Iām doing it for the enjoyment more than the money.
Kaveri has caused investors pain beforeā¦ including me. I understand the company inside out due to having owned it before and having studied it now and Iām very weary about the previous issues ie audit etc since the market wonāt forgive them again if they put a foot wrong. Again, I am taking a risk with it. At your age you donāt need to take these risks since compounding a blue chip at 10 to 15 percent is fine. Kaveri and cupid are HUGE risks . Understand that before putting your money in them. Infact please stay away and buy something like alembic pharma which is still cheap . I have a high tolerance for risk but buying small caps like cupid and turnaround stories like kaveri can get very scary the moment you pull the trigger. When they fall 10 to 20 percent (like kaveri did just a few days ago) the doubts flood in and thereās nothing but your own conviction that you are left with
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@Malkd Right
I completely agree with such a valuable words of bearing risks. I really get scared at such triggers
And Good satisfying reply
While looking at peer comparsion of Alembic pharma
I was like (other such companies may perform good for long term)
As Dr reddy is currently a trading pick of almost all the so called analyst of tv channels (Sorry for my words but It portraits this pic to me)
And other Cipla, Aurobindo Pharma and Torrent pharma I doubt on holding for long term
Do you really think Alembic pharma may overcome to capture market share and sustain at a comfortable position for a decade or so
Because I think that all these companies are Giants from years and kept a consistent returns for their long term investors.
Note- I do not hold any DR Reddy , Cipla , Aurobindo or Torrent Pharma
What do you think?
Feeling a huckle buckle situation right nowš
Thanks
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Thanks Malcom for the great thread!
I have been silently reading the words of wisdom. I took 10% position in Laurus 2 months back in staggered manner (bought in every dip). I was convinced from the story (ConCalls, investor presentation), and as you mentioned, threads by Hitesh Sir and Donald only added to that conviction. I have been longing to increase my position. But itās only going up, which scares me. I know itās a great company. But now, it seems everyone is talking about it. Itās in mutual funds radar due to new SEBI rules (or am I missing something here?).
I always believed that, if a business is going to become 2-5x, a 30% increase in CMP shouldnāt be much bothering, if the conviction is strong.
I wanted to know your thoughts on Laurus. Would you be comfortable buying at these prices? As per Dr Chava guidance, Q1 numbers can be the new base. If it is, the forward looking P/E would be around 20.
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Could you tell me the source of your information on Pabrai reducing its investment in Kaveri seeds.
Currently invested in Kaveri seeds and plan to increase allocation
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@vivekinfinite Bse notices giving intimation and trendlyne(under insider trading). Started off with just 2 percent or soā¦ but now he has sold a whopping 4.3 percent lol. Considering he owned 9.5 percent as of now it just looks like a chance for us to buy more than anything nefarious though
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I am comfortable with my allocation that I made before and on the day of Q1 results for Laurus and this is why I like betting big in one go. I still wish Iād put more in it but I donāt want to lose my MOS by averaging up since I want to hold it for a long time and there is an easy alternative in Alembic pharma at present. IF by some chance Q2 isnāt upto expectations laurus could fall like a house of cards at current valuations so there is a slight risk looking at forward PE(though one of the main reasons i bought it) at the current valuations and averaging up now but it doesnāt look like the worst idea tbh. Alembic for me has small downside risk even if they post an average result right now so Iām more comfortable putting cash in alembic at this current stage. I am very convinced laurus will be a āmultibaggerā ā¦ but what if we are wrongā¦ Hence why I like trailing and historical PEs too alongside forward PEs
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Fast Grower : Laurus
Turn Around : Kaveri
Cyclical : Deepak (DASDA price fluctuations)
Good set of stocks Malkd. Closely tracking!
For Kaveri, after extensive reading on this forum, recent concals, and interviews of Mithun Chand, and observing how under penetrated the market is, this story has long run way. Provided they stick to their words and execute, i doubt there are any downsides.
For Laurus, just read an article in Bloomberg forecasting very good numbers ahead, closely on expected lines as discussed in this forum.
Great to learn a lot here. Thanks Malkd
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@Dhanesh_Chauhan
As mentioned before I am comfortable with identifying and running businessesā¦ Iām horrible at picking stocks. When you own a large cap 2 things happenā¦
- Everything is priced in:
Cipla, Sun Pharma etc were fantastic stocks for long term owners. The problem with buying now is their valuations have priced in everything good and many a times even a good result leads to average returns and an average result Leads to flat returns. Your capital will be protected long term but youāll only have 1 price driverā¦ thereās no PE re rating and the results just keep the price afloat usually.
- They donāt make business sense anymore:
Do some scuttle butt, check all of their orders and pending orders, do all the research you canā¦ then the result comes out and even if itās bad it doesnāt drop farā¦ if itās good it doesnāt go up up much. So you honestly lose interest in tracking it. That leads to you stopping tracking it in some timeā¦ and thatās when it gets dangerous since you wonāt see the cracks when they appear. I like smaller businesses since the research and work lead to meaningful results and you are so in tune with the company that you know if itās time to exit. In a large cap youād just SIP on dips and even cheer huge falls. Itās weird
Hence why I like alembic, laurus, granules etcā¦ 2 price drivers and actual growth. Think of it this wayā¦ if these businesses manage 20 percent growth per year for 5 years your money goes up 20 percent per year. If they do that their PE will double too(if you catch them relatively early). So thereās a huge chance of getting 5x your investment in 5 years! All you have to do is make sure they are on track for this growth based on quarter results, concalls and ARs every year and exit if the fundamentals change. Plus these businesses get rewarded and punished according to performance too so tracking them is rewarding. So i will always prefer a brilliantly run small cap over a large cap no matter the sector. Ideally the only large caps I ever own apart from ITC and Sbi cards (both feel like safe large caps with the potential of small cap explosive growth to me at present which is the perfect mix of capital protection and returns imo ) would preferably be small/mid caps that turn into large caps. If I wanted average returns Iād just buy a mutual fund instead of a large cap. I prefer aiming for 5x in 5 years instead. Even if 3 of my companies attain that goal and I donāt lose money on the rest il be smiling in 5 years. The risk is obviously a downturn since they will always happen due to the nature of the economy and credit/debt cycles and small caps get affected the mostā¦ so buying now with tailwinds offers some security especially in pharma since youāll get a nice cushion to ride the next few years
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Yup Agreed @Investor_No_1 ā¦ it was a moment of choosing between opportunity cost and ITC. Alembic and Kaveri are currently in a small window that I donāt see lasting very long and they get exponentially riskier at higher prices. ITC il be SIPing any way for the next few years once my business is up and running again and no matter the entry price(to a limit of course) is safe long term. So it would have only been temporary shift out from ITC to take advantage of that window. Decided against it though since ITC is my debt instrument with limited downside for what looks like a choppy few covid few years and selling would increase my risk exponentially.
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I would believe if they will be exponentially riskier at higher prices then do they qualify for investment today? Unless of course you will be waiting to sell them at higher prices. Because top quality is not exponentially riskier at higher prices, at max it stagnates for sometime before earnings catch up and that stagnation is infact opportunity to average upā¦what do you think?
I am very wary of buying small caps at high valuations. Its a safety measure Iāve put in place post 2017/18. After a few years of owning a company the risk becomes a lot less and averaging up as you get to see more of the future unfold becomes a possibility but at the start I wouldnāt want to enter a small cap that isnāt on sale and only when itās in a sector with tailwinds to provide a further cushion(this is a very tough combo and you need to grab them whenever the chance beckons since itās so rare). Better to be safe than sorry no matter how wonderful the company and there is Nothing like the feeling of having a 30+ percent cushion after buying a small/mid cap on sale. ITC has enough free cash to survive a 3 year War and has enough of a history for me to not worry too much about MOS since itās a 20+ year holding for me(though I will buy on dips always)
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Took a small position ie 1 percent of portofolio in KPIT today at 104. Had the cash available and Iāve been tracking it since price was 60 and Iāve been regretting not buying it since. Operating margins and future in EV look good and overall I really love the company. They reached a different level of revenue and profitability in FY 20. And finally, technically via charts it is a fantastic bet too since it finally closed consistently above itās all time high (since listing day when it opened a bit higher) that itās been trying to break for 1 year 4 months after the promoter bought shares at 100(technically itās been in the overbought Zone for a while so there is MOS risk but il take the closing above all time high and promoter buying as a better indicator) and I feel that it has all the ingredients to go on a run. Plan on holding it for a few years till EVs come out so I Took that as my cue to buy especially since itās in a sector with tailwinds (tech) and a sector with huge growth (EV). Not gone overboard since itās not tracked so well on VP and I have no MOS but with the low investment Iāve put in Iām willing to take a punt. KPIT is my auto and tech/IT bet at minimum investment but high potential even though it broke my rule by being at 20 PE(though with IT/Tech valuations looking higher and higher of late its not too bad all things considered). Going to be loooong term play on EV though so itās a minimum 5 year hold for any fruits
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