March 6, 2007

Rejected investment ideas

I generally run screens once a week and try to filter out companies with low PE (<15),> 12). Using this list as a starting point, I generally do a quick analysis of the balance sheet, P&L account and the financial ratios.

Companies which check out, move into the ‘further analysis’ pile. The rest landup in two further piles. One pile consists of companies which are fundamentally weak and not worth investing at any price. The other pile is of companies which are good, but not at the right valuation. I park these companies in a separate list and review this list once in a while to check if the price is within my valuation target.

Going forward, I would posting on the rejected companies so that I can refer back to these companies, to analyse if I was incorrect in rejecting these companies in the first place.

One deep value idea which I am looking at is ‘cheviot company’ In addition the following companies are on my watch list

tube investments
India Nippon Electricals
teledata infomatics
revathi CP
novartis
MRO-TEK
EID Parry (India) Ltd.
Investment and Precision Casting
Mothersons
rane(madras)

I would be posting an analysis of the above companies on my blog soon.

6 comments:

RaviAranke said...

Rohit,

Interesting list. Thanks for sharing. I will be taking a look at couple of companies and post if I find something worthy. I am already interested in Tube Investments as I bought a bicycle for my kid recently and evaluated all products on the market :)

As I had mentioned in my earlier comment, I won't touch Teledata with a long pole.

BTW, I have posted my top 5 picks on my blog. Appreciate your comments when you get time.

Regards,
Ravi
http://flatworldvalueinvesting.blogspot.com/

Prem Sagar said...

Hi Rohit,
Interesting list.
do u try things like going out into mkt to do own research, etc?

Do u consider things like time needed for analysis and its complexity ... some stocks like ITC with its wide range of businesses need more time than a single stream of business.. I think EID parry is similar

How long do u usually take to decide on a pick?

Prem Sagar said...

Also what is ur view on >15 PE stocks that always stay expensive..

The Bharti's and Infy's of the world which were real wealth creators were almost never less than 15 in PE..

Would u be willing to buy into a story that is promising at a high PE...(provided u r thinking 5 yrs or more)

Rohit said...

Hi ravi
i would posting on tube investments soon. i had a look at it and gave it a pass. have a look at their consolidated statement. They have invested or rather convereted an associate into a subsidiary and now have almost 400 crs debt on books. the troubling issue is that there are no details of the risks of this subsidiary on the AR.

Prem
i used to avoid complex companies earlier. now i tend to consider them too. for ex : for multi segment businesses like ITC , i would analyse each segment independently and value the company as a sum of parts

The PE < 15 is with an assumption that the market is discounting not more than 2-3 years of good growth. As a result i dont analyse companies with high PE unless i am very confident of the business and it is in circle of competence

RaviAranke said...

Rohit,

Good catch. The 400 Cr of debt recently put on the books with hardly any details to tell the investor even which subsidiary it was for.

TI qualifies for what Buffett would call "too hard" bucket.

Regards,
Ravi

RaviAranke said...

Rohit,

ARs for this year are out. I took a look at Cheviot and India Nippon. They have become even more of a compelling opportunity. Especially Cheviot which has become a Graham net-net. I will be posting about them on my blog soon.

Thanks for the list.

Regards,
Ravi