Benjamin Graham's Net Cash Bargain for Indian Market

I have been extremely impressed by the writings of Benjamin Graham and their followers. This is the first real true application that I have come accross after 2004. Markets have been into blood bath and the more blood it sheds, the bigger the opportunity gets.

Here is the opportunity of a software company that is operating from last 15 years in business.

The theme is called “cash bargains” , as wrote by Benjamin Graham in the Intelligent investor. A cash bargain arises when the market value of a company goes below the amount of cash and other liquid assets in its possession, net of all current liabilities and debt. In effect, the market is not giving any valuation to the fixed assets, to the inventories , and to the receivables.

Cash	339.83		(as on 31st March,08)
----Current Liabilities & Provisions	-55.6
----LT Debt	-79.17
Net cash	205.06		(as on 31st March,08)
----Market Cap	183.75		(as on 10th Dec,08)

Few Problem areas !!

1. Auditor during Mar-08’s Audit review indicated that around 113.9 Cr. Items are not considered as loans and advances which potentially would not be paid back to the company, but that is irrelevant from the perspective of above net net cash bargain perspective from Graham.

2. Low stake of promoters : Promoters hold around 16% of the total company which it substantially low.

3. No insider buying happening as of now : As per the publicly available information people within the company are not buying substantial stake in the company.

4. I have talked to few people within the company and have understood that the technology is their key strength where as they do not seem to convert that strength into the increased in revenue/profits.

In FY-2008-09 1^st half , they have cloaked around 80% revenue growth over last year same period, which helps them to stand at around 8 rs per share as an EPS. At a price of 12 Rs, it seems value buy. In last financial year, they paid 0.5 rs./share dividend, which at this rate is around 4% dividend yield.

It may seem over simplistic calculation but this is certainly anomaly. Whats your guess ?

Let me know what you think of it.

EASUN REYROLLE LTD

Suggestion : To buy at around 97

Logic : Clear sign of Price and RSI divergence as shown in charts with strong volume
Support. There is also divergence with MFI which means that money has started
flowing into this stock off late.
Stop Loss : Market conditions are not great and thats why very strong stop loss of 90 is
is suggested.
Target : 143

Questions always welcomed !

Thanks

Taj GVK hotels buy

Scrip = Taj GVK Hotels

Buy = 89

Stop = 81

Tgt = 112

Logic = Stock in downtrends however RSI and MACD +VE divergence is observed. Also, it is lying on strong trendline which seems unlikely to break. IF it does, please exist otherwise it is up from here.

NTPC poised for a move.

Recommendation :

NTPC is poised at interesting juncture.

Buy : at around 190~2%.

Stop : 176~2%.

Target : 215.

Allocation : 15%.

Logic of Trade : NTPC is showing huge divergence with 15 days RSI and 12,26 MACD. Also it is very close to moving above its 50 days ema. which would be
the buy confirmation. If price goes above 50 EMA and price stays above 50 EMA that would be great sign of positive move upward.

Caution : Markets right now are non-directional. There is no trend, and it is hard to trade
in such times. if overall market weakens, I dont see this trade materializing.

Holding period : I would recommend to hold for 2 weeks if neither stop nor target is hit.

Track this recommendation below.

Hexaware-Analysis request

One of the readers of this blog , "prince geo" requested to know How to trade hexaware.
(If you have any analysis request, put them down on the comments section or on the side bar where I mentioned, "did I miss anything".)

Please have a look at the chart and see a downward channel pattern forming. This indicates that price movements is occurring between a particular std.deviation of the mean price. If this is complex, price moves in a range. That range is not flat and its downward.

Now , if hexaware to make move from here, It should break 80 levels with strong volume support. If that doesn't happen, It will continue to move between the top and bottom line of the range shown in chart.

Please not that there are other factors which affect price and these views are strictly from technicals.


Also, if you look at the weekly charts below, you would see that there is a quite a bit of divergence between price and MFI(see price being stable, MFI increasing) This means that there is high likelihood that price go up from here.In other words, money is flowing into this stock rather then getting out of the stock.To get more information around MFI - Price divergence , I recommend to read about it at stock charts.

Power Finance Corp-Buy

Recommendation : Buy

Reco Price : 160

Stop : 148

Target : 182

Holding : 2 weeks

% allocation : 20%

Track the Recommendation here call given on 29th April.

India Cement Buy recommendation

Date : 24^th April,2008

Current Price : 179

Buy at around 180

Stop loss : 165

Target : 234

Max Allocation : 25%

Track the performance of the recommendation here. Call given on 24th April ,2008.

Mindtree Positive Divergence

 

Buy : 360

 

Stop : 320

 

First Target : 450

 

% allocation : 15%

 

 

 

Trade recommendation

ICICI Bank looks a great buy candidate to me at this time.

1. Sitting on strong support line extending for at least more than a year.
2. RSI has been reduced to almost 24, which is a not a bad indicator of cessation of downfall.
3. Fed reserved board indicated that they will be pumping $200 Bn to rescue Subprime hit industry and dow is 3% up now !!


But before you go and trade this stock now, I want you to go and check the trading resource section here which helps you getting more tools to help you become more sophisticated trader.

More sophistication in Trading-Self Assessment

Yesterday this thought came to my mind that how can I make my trading more sophisticated. So, I jotted down couple of questions I need answers of listed below.

Questions:

1. What is my risk appetite? What best trading/Investing approach suites my personality (huh? is is of any relevance you might ask!)
2. How much should I invest in a trade
3. How much portfolio’s I should have? What difference they should have amongst themselves
4. What should be my portfolio size?
5. When should I enter market?
6. When should I exist?
7. What is the average holding period I should have? And what I the max and min days I should hold?
8. How many stocks should I have in my portfolio?
9. How should my trade size vary based on market conditions?
10. Is there any comprehensive template we have for trading plan for swing traders??

What I figured later on is that, I need to have answers of all the questions above to make a perfect trading/Investing plan or make any automated trading systems.

So, I am going to write answers to all the questions one by one in next 10 weeks. Yes you got it right; this will be series of self-assessment of my trading/investing.

Would you like to participate? Let me know and I have a plan for you.

Recommendation for : Buy

Buy Price : Around 700

Stop Loss : 640

Target : 790

Holding period : Minimum 6 months.

Risk/Reward : 2:1 (reasonable-not excellent)

Pfizer looks good buy at this time.
Buy price range : 670-685
Stop loss : 655-650
Holding period : 3-4 weeks
First Target : 757

Questions ? , contradictions ? raves ? rants ?

Watch this

Watch out for Aarti Drugs !

Wait for the down till 85 and then start accumulating in small qty.

Isn't is straight forward indication that RSI is trending down and so is MACD.
While Nifty Not stopping its continuous upward journey !

Am I missing something when I turn bearish from now on ?

Trading and Life

A brilliant Article from smellthecheeseblog.com from Avinash.

Its excellent work avinash. Astonished !!

www.smellthecheeseblog.com

Trading and Life …

Trading is a crucible of life: it distills, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development–and punish its absence.

So many life lessons can be culled from trading and the markets:

1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.

2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.

3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.

4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.

5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former.

6) Happiness is the profit we harvest from life. All life’s activities should be periodically reviewed for their return on investment.

7) Embrace change: With volatility comes opportunity, as well as danger.

8) All trends and cycles come to an end. Who anticipates the future, profits.

9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence.

10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.

Trading Resources

Here are the "must have" Trading resources :

• Ami quote ticker list



• Ami Quote v.1.9


• Amibroker v.4.9

Kelly's formulla for trade size

Win Probability			Kelly value
Win/Loss ratio			Math. expectation

For Long term investor !

Micro Inks looks on a critical stage.A classic case of beaten up company.

Story : Promoters sold their stake to a multinational company at 675 per share 7-8 months back.

After that, stock almost halved without any significant result apart from not so good results.

I suggest to keep a watch on this stock. Nothing much has changed after Huber chemical took over except top management.

Chart shows the downfall could be slow down at the region between 250-300.

I recommend to buy once it starts moving up above 300 for a long term investment.

BOJ interest rate ?!

I was reading an article(http://www.rediff.com/money/2006/jun/23ps.htm) on rediff posted by some stock broker showing how increase of interest rate by BOJ would affect indian market.
Here is my simple take on what could go away/

NSE mkt cap =1495329 cr
=332.2953 Billion $
Japanese funds =5 Bn. $(article says soros suggest this)
Proportion of Jap funds =2%

If BOJ interest sky rockets also then i wont be worrying as it can only affect directly by 2%.
Caution:This is simple calculation and i have not considered indirect affect (money flowing from Jap-->other country and then get invested into india).

Thougths ?

Ashok Leyland is expected to move up from current levels.

Reason : Strong MACD divergence seen and trend line support

Target : 42-44
Current market price =34
Holding period =15-20 days
Stop loss =31-32

Lets mint !!