Rajen Shah sent out a powerful wake-up call a few days ago reminding investors that the best stock bargains are to be found in a pessimistic market. He continues on the same theme and argues that because of the recent sharp correction in the markets, the valuations of many stocks have become attractive. He emphasizes that some stocks are in an oversold zone and provide investors an opportunity to add them in their portfolios as multibagger picks for the long term.
Escorts’ profit went up to 100 per cent in the first quarter ended December despite stagnant growth. The stock was then ruling at Rs 76 and it has come down to about Rs 54 levels. There is lot of irrationality in the market and this irrationality itself is an opportunity. Even in the January-March quarter, Escorts has sold same number of tractors as in the same quarter last year.
A good jump in Escorts’ profits is expected and its reported earnings per share will be about Rs 7. The stock is at Rs 54 which is just about 7.5-8 times the earnings. It is too cheap. You just need to buy and may be over the next two years probably you could be sitting at 100 per cent gains.
Reliance Communications is a favourite in the telecom sector. After jumping to Rs. 85 from Rs. 70, it has slid back to about Rs 60 levels. After the the recent development of joining hands with Reliance Industries, it back to about Rs 66-67 levels. RCom will be getting a fee of about Rs 1,200 crore for allowing its assets to be used by Reliance. Some more tie ups could be in the offing for RCom and one can expect a very decent upside in the stock. The de-leveraging of debt also probably may happen in the coming three-four quarters and that should see the marketcap moving up.
East India Hotels
EIH owns 22 properties and has got flight kitchens. According to its chairman S S Mukherji, the approximate replacement value of the company is nothing less than Rs 9,000-10,000 crore, keeping land prices in mind. East India Hotels is quoting a market cap of Rs 3,200 crore, which is one-third of its replacement value. This is absolute irrational and sanity needs to prevail. Two years ago, Reliance paid Rs 147 per share to acquire 14.8 per cent stake in East India Hotels. The stock is now available at 62 per cent discount to what Reliance paid two years back.
The stock is also quoting below the levels which were prevailing in October 2008 when the Sensex came down crashing down to 7,800 levels. It is a stock which is as safe as a fixed deposit. It could give you three times more returns than what a fixed deposit would give you over the next three years.
Fortis is a promising stock because a lot of de-leveraging of the balance sheet is taking place and one can expect a turnaround and to see a positive impact in the current year. Rajen Shah declared that Fortis continued to be one of his big bets.