What Stocks to Buy in June 2017?

This month we have liberalised the rules for buying stocks a bit.

Why?

The market sizzling and making stocks highly expensive across the board, and if we don’t loosen a bit we will not be able to:

• Buy anything
• Do justice to some of the good stocks that had suffered price hammering in the global commodity markets.

We have set a liberalised yet strict rules that besides being a member of our ‘Portfolio 2K15’, the stocks shall satisfy the three criteria prescribed below:

• The Price to Book Value (P2BV) Ratio shall be less than 1.50. This means we will allocate money to a stock under this rule to only those stocks that are available at or at a discount to the price to book value ratio of 1.50. This is liberalisation from a stringent 1.00 earlier.
• The Price to Earnings (PE) Ratio shall be below 15. This is again liberalisation from the tough hurdle of 10 earlier.
• The product/ combination of PE*P2BV shall be less than 22.50 (1.5*15)
• The Dividend Yield shall be more than 0%. However, a mere good dividend yield is not sufficient. In addition, the scrip must have passed at least one of the three previous tests. Meaning if the share proves expensive under the P2BV, PE and PE*P2BVcriteria, it is ineligible for allocation merely on the grounds of an attractive dividend yield.

The total investible sum is taken as multiples of 10,000, that is Rs.20,000, 40,000 or 120,000 and so on, depending on the investible surplus available with the investor.

The basic unit of 10,000 is equally distributed among the four criteria at Rs.2,500 each or multiples thereof.

This month all the stocks constituting our Portfolio 2K15 qualified, however MOIL Ltd., though managed to qualify after many months, could not earn enough allocation even to buy a single share!

Summary:

Now let us examine the eligible candidates separately under each of the three criteria in detail.

Price to Book Value (P2BV) Ratio:

PE Ratio Criterion:

PE*P2BV Criterion:

Allocation based on Dividend Yield Criterion:

In conclusion the above stocks are those that can be bought in the month of June 2017. MOIL Ltd., though qualified could not muster enough allocation even for buying a single share.

Is Galloping Eicher Motors' Share Price Justified?

 Actual Question:

 How did the share price of Eicher Motors shoot up to INR15800? What triggered this steep increase?

Answer:

Dear Friend!

I don’t know from where you got the number INR.15800 with reference to Eicher Motors Ltd.’s share. The current price is Rs.29,180 a piece.

Of course the price of the share has been rising continuously and has risen by about Rs.6000 (about 26%) in a span of just three months.

The reason for the continuous price is the bullish ‘Buy’ calls given by almost every brokerage in the country with great company performance expectations.

But, is all this euphoria really justified?

Is it fair to expect the company to deliver performance in exact synch with market expectations?

There is no doubt that Eicher Motors is a wonderful company, but while the share price can soar 26% in three months easily, it is impossible to deliver rise in the turnover and profits 26% in three months!

Please look at the graph below:

You can see how dramatically the gap between the EPS and Price Rise is widening.

Now let us focus whether the Eicher Motors share is in the buy zone as per value investing norms.

We can see that Eicher Motor’s share is very, very expensive and unaffordable. It is not wise to invest in any share at such high valuations.

Please note that it is not the fault of the company - it is the market’s fault. The company is delivering excellent results, but the market is unjustifiably enthusiastic.

In conclusion the galloping price of Eicher Motors Ltd.'s share price is entirely unjustified and unsustainable and imposes an unfair burden on the company to ever deliver superlative performance.

Suggested Further Reading:

• Margin of Safety
• How to Calculate the Intrinsic Value Shares?
• You Only Find Out Who is Swimming Naked When The Tide Goes Out - Warren Buffett’s Quote

Thank you,

With Best Regards,

Anand