The best stocks that I can buy

[vrinda]

hello everyone,i am vrinda and i am new fullhyd. I am woking in a popular software company in hyd.Can anyone suggest me the best stocks that i can buy?

[vivek of themavericks]

Also please tell me if P/E ratio is considered widely for seeing the credibility of a stock value.

[vivek of themavericks]

Because this is one topic i have had debates on.P/E is what buffet keeps looking at, but Indian valuation does not make that kind of judgement favouable. And as fa as your stock picks goes. i woud tell u the same stuff which i spoke to u about. HTMT,CMC, Telco, Tata honeywell,SBI, bank of India. For core software Cos. Wait till the budget is over. bank stocks would be a great buy following the securities act. Awaiting others to let me know more, plus some one throw light on P/E.

[RP]

P/E - Price Earnings ratio is a \"good\" barometer of what a company is worth. However, it is only a single measure, a yardstick, by which one can make a real-quick judgment call about the potential for a stock to perform. But think about this again. The P is the current price while the E is history, past, old information. A good investor should look to the future. Therefore a \"forward\" P/E ratio makes more sense. But think again. Would you marry a woman because she is \'beautiful\' ONLY or \'prosperous\' ONLY or \'has good personality\' ONLY? I wouldn\'t. One needs to look at several attributes, just not one. You will find, from the real finance wizards, that P/E is just one - just one - element only. As to Warren Buffet, he is supported by well-paid financial analysts who research a lot and dig through companies\' past performance histories, potential for future growth, future mergers and their negative/positive impacts, et cetera. I am for one who believes in reviewing the historic performance of a company in relation to the overall market performance. For large cap stocks, there tends to be a good correlation between market conditions and the large cap stock in question; for small caps, the correlation tends to be weak. I would look for continuous but linear and NOT exponential growth, simple business models with less eagerness on the part of management for mergers, a focused and disciplined business objective, a market need for the product generated et cetera. If we learned one thing from the 1999-2000 bubble in the market, that is DIVERSIFICATION. Yes, that means you are trying to \'average\' your performance but I would rather keep a 10% return rather than loose my shirt. That brings to VRINDA\'s question. What is good? Sure Banking stocks are attractive and appear so, but aren’t\' they over extended? Someone who bought Can Bank for Rs. 35 in November\'s IPO made 83% return as of Feb 17th. That is a 383% growth. Nothing in history seems to have replicated such a performance. Most bank stocks in India have done this for the last few months. And that is due to Govt\'s policy on tightening loan collection practices. Sure they will go up after the budget but someday they will come down. I would put no more than 5% to 10% in any one industry sector. Look for precious metals (though they\'ve been pulling back a bit), oil (same case), consumer durables et cetera. Stay away from IT sector. They have a lot more to loose. Simple rule - do not buy something you - yes YOU - do not use or buy each day. Hope this helps.

[RP]

I meant ANNUAL 383% on Can Bank above. Sorry !

[vivek of themavericks]

That was a fantastic reponse.I need to get some facts right gimme some time to get back on this.hey don\'t dissappear.By anychance, would be aware of some accounting practices \'allowed\' by ICAI. You know window dressing,like capitalising interest and showing profits over a period of time?. That Canbank equity story was true but about that 383%..hmm lemme checkup.But yes thos stock sure made some punters lookup

[RP]

Vivek, I am not aware of accounting stuff you talked about. I used the growth from December 1st todate and \'annualized\' it for one year - that is where I got the 383% from. Just an illustration.

[vivek of themavericks]

Let me take this thing one by one. P/E is obviously not THE parameter for judge. We need to look at the last five years balance sheets to take a decision. Your statement on large and small cap stocks was good.But what did you mean by this-\"Yes, that means you are trying to \'average\' your performance but I would rather keep a 10% return rather than loose my shirt\". Did u speak of your portfolio allocation - sector wise, or your ROI?. Bank stocks have been a great thing to watch for. For ex SBI is a stable and an easy going stock. But the Canara bank was a hyped up oversubscribed( as i learn) one.Canbank got a hell of a lot of inflow following their sale of assets and sale of their investments made. Their earnings per share when compared to their NAV was somewhere around 12 bucks. But the equity came with a premuim 25 bucks. If this is what you meant by \" over extended\" then i could not agree more. But i feel this is the case inmany banks. The reason i suggested bank stocks is because, like canbank with a relatively lower NPA and the hoopla of divestment govt. would liquidate its stake holding thus adding numbers at the asset side. Plus some major bills like securitisation act which allows banks more power towards debt recovery and reduction of the minimun stake holding that government can have would promote liquidity and this would eventualy reflect in share value - don\'t u think so.This budget would thus be a deciding factor for banks. RBI monetory policy did much towards that end.

[RP]

The thing about ‘average’ and 10% is regarding ROI. Of course I would, since I know better now, would put no more than 10% in any one stock let alone any one industry. Also by ‘average’ I meant, not being greedy about very large gains (meaning more risky stocks) but being complacent with average performance. The former scenario can always lead to ‘loosing my shirt’. I guess the point was in reference to ‘diversification’ where the overall return is either less than the high returns promised by a bull market with story stocks or greater than the lower returns that are guaranteed by bear market’s story stocks. I would be in favor of the latter than the former. As to the performance of banks, I agree that this budget has a great bearing on their future performance but only in the short-term (say less than a year). In the longer time horizon, they have to give away some of their share price because there are always good investors who WILL cash in their profits. And of course nothing grows exponentially let alone linearly upwards. That is why stock analysts, the technical analysts I mean, look to 50-day, 100-day and 200-day moving averages. By over-extended I meant the growth from the Rs. 35 point on. If we take your viewpoint of starting at Rs. 10, I would say that Can Bank is way too extended. I use 35 as a reference because that is what I paid for it. 10 is theoretical number for me while 35 is more practical. May be I am a contrarian. I believe in selling when a particular stock makes real news in the media because that is when everyone wants – or at least is told – to buy. I would buy when there is no news – definitely not bad news – about something I’d be interested in. But that requires a lot of research. I agree with your good analysis of the current banking industry environment vis-à-vis the government’s monetary policy.

[RP]

VRINDA - sorry for digressing, but I would suggest you start with a Mutual Fund investment rather than jumping into stocks right away. The reasons are (1) You will learn a lot in the process, (2) MFs tends to be less risky than stocks, (3) You will not be heartbroken and turned off if, for some reason, the market tanks. Look into UTI Petro Fund, JM Mutual\'s G-Sec or Pension Funds, Canbank Fund et cetera. IF you are webactive, there are numerous ways of looking at what you need. Look for 10 to 15% growth and that too consistently. Never look at last 3 months only or last year only. Look for 3 year and 5 year returns as well. You should be okay. Check with ICICI\'s (as much as I dislike some of their features, they seem to be better at some things) investment advisors or get in touch with Bajaj Capital Management. Beware though. ICICI loves to sell its own Prudential Funds.

[vivek of themavericks]

That was nice and this topic is so data intensive that i better do some homework before even i put down some numerical facts .Mutual fund is the best deal, but since the question was of the best stocks. I did not respond to that. I would not sugegst u something \'suggstive\' like a petro fund, which by the way looks to be like a sector fund ( whats the porfolio). I would feel like going a little generic. Take any balanced fund with say 40/60 ratio. But the equity side of it should\'nt be skewed towards A sector. What i noticed with Pioneer iti, zurich. ICICI news is kindas true which u suggested. I think for ur age pension funds can wait!.Asses your risk apetite and take some fund which is a little bit agressive, never mind. I would give u a list later. Hey RP... did u see the status of Tata honeywell. They say its best for a long position.Do do this kinda stuff, and why did buy canbank? and u r still holding them?

[RP]

Based on what little I know, I would go with Tata Honeywell but I am not sure for how long because of market fluctuations and the uncertaintly due to the impending war with Iraq. I strobngly believe that the market will be ina trading range, meaning it will cycle ups and downs for at least one to two years. As to Canara Bank, I bought it during the IPO phase. Yes, I am hanging on to it and will for some time. That is for 2 reasons - make it 3. (1) tax implications on short term capital gains (more than those on long term gains), (2) but more importantly I believ it will go up steadily - though I am sure it may not grow at the rate it did the last three months, and (3) I agree with your prior assessment about the banking industry - it will grow, especially in the long term. Regarding Petro fund, yes it is a core sector fund - and now that I re-think - unless you put a lot of money in several funds/stocks, I wouldn\'t buy that as my first fund. \'Balanced\' ones are definitley good but I believe that the debt funds of the type that PFs form a part of (JM\'s income funds) have a lot to offer. Regardless of the stock or bond market, people will continue pouring moneys into PPF, GPF and EPF meaning that funds that invest in these will have to gain. JM has one of these - I fail to recall exactly what that is.

[vrinda]

GUYS, PLEASE TALK ENGLISH

[vrinda]

I said please talk english, not stop talking! Where are you guys? I thought I was learning something new!!

[krishna]

Vrinda, I would like to advice u to go for those which are trading between 20 to 30 rupees - at the same time, don\'t look at P/E ratios because there would be window dressing in calculating P/E ratios. Prefer stocks between rupees 20 to 30. These are fetching in terms of long term and short term investments.

[Rahul]

hmmm... stocks?? I wouldn\'t bet my money on \'em anyday. But still, if you have loads of cash to burn, then go ahead! Read ET; they probably give you the best advice. Otherwise, there is always me
\"Necessity is the mother of taking chances.\" -- Mark Twain