Which Stocks should a newbie buy when entering stock market...?

A friend of mine has suddenly started having a lot of interest in stock market. So she asks me can I help her with some basics on how to decide on which stocks to buy. I gave her some information about Price to earnings ratio, EPS, market cap, book value etc. But after a few weeks she was still at  a loss.
                                                So, I told her to but the stocks of those  companies of whose products and services she uses. As I have known her for so many years, I know which all products she loves and all.
So  the stock/companies/products I mentioned to her were:

1. Domino's / Jubliant Foodworks: Now she is a skinny girl, who is grossly under weight, but she is a huge fan of Domino's Cheese Burst pizza's and Garlic bread. Her roommates share her passion for these as well.  Now, anybody who has followed the returns given by Jubliant Foodworks would definately agree with me. And with the addition of Dunkin Donuts, it is still a stock to buy.
2. FastTrack/ Titan Industries: She loves fast-track accessories, whether it be bags, watches, sunglasses. Add to that the love of her towards rings and other jeweleries and the brand Tata, Titan becomes a must buy for her. Business sense dictates this as well. No matter people keep on saying that the growth of Titan will slow  down or so, I don't believe them. A company which caters to the  lifestyle of the today's generation and sales of less than 9000 Cr, is gonna keep on increasing.
3. ICICI Bank: She has her salary account with ICICI Bank, and will also open her trading account with them (if she ever does that). And she is a happy customer. And I don't think that I even need to give reasons for buying this company.
4. Wipro Consumer Care and Lighting: Before she only used to use Dove, at that time she should have bought Hindustan Unilever. But now she doesn't like Dove at all and  loves Santoor. And I would definitely recommend her to  buy the IPO of Wipro Consumer Care and Lighting, whenever it comes. WCCL is growing at a very fast pace, both organically and  inorganically. 

Now as she got the hang of what I was saying, she suggested Kingfisher is another brand but it is failing. Then I said not everybody uses Kingfisher. We young people like bang for our buck, hence we prefer Indigo or GoAir. Then she said everybody around her drinks Kingfisher beer and then I said, in that case buy United Breweries.

Then I quoted her few more examples from my life and other around her. We discussed companies like Bajaj Corp, of whose Bajaj Almond Drops, I have been using religiously for last 12 years, from school time.
ITC Ltd.,  she is pissed with her teammates who take a cigarette break after every 30 mins., which better  company can you ask for which has such loyal customers.

Buying a right company is so easy, one needs to just look into their life and in people around us. Go and buy Sayaji Hotels, if you are a fan of Barbeque Nation, or Page Industries, if you love your Jockey, or Speciality Restaurants if you love eating out at Mainland China.

These companies have given excellent returns in the past and will keep on doing so, just because you love their products and their are many who feels the same way about them.

AVT Natural: One of its Kind....!!!!!

AVT natural has been on the radar of the investors when it was trading at the price of 170/- and odds. It's current CMP is  310. So the question arises, is AVT Natural is still undervalued.
                                    
                                               The answer to the question will be available to you, once you are done knowing about the company. AVT Natural is in the business of Marigold Oleo-resin, in which it is world leader, Spice Oils and Oleoresins, India's 2nd largest exporter and is entering in Value added beverage business, where it is setting up a decaffenation plant, only third in Asia. The company has seen phenomenal growth in Revenues and net profit in this year, with the 4th quarter result still awaited. 
                                                               
                                AVT also has tie-ups with the biggest consumers of it's product. Like Finlays, which is the world's largest independent trader of tea, has entered in to contract for decaffenation with AVT. McCormick, which is one of the world's largest Spice Oil and Oleoresins consumer. Kemin Industries Inc., which is the world's largest marigold consumer, has also tied up with AVT. Kemin , in fact has an exclusive agreement, where it will procure all its requirement of food-grade marigold oleoresin for production of FloraGlu Lutein from AVT only. Some other leaders which are users of AVT's product are Harris Freeman and Chrysantis Inc. 
                                                    
                                                              The margins in the business are very good, because it is a niche business and thus provides a much needed entry barrier require to maintain one's margin. Another major advantage for the company is that it produces marigold in area of about 35,000 acres through contract farming and boosts of high yield an low costs. It has one of the best model for contract farming.
            
                                          Let's have a look at the performance of the company for last few quarters.
                  
          

	Dec'11	Sep'11	Jun'11	Mar'11	Dec'10	Sep'10	Jun'10
Sales Turnover	57.85	63.87	48.13	53.64	35.41	30.52	18.84
Other Income	0.2	0.02	0.03	0.08	0.02	0.01	0.02
Total Income	58.05	63.89	48.16	53.72	35.43	30.53	18.86
Expenditure	36.86	37.53	28.58	43.97	27.3	24.3	18.65
Operating Profit	21.19	26.36	19.58	9.75	8.13	6.23	0.21
Interest	2.84	0.76	0.86	1.26	1.46	1	0.61
Gross Profit	18.35	25.6	18.72	8.49	6.67	5.23	-0.4
Depreciation	0.96	0.9	0.9	0.68	0.84	0.84	0.84
Tax	6.09	8.65	6.24	2.69	1.76	1.2	0
Reported
PAT	11.3	16.05	11.58	5.12	3.62	3.19	-1.24
EPS	14.85	21.09	15.23	6.73	4.76	4.19	-1.63
OPM	36.50	41.26	40.66	18.15	22.95	20.41	1.11
GPM	31.61	40.07	38.87	15.80	18.83	17.13	-2.12
NPM	19.47	25.12	24.04	9.53	10.22	10.45	-6.57

Clearly the company has given stupendous performance backed by the increase in the revenues and profit margins of the company.

Also let us compare the latest quarter result and YTD results.

  

	2011-12(Q3)	2010-11(Q3)		2011-12(9 mnths)	2010-11(9 mnths)
			% Var			% Var
Sales	57.85	35.41	63.37	169.85	84.77	100.37
Other Income	0.2	0.02	900	0.25	0.05	400
PBIDT	21.19	8.13	160.64	67.13	14.57	360.74
Interest	2.84	1.46	94.52	4.46	3.07	45.28
PBDT	18.35	6.67	175.11	62.67	11.5	444.96
Depreciation	0.96	0.84	14.29	2.76	2.52	9.52
PBT	17.39	5.83	198.28	59.91	8.98	567.15
TAX	6.09	1.76	246.02	20.97	2.96	608.45
PAT	11.3	3.62	212.15	38.94	5.57	599.1

On the back of its YTD results, it is safe to assume that the company will have the EPS of nearly about 50 for the current year. And does the company is trading at the trailing P/E of around 6.

Also, the volume growth will come from its decaffenation business . 

Also the demand of its product is set to increase and not many companies in the world have the capabilities to deliver, the way AVT delivers. the company might not be able to grow in future at such a stupendous growth, and the  growth might tamper to a CAGR of around 20%, but considering that the company is trading at such a low trailing P/E. It makes sense to get invested in it.

Also the promoters of the company are renowned AV Thomas Group, whose another company Neelamalai Agro Industries is listed. The promoters have also increased their stake close to the maximum level of 75%, by creeping acquisition method.

            Thus the company looks very safe to get invested in.

Model for choosing stocks

Hello everybody,
I have disappeared for a long time, but I am back.
Have been busy, completing my MBA.

I am back and will add a lot of companies with detailed analysis, now that I can find some time.
But meanwhile, I want to give you a model, which can help you to eliminate howlers while you are picking up stocks.

I am putting here a link of an excel sheet.
This sheet uses a mixture of fundamental and very basic technical parameters. The idea, is to put emphasis on fundamental analysis, and after fundamental analysis, using some basic tools of technical, and using them to decide whether it is the right time to enter the stock, given the  model has given a thumbs up on the fundamental parameters.

In future, when I can get time, I will update the model and add questions t each parameter and will try and explain the reasons behind each parameter.

Here is the link:
https://docs.google.com/spreadsheet/ccc?key=0AuwMwPnarEAjdE9QMkt3VjBmTGQ0YjNVRjRWRUtwREE#gid=0

Thank You and Happy Investing.

I will start with a small cap company. It is a known fact that investing in small cap, brings in additional risk like low liquidity, low safety net and huge swings in the price. Small cap shares are the first one which get beaten down in bear phase. But I still persist with a small cap because they have a high risk-high return theme.
                        Also, it goes without  saying that I am putting just my views here, if anyone wants to take any exposure they should do there own research and then only come to a decision.


So the company is Mazda Ltd.(Mazda Ltd.)

Mazda Ltd. was incorporated in 1990. It is promoted by Sorab R Mody. It made its public issue in the year 1993.The company has two divisions: Engineering and Food division.


The food division has a brand: BCOOL (BCOOL)
Under this division, the company produces fruit jams, sauces, syrup, food colors, baking and custard powder. Other then the various certifications, the company's factory has also got US FDA certification. The main idea of this division to exports its products ensuring stringent product quality. It has entered into food business in year 2008 only.


It is the Vacuum and Evaporator Division under Engineering division, which has been the main revenue generator for the company, using the expertise the group has in engineering.The company has a technical agreement for purchase of designs and drawings with 
M/s Croll-Reynolds Inc. of USA. M/s Croll-Reynolds Inc. also has a equity stale of 7% in the company. It mainly manufactures Engineering products like Vacuum Systems, 
De-Superheaters, ,steam jet thermo compressors,Air jet ejectors,Evaporators and Air pollution control equipment. Most of these products finds applications in sectors like ,refinery, power,petrochemical ,sugar ..etc .Croll Raynolds using Mazda as a sourcing hub to meet its international demand which helps the company a lot and expected to strengthen this relations going forward. Company  has another technical collaboration with Germany based Kauer Engineering for Turbine Bypass Valves and Evaporators.


During FY'11, the company has sold its valve division, for 22Crore, of which 18.70 crore has been received. The food division adds negligibly to the bottom line of the company, but is growing at 30% p.a. Exports form nearly 20% of the revenues. Even after selling its valve business the company hasn't allowed its revenues to fall.




The stock of the company has been beaten down with the whole market. the EPS for the company of the half yearly basis is 8.22, and the expected full year EPS could be around 16.5. On that basis the stock is trading at a PE of 4.6 of FY12. the book value of the company is Rs. 133. The company has been able to preserve its margin even during the recession, that shows that the company do has some bargaining power.


But buying the stock, just because it is trading at below the book price during bear phase isn't good enough. But when we that being posting profits year-on year without posting any kind of losses, that increases our faith that the company can not trade below this PE. 


But the main margin of safety comes from the dividend paying history of the company. the company hasn't missed a single dividend from FY 1998. during FY'11 the company paid dividend of Rs. 6.
This might be due to the sale of valve division. But even during this year the company has paid a dividend of Rs. 3.5. That gives it a dividend yield of 4.6% with a good chance of capital appreciation with the market. The company also holds some 20,000 shares of State Bank of India, which gives us a bit more of safety margin.


At CMP of Rs. 76, I believe all the negatives are already factored into the stock price and the stock price should move in the positive direction from here on.