Make a killing

Wednesday, 16 January 2008
Make a killing

This is the popular term used in stock market which means doing something that makes you a lot of money.

By following these simple principles in a disciplined manner we can also make a killing in stock market.

First thing we should look for in any scrip is the sector or the business of the scrip, If the underlying business is struggling even the best management can do little for the stock price, like in 2007 all the indices have given more than 40% returns while the IT, Pharma and Autos have given -ve returns because of the macro factors of those industries. So select 3 to 4 sectors in which growth is visible for next 2 to 3 years .

I feel in next couple of years power equipment manufacturing business (ABB, BHEL and Siemens) is going to give superior returns compared to any other sectors because of the investments taking place in power generation sector ( Reliance power alone is going to invest 75000 cr in next 5 years).

After deciding the sector we should look for the management which can exploit the opportunity available in that sector, Pay reasonable price (compared to peers) for that scrip add whenever correction( or opportunity ) comes .Do the homework and focus your investment in only one company.


Things you should look for before investing..

1) PE/Growth should be less than 1 .

PE = Share price / Earnings per share (which you can obtain from companies financial statements).
Only matured businesses and companies can be valued through PE value ( sectors or companies with future earning potential like insurance and private infrastructure companies can not be valued using this)

2) PE should be reasonable compared to peers.

3) Look for hidden value and possibility of value unlock .

4) For commodity stocks ( steel,coal,sugar etc) we should look for the commodity price cycle and various factors that can effect those commodity prices.


RK

Posted by Ravikanth at 07:53 0 comments