Premium: The Best and Worst of 2013, And What We Would Buy
This is an archive for Capital Mind Premium subscribers.
It’s been a harrowing last few days as illnesses engulfed Capital Mind and thus, some of the pieces that should have gone earlier are only going in now. The market has been surprisingly soft in all metrics and crazy in some - the Nifty hasn’t moved too much, and many midcap stocks are showing alarmingly large moves.
It’s time to step back a little and look back at 2013, on stocks that did excellently and which didn’t.
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What we’ll also do at the very end, is to talk of a few we are adding to the Capital Mind Premium portfolio. We’ve actually purchased these stocks, so that we can back our (very little) analysis with real money.
Why “Very Little” Analysis?
The reason a stock makes all-time highs is that things are good about it. You don’t exactly know what every single time. But stocks that make all time highs continue to make more highs and then some more. Yes, some will fall dramatically. But many will continue to rise for a long time.
What we’ve done is to capture the stocks that have done excellently in the last year, and then, add some of them to the portfolio. This is a simplistic strategy and will only work if these stocks continue to rise. We believe that 2014 is a year of strong momentum, both upward and downward (upward first). In such times, you buy first and ask questions later.
It’s quite likely there are other stocks that do better, of course. But the point is to make good, positive returns, not try to be the best!
2013 in a NutShell
It’s been just a few days since 2013 ended, and it ended on a reasonable note, with a 6.8% increase over the previous year.
The year had it’s share of winners and losers, and many many stocks have done way beyond the Nifty. Let’s see a quick list.
The Winners
The best of the lot, by different market cap metrics. I’ve removed really small stocks. First, the Large Caps.
As you can see, they’re filled with Infotech and Pharma companies. Which is obvious since those were the best sectors of 2013:
Both have benefited from the fall of the rupee, and then Pharma is a “defensive” as well. (But it looks seriously like it’s attacked everything else!)
The telcos of RCOM and IDEA did well too with over 70% returns, but that was them rebounding. Bharti Airtel on the other hand moved up a meagre 3%.
Britannia did really well, even through there weren’t any spectacular moves in FMCG. Hindustan Unilever actually had gone all the way to Rs. 700, but has retreated since then to below Rs. 600 per share.
The Midcaps were marginally more secular, and here we are:
The best performer, Alembic, went up nearly three times. Again, Pharma is well represented, as are infotech companies.
The tyre manufacturers have done really well in the last half of the year, with Ceat bagging a 187% return.
Finolex Industries - which is a large PVC Pipe and resin manufacturer - went up 166%.
Escorts makes tractors and 2014 had a fabulous monsoon. Much of the move came in the second half of the year.
The small caps saw wild moves. More than 10 stocks doubled, and I’m not really talking penny stocks.
Here too, pharma players dominated. It seems it was the year of Pharmaceuticals!
Outliers were Gallantt which went up 4x and continues to be strong. Raj TV did excellently with a 145% gain. Indiabulls Securities nearly doubled from 11 to 20, even though retail volumes on stock markets sucked.
(Note: Small caps are less than 1000 cr. in market cap. Midcaps are less than 10,000 cr. and Large caps are the big guys above)
The Losers
Obviously too many stocks lose too much, and many are just manipulated. However a few stocks that lost a lot last year were noteworthy:
MMTC is a government owned company that should really not be the biggest loser here, but for the fact that the government sold stake in it at Rs. 60 per share. The high price earlier was due to the complete paucity of shares in the market, because the government owned most of them.
Core Education lost 81% in just three days and spent the rest of the year in mourning. The shares sold off due to share pledges by promoters that were invoked by lenders. Zenith’s fall was a result of its default. Ashiya and Opto have been beaten up due to stories ranging from governance to fall in profitability.
Financial Technologies (Fintech) and MCX fell largely due to the NSEL Scam, since FinTech was a promoter entity of the beleagured NSEL exchange, and MCX was seen to be hit due to that. (FinTech is also a promoter in MCX). However, in 2014, the stocks have zoomed up with FinTech touching Rs. 300 in a few days!
So What Will We Buy?
It’s interesting to see which stocks are moving and which are lagging behind. And in the process, you discover interesting stocks for your own portfolio. As I’d mentioned earlier, I’d added Strides Arcolab in my portfolio and have since added a few more stocks.
The **Pharma theme **continues to look good. I would add Alembic Pharma which has seen massive profit growth (greater than 50% yoy) in the last two quarters. Yes, it’s at a high price, but high prices go higher!
The Strides Arcolab Dividend came through and was reinvested at Rs. 372, taking my average price to Rs. 382.
I like Finolex Industries. It has a great looking uptrend, and it isn’t too expensive. Plus, the pvc pipe industry can only get better if governments start providing free water and all that.
I would add KPIT Technologies. This is a midcap IT stock, and is trading at an affordable multiple of less than 20. I expect this to be an acquisition play too, in 2014.
In all, here’s what the portfolio looks like (with three additions today). Nothing spectacular, but these are things you don’t buy and sell every day so they’ll take time to perform.
Disclaimer
Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.
Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived
from independent analysis.
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