Porinju Veliyath of EquityIntelligence.com is the quintessential value investor. He is constantly on the lookout for stocks of fundamentally sound companies which are in temporary difficulty and quoting at distressed valuations. He believes that these stocks provide a margin of safety because the downside is capped. At the same time, when the problem is resolved, there are hefty gains to be made.
In his latest interview to ET, Porinju Veliyath has identified a few such stocks which he feels are ripe for a buy:
DLF: This behemoth real estate developer has fallen off the cliff due to the SEBI order banning it from accessing the capital markets for 3 years and the news that the Govt. is ordering a probe into its alleged irregular deals with Robert Vadra.
Porinju pointed out that he is “very bullish” about DLF and that it is a “strong value buy”. He explained that the various negative factors surrounding the company would not have a long-term impact on its fundamentals.
Porinju added that the fact that other investors are “scared” to look at DLF is the cue for a “value investor” to grab the stock. “These negatives are actually an opportunity to buy into such a great asset at a throw-away price” he emphasized.
South Indian Bank: This stock is already a value investors’ favourite. Billionaire MA Yussufali and Renuka Ramnath of Multiples Equity hold a sizeable stake. Mohnish Pabrai joined them recently with a purchase of 6,00,00,000 shares, worth Rs. 154 crore.
Porinju opined that South Indian Bank is, given its valuations, geography and scale of operation a “very safe bet” and “looks good”.
Nitta Gelatin: Nitta Gelatin is a JV between the Kerala Government and Nitta Gelatin of Japan. It ran into labour and environmental problems and lost favour with investors. However, Porinju opined that its problems have now been solved and that it has the potential to grow big. He, however, cautioned that the stock is very illiquid, implying that its price movements can be volatile.
Porinju referred to several other stocks. He suggested that investors looking for “ethical and quality management and clean balance sheet” can consider Oberoi Realty, Sobha Developers and Godrej Properties. These companies have “great management, great future and their business model is really futuristic” and they have the potential to very well in future he said. Amongst the mega caps, HPCL and Reliance Industries came in for special mention as being “value” buys owing to the discount that they are available at, compared to their intrinsic value.