IS HINDALCO A CONTRARIAN BUY AT THESE LEVELS?

Am i the only one to think Hindalco is a contrarian buy at these levels?

MARKET CAP - (Rs Cr) 17,273.61
P/E - 24.53
BOOK VALUE - (Rs) 182.36
DIV (%) - 100.00%
INDUSTRY P/E - 13.35
EPS (TTM) - 3.41
PRICE/BOOK - 0.46
FACE VALUE (Rs) - 1.00

 

Madhusudan Kela of Reliance group was asked the question whether metal stocks are a contrarian buy. This is what he said:

Very difficult to take a call. If I had personal money I would start to look at that sector because stocks are getting too compelling. But you have to have a time frame, the point is that it is possible for the next two years they don't move. There may not be downside but there may not be upside either.

But whenever the sentiment will become positive then you're not talking about 20 per cent return, then you're talking about 200 per cent return.

I am not averse to an idea of looking at it because today there is an extreme bearishness in the sector- but are we actively investing in the sector- no.

So, what is your time frame? Do you have the patience to sweat it out? It could be a long wait.

 

Thanks for the reply. Yeah I should be able to sweat it.

 

@carl

I agree. Have been a quite strongly voicing an entry into metals and mining myself....hindalco, vedanta and tata steel.

@ hakish, the names have moved up strongly this week but a 10-15% rally shouldnt deter one if he/she is willing to wait it out. Else one can adopt an oppotunistic approach and wait for a correction... Which in my view should be happening atleast once before the end of 2015

 

I think you should also look at NALCO. Great dividend yield, cash rich and good margins. NMDC, MOIL are also good plays. Currently not many people are buying so you can reap dividends and accumulate in the next few years. These should give great returns.

 

I was also going to suggest that. If you buy metal stock, buy NALCO with high dividend yield of 3.86 or NMDC with 8.84%. You get paid for waiting and there is no loss You get dividend + capital gains.

 

@srouta

NMDC dividend yield is 8.84%.... even higher than tax free bonds recently issued by NTPC etc

Ever wonder why there isnt a mad rush amongst investors to buy of NMDC shares like seen in the case of tax free bonds

 

valuations look compelling but I suggest if you are looking to hold long term then think about alternatives... invest in quality stocks where higher growth is possible. like HDFC Bank, Axis Bank, Ramco Cements,..I also thought NMDC looked cheap but not much capital appreciation looks in sight, why should I remain invested for long term ...also market does not assign very high PE multiples to the metal stocks but yes you can assign a small percentage say 5% of your portfolio to these stocks , not more ...also dividend yield is not guaranteed so in the face of lower profits the company may reduce dividend payout

 

Very good point. Because profits are not guaranteed!

 

Exactly .....i could have said this myself but wanted you to provide this important consideration. Stock markets and share prices capture future expectations. So high dividend yield in a stock which is in a sector facing huge headwinds may not be the best yardstick to decide

 

very interesting discussion especially about the dividend yield. The only thing with NMDC (or any PSU) is that i am always a bit queasy with anything that is state owned, just my view.

 

When there are so many compelling opportunities in the market why would one look at a sector which is in a global downturn and whose main consumer ( China) is never likely to consume at that rate again?