Portfolio of value traps :)

[adarshane]

this is my first post in this forum. i m investing in equities since last 4 yrs. but when i came across this forum and blogs like value-pick, I found out that i m holding decent companies but at a very higher price, Somehow couldn’t track them earlier, I know that when 10 companies are seen as multibaggers then only 2 of them turn out to be Xbaggers. But somehow i feel that investing in them is an exercise like separating the wheat from the chaff, but at least we need to track them from the very beginning. I will disclose what stocks i have in my porfolio ( these are longterm investments)

1. Piramal Enter
2. Triveni turbine
3. Shriram transport
4. thomas cook
5. Atul auto
6. kitex

but if suppose i have 50,000, and i want to make a risky and rewarding portfolio of many cheap stocks, within which one or 2 would turn out to be XX bagger…then what kind of stocks we should consider? its like buying cheap, buying more ( stock of 500 rs can be cheap and 56 rs can be expensive i know that, but if we could find cheap cmp stocks with cheap valuations). its a hypothetical question, that i want to blow my money (50,000rs) and don’t mind holding value picks or traps for many yrs (5+), then what should i have in my portfolio? I have made list of random stocks, may i know if some of you track these?

stocks and their cmps

Aksh Optifibre - 15.75
Telecom

Alps Industries
Manufacturing - 4.90

Basant Agro Tec
Chemicals - 7.42

Haldyn Glass
Manufacturing - 26.65

JHS Svendgaard
Cons Non-Durable - 34.85

Lakshmi Energy
Food & Beverage - 43.10

Lycos Internet
Technology - 11.05

MIC Electronics
Telecom - 13.65

Mold Tek Tech
Manufacturing - 51.80

Noida Toll
Cement/Construction - 23.20

Piccadilly Agro
Food & Beverage - 21.25

Pioneer
embro. - 61.55

Prima Ind - 8.45

Ramky Infra (2)
Cement/Construction - 79.75

RS Software
Technology - 78.15

Sharp India
Cons Non-Durable - 61.30

Shree Digvijay
Cement/Construction - 26.00

SKM Egg Product
Food & Beverage - 64.15

Southern BioTec
Miscellaneous - 8.77

Subex
Technology - 12.05

Valiant Comm
Telecom - 61.70

Vidhi Dyestuffs
Chemicals - 52.30

you can add more. lets make a comprehensive tracking list of good stocks which we can hold for really long time.

[adarshane]

i browsed through some mutual fund portfolios, these are the stocks they have added in 2016, not necessary from scratch but have added them in significant quantity! do u have any outlook about these?

sterlite technologies - 85

cromptom greaves - 80

ncc ltd - 86

aditya birla fashion and retail - 161

hikal - 180

magma fin corp - 99.5

indian hotels - 125.5

asahi india glass - 200

exide - 188

equitas holdings - 180

deepak nitrite - 124

heidelberg cement - 137.9

essel propack - 217

healthcare global - 213.5

v guard industries - 185.5

federal bank - 70.05

inox leisure - 285

engineers india - 269

gateway distriparks - 273.5

max india - 145.5

torrent power - 182.5

max ventures and industries ltd - 54.9

precision camshafts - 146.5

sundaram fastners - 285.5

vrl logistics - 290

dish tv india - 94

redington india - 107.8

[Rohan_69]

@adarshane

Prima Ind

The better option would also be to justify the rationale for each pick in brief. Debt free, Low P/B, Low P/E (relatively) and high promoter holding should be the ideal metrics for such an exercise and also Debt To Equity when we are dealing with small caps.

[theashworld]

Regarding your question

i want to make a risky and rewarding portfolio of many cheap stocks, within which one or 2 would turn out to be XX bagger…then what kind of stocks we should consider?

Couple of considerations:

1. Buy cos which are exceptionally cheap and beaten down in many regards and one of them will perhaps shine.
2. Buy high debt cos and one of them manages to repay

I don’t like 2, but 1 I consider as good bets.

Some examples

1. Holding cos which get discounted heavily can be good bets for 5yrs+ timeframe though there’s no guarantee that they’ll ever get the full value. However, I’ve made some good amount in Kirloskar and Kalyani

2. DVR shares like Tata Motors

3. Heavily beaten down actors like oil and related. Cyclical cos in general where the cycle is terribly against the co (steel, housing/hfc) etc.

I feel that making plenty of small bets in these with long time frames can in general lead to good results. There’s no data to back this up though so consider this as just an opinion and food for thought … certainly not a recommendation

[Prdnt_investor]

One great strategy, if you at all want to invest in these, is to find potentially beaten down cheap stocks with good dividend yield

You will keep making 3-4% from the base price every year (treat it like a FD) and in phase of bull market it will go up 5-6x. Consider Patel Airtemp as an example.

Price on 20 Feb 2006 : 26
Price on 19 Feb 2017: 184

Price didn’t move much till 2014, but one kept enjoying the dividends.

Price :

Dividends were regular:

In the end returns were fantastic!!!

Cumulative Dividends: 18.7 Rs on 26 Rs price in 2006
Current market price : 184 on 19 Feb 2017

CAGR Returns over 11 year : 21%

Thus this strategy if followed diligently and with patience can yield good results even amongst the value traps!

[maheshkumar]

Very well said,

[investr]

That is a good strategy.

I have tweaked that to include PEG.

I like to query for companies where Dividend Yield is greater than PEG. With this comparison I am also keeping an eye on growth along with DY.

[nirajiitkgp]

If you want to take risk take it fully and should not dilute objective by hiding behind higher dividend yield. Some research on deep value stocks points that it is better to buy companies with worst financial matrix and companies which is making big losses than buying companies who has ability to pay dividend etc. Also usually slow sales growth company is better in value creation than high sales growth company in these scenarios. Also because poor corporate governance and auditing standard in India some of these companies are cheap not because of poor business performance but because of outright fraud so need to separate those cases than only i guess deep value philosophy can be applied in Indian condition.