Aristotle’s Classical Five Elements

On May 26, 2010 the Sensex closed at 16387.84 and on August 26,2010 we see the sensex trading at 18226.35, a smart rise of 1838.51 points in three months flat! Even in the past one week the sensex has risen more and fallen less – it’s risen by 400 plus points and fallen by 150 plus points.

Should we then conclude that most of the bears have gone on a long long vacation. Perhaps yes. But the invisible and invincible market forces are always haunting the smart and dumb guys on the street as if they are posing the following questions in mild horror:

1.Is somebody out there trying to do something foolish by selling his/her chips when the markets are down so that we can buy cheap?

2.Are the smart / dumb guys trying to do something foolish by buying scrips which are rising in a rising market so that we can sell those scrips at much higher prices later on?

3. Or is somebody being utterly foolish parking a bulk of his/her savings in bank deposits which generate negative returns only because they don’t have guts and knowledge to play the markets?

Interesting and confusing too!  No issues – I am just as confused as you are, neither more, nor less. But hold on. I have for you some scrips which will probably give you a feel of Aristotle’s Classical Five Elements. Take a look at them and if convinced, just go for it. If you come across more elements, just shoot out a mail and I’ll see if I can suggest some good scrips that have some sort of inkling with the element concerned.

I am quite sure that most readers/investors suffer from data overload and hence I have attempted to give certain good  "Buy" recommendations without taking you through a cobweb of data. In fact, I have not given any details about the company as such and have left you guessing about the products manufactured by the company. Yeah, it’s a no-brainer!

Element	Scrip	No fundas, No data overload
Water	Amar Raja Batteries PE   9.9	A few years back I owned and drove a second hand Fiat and use to fill water in its batteries once in a way. Sold  the junk and now take the longest route to board a PMT Bus. Problem is that I have to slyly hire an auto to get to the airport for boarding my flight and board an auto again on my way back. Wish Cool Cabs were plying in my city so that I could fly in style and ride in style!..
Earth	Graphite India PE   8.1	Pet coke and needle coke are the key raw materials derived from sweet crude oil which in turn is gifted to us by Mother Earth. Graphite knows how best to use such gifts for the benefit of the human race in general.
Air	Balkrishna Industries PE   5.4	The other day I was on my way to Shoppers Stop in my brother-in-laws Omni when my “saala” suddenly stopped the car. The rear left tyre had gone bust. It took one long hour to set things right despite air being available on a 24x7 basis.
Fire	Tata Steel PE  7.76	And now lets go relax – just ponder over this poetic stuff: “My body is made of swords, Iron is my blood, and glass is my heart. I have overcome countless battle fields undefeated. Without once retreating. Nor once being understood. Always alone, intoxicated with victory on the hill of swords. Therefore there is no meaning to that life. Perhaps this body is nothing but a sword itself.”
Aether	Confidence Petroleum PE  13	Can’t do without the stuff that the Confidence manufactures. Confidence Petroleum is one scrip which to me is like Aether, all powerful beyond space, beyond time. Neither time, nor space can stop this stock from moving onward, moving forward!

So if you like Aristotle’s Five Elements and the accompanying five scrips then just go for it. Be brave and embrace these 5 good scrips having good fundamentals and are available at reasonable valuations in terms of Price Earnings – tomorrow may be too late. Buying at the right stock at the right time is crucial – that’s if you’re a Value Investor  and not  a Value Destroyer!

If any one of you guys require any information about the above companies and wish to know what sort of returns you can expect by taking a call on such companies, then just send me a mail and I’ll be delighted to send you a brief about these classical stocks that are destined to spice up your portfolio. And yes, this is absolutely FREE just for YOU.

Don’t you ever beat a retreat – use your intelligence as a sword and fight the monster called the “markets” until you emerge with victory. Victory to you, Victory to your Bank Account[s] !.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

 

"Bargain Stocks Package" - Your way to definite income per month....

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Dear Investors,

Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham & David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis. Although value investing has taken many forms since its inception, it generally involves buying securities whose shares appear underpriced by some form(s) of fundamental analysis. As examples, such securities may be stock in public companies that trade at discounts to book value or tangible book value, have high dividend yields, have low price-to-earnings multiples or have low price-to-book ratios.

High-profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions!

At "Indian Value Investors" (IVI) unit of HBJ Capital our focus has been on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.

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Confidence Petroleum –Did you lack confidence in yourself, in CP or in HBJ Caps?

My Dear Friends,

Today, I wish to give a simple example wherein lack of confidence in yourself can deter you from making your money work for you. HBJ Caps may give you some of the best stock recommendations which none give and yet you may not take a call on a scrip only because you lack conviction- only because you lack confidence in yourself. Don’t let this happen to you. When we say “Buy” we mean it and we bet you’ll make money if you have the patience of a Buddha. The problem in stock markets is that people want fast money and many lack confidence and patience because of which they let golden opportunities drift pass them as they watch in awe and disgust when stocks that we recommend rise and rise and rise!

Please recall that we had recommended Confidence Petroleum way back in May 2009.  
Those who religiously followed our recommendation by buying the stock the SIP way may have got it at an average investment price of Rs.8 to Rs.8.50. We had even delighted the masses by making the recommendation public but I wonder how many ignored our recommendation and purchased stocks without thinking whether what they are purchasing has the inherent strength to be multibaggers and wealth creators in the years to come.

Friends, if you don’t have the time, energy and inclination to study stocks then do your self a favour by relying on professional advise – when I say professional, I mean the best guys on the street, professionals who can look beyond the horizon and forsee what none can see. Which is like asking, how many PMS & Equity Research firms recommended Confidence Petroleum when it was hovering at around Rs.7-8 for a long time indeed.

Lets see how the Confidence Petroleum stock moved in the last two and a half months :

June 2010
The High – Low range was Rs.8.42 [ on 8/6 ] and Rs. 7.48 [ on 8/6 ] and for most of June the stock was trading at less than Rs.8/share.

July 2010
The High – Low range was Rs.8.75 [ on 7/7 ] and Rs. 7.50 [ on 2/7 ] and for most of July the stock was trading between Rs.7.50 & Rs.8.75/ share.

Aug 2010
· Stock was available below Rs.9/share upto 6 August. It touched Rs.9 on 9 August.
· Stock was available below Rs.13 upto 18 August, thus ejecting strong signals of a slow but swift upward trend.

Today, on 20 August, 2010 the stock is trading in a range of Rs. 13.02 – Rs.14.25. The last traded price was Rs.14.03

Indeed, Confidence Petroleum has entered the bullish territory and shall hopefully continue staying put in this territory for a prolonged period of time. Recent price and volume related data supports this view:

Today, on 20 August, 2010 the stock is trading in a range of Rs. 13.02 – Rs.14.25. The last traded price was Rs.14.03

Indeed, Confidence Petroleum has entered the bullish territory and shall hopefully continue staying put in this territory for a prolonged period of time. Recent price and volume related data supports this view:

For six days between 2 August 2010 to 9 August2010, the average Traded Value and Traded Quantity was Rs.0.15 crores and 195195 and the average price was Rs.7.94. Suddenly, from 10 August 2010, volumes started zooming as shown under :

Date	Traded Value Rs.crs	Traded  Quantity	Closing Price Rs.
10 August 2010	3.13	3218036	9.97
11 August 2010	2.21	2085309	10.28
12 August 2010	3.14	2799504	11.67
13 August 2010	2.23	1890440	11.23
16 August 2010	2.34	2229290	10.61
17 August 2010	0.60	558043	10.89
18 August 2010	5.09	4284305	11.97
19 August 2010	3.36	2597405	13.16

Hence, it will be clear from the above that except for one freak trading session on 17 August, volumes have been pretty robust with corresponding slow and swift upward movement in the stock price. And my gut feeling is that this trend will continue for quite some time but may reverse if the markets start drifting downwards. And that’s when you can start accumulating more of this gem.

So, those who purchased the stock at say an average price of around Rs.8 would have already seen their profits rise by 78 per cent !

And those who preferred to shy away from Confidence should muster the courage to take a call on this fascinating scrip before its too late. You may accumulate Confidence Petroleum on every dip and stay put for 2 to 3 years in order to reap stunning returns.

Be Confident & Embrace Confidence. Remember, the worst problem is depression and not recession. But don’t be depressed since it’s still not too late to take a call on Confidence Petroleum which is destined to be a multibagger wealth creating stock in the months/years to come.

Besides our Research Report you may also perhaps wish to browse through the following link during your leisure time:

http://economictimes.indiatimes.com/Features/Investors-Guide/Confidence-Petroleum-to-emerge-important-player-in-LPG-CNG/articleshow/4544798.cms

Believe in HBJ Caps but more importantly BELIVE IN YOURSELF

  

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

I T L - Good value buy in a market that seems to defy gravity!

I T L - KEY DATA

BSE Code	522183	Face Value	Rs.10	CMP	Rs.86
NSE Code	N.A.	Market Cap	Rs.28 cr	EPS	Rs.15.98
Book Value	Rs.49	P -Stake	45.19 %	PE Ratio	5.38

ITL is a global leader in the high speed Sawing Technology business. Since 1999, ITL has been manufacturing Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Auto Cutt Off, Special Purpose Machines, Accumulators etc. Besides, ITL also fabricates Traction Locomotive Superstructures at its works in Indore – this could be a real money spinner if the Gulf states decide to get inter-connected by rail and this could be for real any time soon. Just read on.

A 1500 km railway network estimated at US Dollars 11 billion is scheduled to roll out in the next 7-8 years. The GCC network will include two rail lines : one that will connect all GCC countries and Qatar via a bridge and another that will stretch between Kuwait, Saudi Arabia, the UAE and end in Oman. For more information just get onto this link - http://gulfnews.com/business/general/gcc-countries-to-get-connected

“No force on earth can stop an idea whose time has come.” This adage of the French writer Victor Hugo symbolizes the ideal of ITL which took up the challenge of manufacturing the stated machines in our country which were being hitherto imported.

The company has got representatives spread across U.S., Europe and all across India, Being a pioneer in our home country, the company’s products have won acceptability across continents.

The Equity base is Rs.3.25 crores and the promoters stake is 45.19 per cent. Market Capitilization is Rs.28 crores only. Face Value of shares is Rs.10/= and the CMP is Rs.86/= and the 52 week range was Rs.99.65 / Rs.25 per share.

And now lets take a quick look at the not too distant financial performance of the company which is provided herein below:

Figs in Rs.crores

	Q – 1 30/6/10	Q – 2 30/6/09	FY 2009-10	FY 2008-09
Net Sales	10.90	8.08	62.97	31.33
PAT	1.01	0.53	5.19	1.36
PAT Margins %	9.26	6.55	8.24	4.34

So, one quick glance at the above table will reveal that on a q-o-q basis as well as on a y-o-y basis, Sales, Profits and corresponding PAT margins have increased significantly despite slow down in the global economy. The overall performance for fiscal 2009-10 has been really good with Net Sales increasing by 100 per cent plus and PAT increasing by 281.61 per cent and mind you that this has been achieved without the aid of any extraordinary or exceptional items. [ read income ]

ITL does annual business of close to .Rs.63 crores on an Equity base of .Rs.3.2 crores and it has Rs..5 crores in the form of cash/near cash. Yes, it does have Debt Equity Ratio of 0.95 which is well backed up by Interest Cover of 2.78 times. So not much to worry about.

Considering the good business model of the company, decent financial performance and a low valuation in terms of the stock being available at a PE of just 5.38, one can consider taking a call on this scrip at current market price or on corrections in order to get 25-50 per cent returns or perhaps even more and that too within 6-12 months.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Swiss Glascoat Equipments Limited – It may not buy you a Swiss holiday but……………

Since 1992, Swiss Glascoat Ltd has been manufacturing a range of niche products both ready made [ for standard requirement ] and custom built [ for unique requirement ] sophisticated equipments and accessories of unique nature used by the global pharma and chemical industry. Swiss truly operates in areas that requires deployment of technological excellence and innovation. The barriers to entry are high – as one may have tons of money but it’s not easy to venture into areas that require you to take advantage of the unique properties of glass and steel, use advanced manufacturing facilities and latest technologies and manufacture products that require you to comply with global benchmarks for excellence in engineering.

Technocrat who manufactures niche products

Spearheaded by a talented technocrat, Mr.Sudhershan Amin, Swiss Glascoat has made its mark in the global market place for glass lined products within a pretty short span of 17 years when leaders in this field like GMM Pfaudler continue to master the trade since the last 125 years!

Swiss Glascoat manufactures an impressive array of Glasslined Reactors, Process Tanks, Evaporation Vessels, Distillation Columns, Mixers and Agitators, Heat Exchangers and Dryers, Blenders, Agitated Filters, Pipes, Valves and Fittings, and other paraphernalia used for critical industrial applications..

Customers of Swiss are Kings
The company caters to the ever growing global chemical and pharma business and its clients include Cipla, Wyeth, Cipla, Cadila, Max India, Hindustan Lever, Krebs Biochemicals, RCF, Atul, Dhanuka Pesticides etc.It also supplies its products to G.E.Plastics [ Netherland ], Saudi Formaldehyde Chemicals Co. Ltd, Koalkob of Germany. It also does business with BARC, Mumbai.

Financials

Swiss Glascoat has a market cap of Rs.24 crores – yes, Swiss is the tiny Lilliput that fights with 125 years seasoned global player like GMM Pfaudler. Swiss has an Equity base of Rs/5 crores, Debt Equity Ratio of 1.24 and Interest Cover of over 2.5 times.

The promoters stake in the company is 43.45 per cent. The company’s shares are traded on BSE [ Code 522215 ] and the market price was Rs.49.25/share as the closing bell thronged on Friday 30 July. And at the time of writing this the price has silently and swiftly risen by 4.16 per cent and is trading at Rs.51.30/share, up by Rs.2.05 over previous days close. The face value is Rs.10/=

The company’s Revenue and PAT during fiscal 2009-10 was Rs 45.49 crores and Rs.2.34 crores respectively. Corresponding figures for 2008-09 was Rs.42.38 crores and Rs.1.76 crores. Thus, revenues increased by merely 7.33 per cent but profits increased by 32.95 per cent.

Foresight

There are tremendous business opportunities in the booming global oil and energy business for companies like Swiss Glascoat. Just consider this: “GMM Pfaudler is very involved in the energy market with their Engineered Systems group. Among others, this group has designed systems to purify biodiesel and glycerin, and re-refine used motor oil.” Expect Swiss to do something similar and much more in the years to come..

Conclusion :

We need to remember that in the world of business and finance, it’s not easy to make money by venturing into niche areas which require unique talent and the relentless pursuit of technological excellence and innovation. And its not easy to compete with seasoned players like GMM Pfaudler.

Being in a niche segment supported by a very low market cap augurs well for the company in the sense that once analysts start tracking and talking about this company then even consistent and moderate spike in volumes can drive the price pretty high. Hence, it is difficult to foresee how high the price could go. The 52 week range was Rs.63-30 - 15. The EPS for fiscal 2009-10 was Rs. 4.69 and you can expect current years EPS t be around Rs.6.5 and if we consider a moderate PE of say 13, then going forward we should see the share trading at around Rs.85/share. Expect to generate a cool profit of 50 per cent plus in 6 to 12 months flat! But be quick to act lest the profits start thinning as the shares keep drifting northwards.

As I sign off, I’d like to assure you that though Swiss Glascoat may not buy you a Swiss holiday yet it will reward you fairly well enough to buy lots of Swiss chocolates for your fair lady and loved ones as the company has declared a dividend of 17 per cent for fiscal 2009-10. And continue rejoicing the sweetness of the scrip as you stay put and wait patiently even as Swiss Glacoat continues its northward journey reaching new peaks, not on the Alps but on the BSE!

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Li Lu - From Tiananmen Square to Times Square

Over the last 2-3 days, the value investing community has been abuzz with talk of a successor to Warren Buffett. Finally, after great speculation, it has now emerged that Li Lu, a Chinese American is likely to play a major part in managing Berkshire Hathaway's investment portfolio. Who is Li Lu?

Li Lu was one of the leaders of the Tinanmen Square agitation in Beijing in 2009. After the Government's crackdown, he left for the US, where he enrolled at Columbia University, and completed 3 Masters degrees at the same time - Economics, Law and Business. During his stay at Columbia, he attended a lecture by Warren Buffett which converted him into a value investor for life.

After graduating, he worked as an investment banker for a few years, before striking out on his own to start Himalaya Capital, his own hedge fund, and met Charles Munger (Vice Chairman of Berkshire Hathaway). During this time, he helped Berkshire Hathaway to invest in BYD Auto, a Chinese manufacturer of automobile & rechargeable batteries. Buffet invested USD 290 mn in the firm for a 10% stake. This take has multipled 6x and is currently worth about USD 1.8 bn.

The latest news is that Warren Buffet has appointed Li Lu has one of his successors to take care of investment activities at Berkshire Hathaway.

To get an idea of what kind of investor Li Lu is, I am attaching the transcript of a speech given by him at Columbia University, on his investing philosophy:
(Courtesy: gurufocus.com)


Li Lu: Columbia is where my whole life in America started. I could barely speak the language. In Columbia it was where I had a new life. It was really in the Value Investing class where I got my career start. I was really worried about my student loan debt at the time and a friend told me about this class and said I need to see a lecture from Warren Buffett.

What I heard that night changed my life. He said three things:

1. A stock is not a piece of paper, it is a piece of ownership in a company.

2. You need a margin of safety so if you are wrong you don’t lose much.

3. In the market, most people are in it for the short term. It allows you a framework for dealing with the day to day volatility.

Those were three powerful concepts. I had never viewed the stock market like that. I viewed it negatively as a place made up of manipulators who were lining their own pockets. I embarked on an intensive two year study learning everything about Buffett.

Two years after that I bought my first stock. After I graduated I worked at an investment bank for a year and realized it was a mistake. I tried to start a fund but I didn’t have a track record. The first year I managed money I lost 19%.

Being a value investor means you look at the downside before looking at the upside. Before becoming an investor you need to look at how you can fail at this game. There are all sorts of ways you can fail. You need to examine who you are and see if you could be good at it. If you could ever find something you can do well that you really like — that will be your best investment. You will do better than competitors. If you can do it with intrinsic passion, that really over time will add enormous value to you.

Back to the game of investing. This concept of margin of safety is an essential concept to be a good investor. The future is unpredictable, you will always be dealt surprises, some positive most negative. You need to build in a level of safety so that whatever happens, you will not get crushed. If you can really successfully know what you are getting into, you can pretty much navigate. Most people are troubled by what they don’t know. The world is divided by those who know and those who don’t know. If you really know — you will not pull triggers like Wall St. traders. If you are truly intellectually honest, you would not do anything.

This class teaches you to know what you are getting into, especially accepting what things you don’t know. The game of investment is really continuous learning. Everything affects an investment, it constantly changes. You are not investing in the past but the accumulative cash flow of the future. You have to want to find a certain set up where you can know something that most people don’t know. There are plenty of things I don’t know but they don’t factor into the purchase because I am using a huge margin of safety. Buying a dollar at 50 cents. So if things turn against you, you will be okay. That is not easy. This business is brutally competitive. It is so impossible to know everything and know exactly what is going to happen to a business from now till the end that you really have to accept that what you don’t know.

Finding an edge really only comes from a right frame of mind and years of continuous study. But when you find those insights along the road of study, you need to have the guts and courage to back up the truck and ignore the opinions of everyone else. To be a better investor, you have to stand on your own. You just can’t copy other people’s insights. Sooner or later, the position turns against you. If you don’t have any insights into the business, when it goes from $100 to $50 you aren’t going to know if it will back to $100 or $200.

So this is really difficult, but on the other hand, the rewards are huge. Warren says that if you only come up with 10 good investments in your 40 year career, you will be extraordinarily rich. That’s really what it is. This shows how different value investing is than any other subject.

So how do you really understand and gain that great insight? Pick one business. Any business. And truly understand it. I tell my interns to work through this exercise – imagine a distant relative passes away and you find out that you have inherited 100% of a business they owned. What are you going to do about it? That is the mentality to take when looking at any business. I strongly encourage you to start and understand 1 business, inside out. That is better than any training possible. It does not have to be a great business, it could be any business. You need to be able to get a feel for how you would do as a 100% owner. If you can do that, you will have a tremendous leg up against the competition. Most people don’t take that first concept correctly and it is quite sad. People view it as a piece of paper and just trade because it is easy to trade. But if it was a business you inherited, you would not be trading. You would really seek out knowledge on how it should be run, how it works. If you start with that, you will eventually know how much that business is worth.

When I started in the business in 1997, it was in the middle of the Asian Financial Crisis. A few years later there was the Internet bubble. A couple years ago was the Great Crash of 2007 – 2008. They are billed as once in a century disasters but happen every few years. Every time it goes against you, your net worth or value of your investments might go down 50%. This is really where that insight and temperament comes in. In a sense, you have to have a certain confidence in your own judgement and not be swayed by other people’s views. It is not easy. But that is life. It is just a given. It happens to everyone. Berkshire had at least three times when the stock went down 50%. It happened to Carnegie too. It happened to Rockefeller. It happens to everyone. If you really made a mistake, it would not stop at 50% but go to 0.

This happens to even mighty companies. Look at the top 50 companies in America every 10 years. By the time 20-40 years go by, 2/3rds of them will be gone. By the time it goes to 100 years, there might be only a couple left. It’s just the way it is. Look at what happened to the once mighty General Motors. So thats why I’m saying is, investing is a continuous learning process because your investments are constantly changing

So for those of you that have curiosity and the temperament, this game couldn’t be better. Capitalism rewards people who are talented at capital allocator. So if you have the aptitude and temperament, it is the great game. If you don’t have that then I urge you not to go and become a nuisance. That is really what Wall Street did, they don’t really create anything they just move money around. Letting the financial industry get too big is bad for the economy, it is just as bad as getting addicted to casinos, drugs, and alcohol. None of them are really useful, they just transfer wealth. That is what I think happened on Wall Street over the last several decades. So avoid being harmful.