Invest Without Emotions
Credit Suisse came out with a research report yesterday that picked 10 mid-cap stocks that looked good. Can these stocks out-perform the Nifty? How would an equally weighted portfolio of these stocks perform over a period of time? Is the hit ratio any better than 50/50? Well, we created a Theme that tracks this portfolio. So dood-ka-dood, pani-ka-pani.
Check out the Theme here: “CS Midcap 28-Aug-2013”
[stockquote]PRECOT[/stockquote]
We had filtered stocks based to Gross Profitability to Total Assets (GPA) and Book Value to Market Cap (BtM). If you combine the two, you get the Quality to Price ranking. The goal is to end up with stocks that are profitable and under-priced.
We went one step further and setup a Theme that invests in NSE stocks that fit this criteria. Check out the “Quality to Price” theme – a portfolio of 10, equally weighted stocks for the value investor in you.
[stockquote]PRECOT[/stockquote]
Book Value to Market Value (BtM) is the ratio of the firm’s Book Value to the Market Price of Equity. Book Value is simply total assets minus intangibles and good will and Market Price is the total common shares outstanding times the market price of the stock.
The problem with the BtM ratio is that it tends to pick stocks that are under attack. However, its an useful measure to make an apple-to-apple comparison between stocks within the same sector.
When we ranked the universe of stocks using BtM, it obviously threw up a lot of stocks that have been hammered down:
SELMCL [stockquote]SELMCL[/stockquote]
MICROTECH [stockquote]MICROTECH[/stockquote]
GAMMONIND [stockquote]GAMMONIND[/stockquote]
UNITEDBNK [stockquote]UNITEDBNK[/stockquote]
UBHOLDINGS [stockquote]UBHOLDINGS[/stockquote]
What’s more interesting is what made the bottom of the list:
DABUR [stockquote]DABUR[/stockquote]
ZYDUSWELL [stockquote]ZYDUSWELL[/stockquote]
BAJAJCORP [stockquote]BAJAJCORP[/stockquote]
TCS [stockquote]TCS[/stockquote]
EMAMILTD [stockquote]EMAMILTD[/stockquote]
HINDUNILVR [stockquote]HINDUNILVR[/stockquote]
GODREJCP [stockquote]GODREJCP[/stockquote]
PAGEIND [stockquote]PAGEIND[/stockquote]
COLPAL [stockquote]COLPAL[/stockquote]
SPARC [stockquote]SPARC[/stockquote]
So basically, the more ‘popular’ the stock, the less of a ‘value’ it is, at least according to BtM. Also, when you work with annual balance sheets later in the year, most of the information tends to be fully priced-in.
Gross Profitability to Total Assets (GPA) is the ratio of the firm’s gross profits (revenues minus cost of goods sold) to its assets. Gross profitability has been shown to have far more power than earnings in predicting returns. Gross profits is the cleanest accounting measure of true economic profitability. The farther down the income statement one goes, the more polluted profitability measures become, and the less related they are to true economic profitability. Investors who are interested in the literature can read The Other Side of Value: The Gross Profitability Premium by Robert Novy-Marx (pdf)
For the companies for which we have 5 years worth of financials available, 20 stocks with the best GPA score are:
RSSOFTWARE [stockquote]RSSOFTWARE[/stockquote]
GEOMETRIC [stockquote]GEOMETRIC[/stockquote]
COLPAL [stockquote]COLPAL[/stockquote]
ZENSARTECH [stockquote]ZENSARTECH[/stockquote]
TATAELXSI [stockquote]TATAELXSI[/stockquote]
NIITTECH [stockquote]NIITTECH[/stockquote]
THINKSOFT [stockquote]THINKSOFT[/stockquote]
INFINITE [stockquote]INFINITE[/stockquote]
ECLERX [stockquote]ECLERX[/stockquote]
ALLSEC [stockquote]ALLSEC[/stockquote]
HINDUNILVR [stockquote]HINDUNILVR[/stockquote]
BRITANNIA [stockquote]BRITANNIA[/stockquote]
INFOTECENT [stockquote]INFOTECENT[/stockquote]
ZYDUSWELL [stockquote]ZYDUSWELL[/stockquote]
PERSISTENT [stockquote]PERSISTENT[/stockquote]
TCS [stockquote]TCS[/stockquote]
TTKPRESTIG [stockquote]TTKPRESTIG[/stockquote]
MASTEK [stockquote]MASTEK[/stockquote]
TECHM [stockquote]TECHM[/stockquote]
PAGEIND [stockquote]PAGEIND[/stockquote]
The bottom 10 are:
SOUTHBANK [stockquote]SOUTHBANK[/stockquote]
CUB [stockquote]CUB[/stockquote]
DCB [stockquote]DCB[/stockquote]
ESL [stockquote]ESL[/stockquote]
SYNDIBANK [stockquote]SYNDIBANK[/stockquote]
YESBANK [stockquote]YESBANK[/stockquote]
UNIONBANK [stockquote]UNIONBANK[/stockquote]
VIJAYABANK [stockquote]VIJAYABANK[/stockquote]
UNITEDBNK [stockquote]UNITEDBNK[/stockquote]
UCOBANK [stockquote]UCOBANK[/stockquote]
The bottom 10 non-financial stocks:
ESL [stockquote]ESL[/stockquote]
IBPOW [stockquote]IBPOW[/stockquote]
SUNTECK [stockquote]SUNTECK[/stockquote]
RPOWER [stockquote]RPOWER[/stockquote]
SREINFRA [stockquote]SREINFRA[/stockquote]
GREENPOWER [stockquote]GREENPOWER[/stockquote]
UNITECH [stockquote]UNITECH[/stockquote]
MANJEERA [stockquote]MANJEERA[/stockquote]
GAMMNINFRA [stockquote]GAMMNINFRA[/stockquote]
MURLIIND [stockquote]MURLIIND[/stockquote]
GPA favors ‘asset light’ companies over infrastructure and capital intensive ones. For example, banks with a retail presence will obviously under-perform software services companies. But its a useful measure to discern between stocks within the same sector.
This was one volatile week for Nifty: -0.66% for the week but huge gyrations throughout.
If you thought banks were the worst performers, given RBI moves, think again. It was media and pharma stocks that got walloped.
| PSUBNKBEES | +2.27% |
| GOLDBEES | +1.68% |
| INFRABEES | -0.34% |
| NIFTYBEES | -1.41% |
| BANKBEES | -1.59% |
| JUNIORBEES | -4.36% |
Inverted but stable… its like saying the patient in the ICU is in a stable coma…
Metal and mining stocks rallied away… is the market pricing in a turn of the cycle already?
Europe at first lagged well behind India and China in numerous technologies, such as cotton processing and textile spinning, its economic development leapt ahead because of 3 factors. Elites were legally blocked from expropriating property; contracts could be enforced; and the West developed cultural emphases on independent thinking, secularism, and saving money, fostering the growth of technology and human capital.