Wednesday, December 17, 2014

Two stocks that I have purchased...

Generally I do not do stock recommendations, but after reading the book 'The Intelligent Investor', (Reviewed Here), I scanned the market for some stocks that meet the investment criteria of a value investor. I have identified two of them

If you remember, Graham recommends that one can find value in beaten down stocks and sectors. One of  the signals that the stock is available at significant value is that the market value of the company is less than the net assets of the company after considering all the long-term obligations.

Our beaten down sector is Real Estate and Infrastructure. Both the sectors are trading at significant lows and that provides us with opportunities to find value.

One such stock is Anantraj Industries. The total market value of the company is 1301 Crores. As per the financials obtained in, this company has a net worth of 3920 Crores and a long-term debt of 873 Crores.

The net assets of the company is 2421 Crores. If you subtract the loan of 873 Crores, we are left with 1548 Crores more than the market value of the company. This means that if you buy this stock, you are getting the entire fixed assets for free with about 17 Crores of cash thrown in.

Price to book value is 0.35 offering significant margin of safety. PE is about 8 which gives a yield of 12%. Dividend yield is 0.54%. Annual sales is about 438 Crores, which is a cause of concern (Low as per Graham's standards).

This is a consistently dividend paying company. However the dividend percentage has wildly fluctuated over the last 10 years. Face value is Rs.2

The risk is that the company has a contingent liability of about 468 Crores. This is related to pending cases on Sales Tax Exemption and Income Tax Assessment. I don't know the details. Even if you reduce this, the market value is very close to the net current asset making this company a bargain.

Today I purchased 1000 shares at 45. Do your due diligence before you buy.

Another company where I did similar evaluation is BL Kashyap and sons.

Here the numbers are as follows.

Market value of the company: 274.26
Networth: 484
Long-term loans: 459
Net current assets: 796
NCA - Loans: 337
Annual sales: 1282
Annual Sales is almost 5 times the market valuation.
Contingent liability: 511
Interest coverage: Negative (highly risky)
Mutual Funds interest: Yes?
Current market price: 14

I just brought about 4000 shares: Do your due diligence before you buy. This is riskier since it made losses last year. 

Please note that I have used only one criteria. Market value is less than the net current assets less of all long-term obligations. If you consider other criteria like continuing earnings growth, continuous dividend payments, these stocks may not make the cut.

Caveat Emptor !!!

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