ValuePickr Forum

Top 5 Picks - optimistically, for the next 50 years

Hi All,

My top 5 holdings are

  1. NMDC - avg price 120 - Inspite of iron-ore prices at multi-year lows, I am hopeful Mr Market was generous with NMDC :slight_smile: The sector looked attractive. Its ROCE, cash reserves, low P.E and P.B value, Graham number and >7% dividend looked attractive. I felt once the iron-ore cycle reverses, NMDC should do well.

  2. Balmer Lawrie - avg price 310
    Somewhat similar to NMDC in ‘safety’ parameters. (ROCE, PE, cash reserves, dividend, multi-year low)

  3. BEL - avg price 425
    This was more a ‘foresight’ pick more than ratio’s. A monopolistic company in defense sector looked appealing, esp at multi-year lows. I had also gone on a college industrial visit, and what I saw also had left a positive impression. No one could develop such technology on short notice.

  4. Bata - avg price 540
    It seemed logical that demand for shoes in india would keep growing. And Bata looked to have better ratios (to me) than Relaxo and Liberty Shoes. I hope the P.E ratio i bought wasn’t too high.

  5. MindTree - avg price 1260
    I was on the lookout for an mid-cap IT company, and MindTree looked to have the best ratios among competitors. The management also looks good. Glassdoor / my friends have given good opinions on work culture.

Other stocks i own are OFSS, AIA engineering, eClerx, CARE rating, Igarashi Motors, KSE Ltd and IOCL.

I was fortunate to get IOCL at its book value of 200. The govt has removed subsidy. Debt is reducing. IOCL has high moat, with big refineries. But i dont know if I should hold IOC for the next few decades, or switch it to Balmer Lawrie.

I’m a relatively risk averse investor :smiley: as I dont have much time for tracking. I have just joined value pickr. I’ve owned mid-cap mutual funds / ELSS since 2010. Started with stocks in Aug 2013.

Guru’s / All, please give your suggestions @Donald @basumallick

Warm Regards,
S

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nice topic bro for 50 years i will go for BEL …UNSTOPPABLE .
NMDC is cyclical .
SBI …".to big to fail " and govt will exit from all core holding before 50 years .

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@sabarin_wipro

While its good to know that you have created a portfolio with long term horizon, IMO nobody knows how market will behave over 50 year period. A periodic look over ones’ allocation will help gauge whether your decisions are sailing in the right direction.

Regarding your portfolio, I am sure you know the best thesis to invest, esp. NMDC the margin of safety has greatly eroded with prices going haywire and dividend yields declining, its no longer a cash cow these days.

BTW curious to know ur rationale for igarashi motors (delisting?) and kse
Regards
Sreekanth

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@srnarayan Hi Sreekanth,

That is true. Maybe consistent bad performers over 1-2 years should be replaced with new ones.

Reg NMDC, your right with the prices / margins. But, i feel 120 seems a fair price.

Reg Igarashi, I googled, but I’m not sure whats up with the de-listing you mentioned. Could you share some links reg the same?

I bought it @250->350 after seeing it on http://fundamental-picks.in/2014/08/igarashi-motors-india-ltd/. It had increasing ROCE the last 3 years, other ratio-numbers were also okay. And the Japanese partner who initially sold his full stake, later bought it back.
Growth scope seemed to be there, as these small motors keep on increasing in cars. And their stuff must hopefully have quality, because their clients are international car makers. If some small dc motor goes kaput while driving in the US, they will sue in big $$$. Though i hope it doesnt supply VW :smiley:

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Your picks looks quite logical. Be reminded that majority of the PSU’s have only destroyed wealth in the past although they have high moat or monopoly sometimes. Also, with these companies there is always an issue that govt will suck their cash away by giving some foolish reasons or doing any foolish things (e.g. amalgamation, acquiring debt laden company at higher valuation etc.)

I think in terms of corporate governance PSU’s are very risky. Key points to think of:

  • Promoter is not steady (read govt. changes every 5 years or even sooner!!)
  • Cash is sucked given high govt deficits
  • Employees have no incentive to work efficiently (they never get fired or promoted to higher level if they underperform or overperform respectively)
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Hi Vivek,

Point noted. Esp reg the risk of acquiring other PSU debt-laden companies.

W.r.t NMDC / PSU’s, I am hopeful the management quality will improve in the next few years. (gathered from the news)

  1. This govt will increase management quality (selection transparency, better renumeration etc.)
  2. More disinvestment.
  3. Non interference. (like e.g in Axis bank.)

Regards,
S

Interesting concept. Building a portfolio for the next 50 years. I don’t think I can think of a good way of doing it. One way to approach would be to look at history and see what has remained constant over the last 50 years. But so much has changed in the last 50 years that it is going to become a very academic exercise. Also, unless you have a family trust which you want to perpetuate, there is very little point in trying to do a 50-year exercise.

Coming to the stocks you have, they are all “good”. Will they be all multibaggers? I am not so sure. 10 years down the line will you make money on these? Most likely. Will it be more than say 20% CAGR? May not be.

I don’t follow most of the stocks closely, and know only about MindTree, Bata & BEL. MindTree has no competitive advantage over its peers. Bata has a good brand so will likely do well. Trick is getting in at the right price. BEL has technical advantages now. Over time, that will go away, as the L&Ts, Tatas, M&Ms & Reliances of the world get into the fray (along with the global majors). So, BEL is a toss-up between going the HMT way or the ONGC / SBI way. Needs to be carefully monitored.

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Hi Abhishek,

Point noted regarding Bel, mindtree and bata. And I would keep that risk in mind while evaluating Bel in the future.

On a lighter note, I’ll be overjoyed with a near 20% cagr for the next 10y. :smile: That’s equivalent to my best mutual fund!

Regards,
S

Mindtree…the promoters holding is just around 13%…would you still look at it as a long term investment

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50 years is a long call because things can change dramatically. Still I would give it a long shot.
Firstly don’t look at the companies with too many variables. Secondly look for compounders and management who is running the business, thirdly sectors that are closely linked to economy and lastly stick with top-3 players. Look for businesses that are essential for an economy to run.

Businesses that you could perhaps look at are FMCG, Banking & Finance, Power. Also think about investing in exchange businesses as and when they get listed (BSE & NSE). These exchanges are likely to stay forever.

I have not included Infra and IT because I am not sure who would be the leader 50years down the line. Infra revenues can be lumpy (not necessary though) and IT is prone to technological disruption.

These are some random thoughts. Hope it helps.

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For 10 years I am going for
Atul auto
Eicher motors
TVs motors
Wabco India
Ccl products
Persistent systems
Hdfc bank
Tata elxsi
Transpek
Zensar

In the year 12_13…I have prepared the portfolio of ten shares for 10 years.
In current year I have prepared a portfolio of five shares for five years…

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praj ind 15%
spice jet 15%
mic elect 20%
kwality 10%
mangalam drugs 10%
g.m brew 5%
granules 5%
nitin spin 5%
manali 5%
ashiana housing 10%
pls suggest .

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Hi @anand76 , @okmehul,

Instead of just giving names and percentage of allocation, it would be better if you give reasons why you are selecting the stock and will it survive/exist/grow for 50 yrs

@sabarin_wipro NMDC and Balmer Lawrie are interesting contrarian PSU picks. A fifty year view is extremely difficult to take - one of the analyst reports on NMDC estimated that at the current extraction rates, their mines should last for another forty years only. In the meanwhile, to sit and watch the price of iron ore (and the share price) go up and down like a yoyo, must be requiring nerves of steel - curious to hear if you have not been tempted to cut losses after the good dividends and on some of the recent spikes.

Curious about the thesis on Balmer Lawrie - you are solidly in the money, so why not book profits. Disparate set of unrelated sub-scale businesses which while having decent RoE and low PE, none really have a moat - so definitely doesnt fit in a fifty year portfolio. Last year’s (or the year before that) acquisition of a holiday tours business shows that management do want to take risky bets (which is not necessarily bad; just a double edged sword). Dividend yield is respectable - lets see what next week’s results are like. In my humble opinion, the only trigger to hold this stock is the disinvestment trigger. At some point hopefullly, some minister or bureaucrat is going to wake up and ask why these businesses should be owned by the Govt. Another interesting way of playing Balmer Lawrie but with higher margin of safety, would be to buy the shares of the listed holdco Bbalmer Lawrie Investments, it trades at a 35% discount to NAv and hence BL’s div yield of ~3% gets magnified to over 4% in BLI - the catch is that there is very small volumes in BLI so not suitable for large holdings

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@arsh13 Yes, by 50y, I meant a passively tracked long term portfolio.

NMDC - I bit the bullet and averaged down my price to ~100. So no loss yet. Yes, i gave up tracking it due to the ‘yoyo movements’. No use except increase BP :slight_smile:
Yaa, after 2.5y, it was tempting to sell off. We cant be sure this is the bottom. Many articles list Vale, RioTinto and other iron-ore majors increasing production like anything, and that plus chinese problems will drive iron ore prices even further down. That said 90’ish seem a very low price to sell off NMDC.

Balmer Lawrie - I’ve averaged up B.L to ~525. (But actual cost price should be somewhat the same as I had switched from HPCL into B.L about a year back.)
Yes, its definitely not cheap now, but I dont feel its over-valued for a sell as well.
Lubricants, barrels, cold-chain transport, tours and travels - like you said, all are disparate sectors. But lower oil prices should be helpful for all.
I think disinvestment should be excellent for B.L.
I dont know how much of a moat BL has on cold-chain transport. Esp compared with someone new like the Snowman logistics etc.

B.L.I: I’m not tracking BLI, I’m also unfamiliar with how holding companies work.

Looking forward to your comments.

Disc: NMDC and B.L ~10% each of my portfolio. My Portfolio review

For me. this work has to start with sectors. With things changing so fast, I think one has to focus on “what will not change in next 50 years” i.e. Longevity of the product. I think "Roti, Kapada aur Makan (aur Dawa) " will be needed by humans for many years to come. Their forms, material, types and styles may change over the period but they will not become obsolete.

So consumer centric companies (B2C), housing finance and pharma (not so sure of textile companies due to structural issues) are the sectors which would last for many years to come.

Once sectors are identified, you need to look for quality companies where management has good record of capital allocation and honesty/transparency. Then you can buy those and “go to sleep”…

I know this sounds much simple than it really is…

@sabarin_wipro : Thanks, I agree with the strategy of averaging on NMDC (have done it myself). Given the zero debt-high cash balance sheet, short term fluctuations in iron ore prices should make no difference to the long term thesis. At some point in the next ten years (maybe much sooner), mean reversion on iron ore prices will inevitably happen and at that point NMDC should do very well. My only submission is that while this is a long term buy and hold stock, the exit will need to be timed to coincide with a peak in ore prices (and within next 10 years). And the mouth watering dividend yield is icing on the cake. The trick / challenge will be to average every time the stock falls to new lows and to have the patience and courage to not get frustrated.

Other interesting resources stocks are NALCO and MOIL - MOIL is a small cap but has even higher margin of safety than NMDC (notwithstanding that MOIL reported an EBITDA loss in Q4 FY16).

On Balmer Lawries, agree that its not overvalued for a sell, but I dont see it as a part of a long term passively tracked portfolio. If it spikes (and who knows, Q4 results are today), you may find better businesses for a passive portfolio - the conventional theory has been to have either a concentrated portfolio of exceptional businesses to buy and forget about, or to just hold the index. In my view neither NMDC nor BL would qualify as exceptional; good yes for maybe 2x in 5 years but very difficult to predict performance thereafter

Hi @arsh13,
NMDC: Am hoping even cyclic stock prices should eventually follow the laws of economics :slight_smile:. But, like you said, iron-ore prices being cyclic, one should try exit when ore prices are high. Say a 4 times book value? Do share any exit strategy that you have considered.

MOIL / NALCO: NMDC looked better then. Also, I didn’t want to pickup another mining commodity stock.

B.L: I considered B.L for its acceptable growth at acceptable risk.
Yes, a conventional concentrated portfolio is very different. But mine is more on the diversified side (15 - 20). The reason being I do not read annual reports. I use screener and google finance for a yearly cursory glance through. Something like the pareto principle. (80% info in 20% time.)

@Marathondreams, Yes. Top-down investing. Like they say, its simple, but not easy :slight_smile:.
I did consider filling up with FMCG’s, pharma and IT’s. But then decided to try include one good company from each of chemical, engineering, mining, textiles, auto n’ ancillary and financial sectors.

@nikhiu7r, In an ideal world, I would have liked MindTree to have two promoters, each with a 30% stake, so that they both keep an eye on each other for me :grin: .

Historically, most of the PSU’s have destroyed shareholders wealth…so be careful…!!!

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Avoid such blanket statements. OMCs are creating wealth. Most of the PSUs are in cyclical business (so they havent created much wealth) and if you can identify correct stocks at correct juncture they can mint good money. Resource stocks aint doinng well now but that doesnt mean they wont do well ever. NMDC is tempting and in case of any mean reversion this would give good money and we would then say it was a no brainier…