Using the Ben Graham and Buffet formula to build a portfolio during the downturn

Stock Opportunities My Top 5 Picks
1

Hey guys,

New member here and also just getting started with investing. Was waiting for a downturn for a while and was mostly invested in debt till now. Slowly converting the debt to equity positions. Also considering levering up a bit eventually if the situations gets really bad.

I look at the intrinsic value of all companies with 3 formulas ; Grahams formula which uses EPS, buffets formula that uses book value/book value growth and then DCF method.

If all 3 look great, I start buying. I do look for low PE ratios, less than 1 PB ration, low debt, good management, earnings growth over the last 5 years and good ROE

Here is my portfolio

Have been slowly buying Sterlite Technologies and Take solutions.

Sterlite : Optical fibre is going to be a mainstay over the new few decades as data consumptions increases. Being one of the few pure full stack solutions for networking, it seems like a steal at current prices. Especially as they are also focused on IP and promoter has given up pledged shares. Debt is a bit high but they have been decreasing it quite a bit and ROE is very high.

Take Solutions : Have been growing order book really quickly. MD seems very smart and also very synergistic acquisitions. They are one of the few CRO’s from India and I feel as lifesciences expands and more of the work is outsourced Take can be a huge beneficiary. Started building a position last week but will continue over the next few weeks.

Considering - need to review management and business but the numbers look great for the below list :

  1. Elnet technologies
  2. Gujarat Industries Power Limited

Was considering Graphite India, seems like a steal but then seems like China is dumping Graphite in markets so that could affect demand and thats already been reflected in 2020 results

Would love suggestions and criticism if you guys think there are huge red flags in my portfolio

2

I am myself a very big believer in value investing, but I will tell you one thing from my side- no matter how attractive valuations are or how cheap a company is, never ever bet on companies whose promoters have dubious reputation. Your margin of safety should be to completely avoid such companies.

Sterlite technologies, I would personally advise caution against it. There are 2 reasons- one is high debt ofcourse, and second is, I would be vary of promoters of its parent company, Vedanta.

4 Likes
3

@Abhishek16

Agreed and thank you. I was quite hesitant to get into Sterlite but their ROCE and ROE is really good. Debt levels have been decreasing and the CEO is actually a very smart, he studied at London Business School and most indicators look very healthy.

I do agree Vedanta is not the best promoter to have but the company has great future prospect especially with the advent of 5g and broadband internet. So much of the population across the world still need optical fibers to home, so its a market that’s only going to grow. Plus existing data pipes are going to expand, more cloud centers are going to build in which the company has carved out a niche.

It was a good way to take a safe bet on the broader theme of internet pentration and the increasing market of cloud services.