You can either stick to A-lister stocks or move beyond them
Ayesha Faridi‘s questions are usually clear and to the point. She tries to extract maximum actionable information from her guests.
Her latest interview of Manish Chokhani is no different.
“Where will the new stories come from …. Has time come to move beyond these so called A listers?” she pertinently asked Manish Chokhani.
Manish’s answer was brilliant and illuminating.
(i) Multibaggers of today will be multibaggers of tomorrow:
Manish advised that there is no need for us to venture beyond the trusted names.
“Because of the structural shift in the economy, the market leaders and the governance leaders are going to gain disproportionately,” he said.
“If the economy is going from $3 trillion to $5-6 trillion, you cannot still have an HDFC Bank at a sub $100-billion market cap,” he added, implying that the multibaggers of today will continue to be the multibaggers of tomorrow as well.
“These will keep compounding despite so many cycles in the past 20 years. Good companies keep compounding“.
“There is no reason to shift away from quality to something else,” he stated emphatically.
(ii) Beaten down companies will come roaring back and become multibaggers:
Investors who are adventurous can buy stocks which are beaten down either because of the economic cycle or commodity prices, Manish opined.
He cited the example of a “nine million tonne steel company” which is presently trading at a throwaway valuation of $1-$1.5 billion market cap.
“At some point in life, it has to go back to a $8 billion valuation and you will look back and say hey there was a four-five bagger sitting there and we missed it“.
“A lot of the stocks will be 2-3x before we realise what happened and no one would have participated because nobody owns them,” he added.
Manish explained that good quality companies are beaten down in such a savage manner that they are down nearly 80-90%.
Such stocks will “come back roaring,” he said, with a big smile on his face.
(Ayesha Faridi enjoying a well deserved coffee break)
Buyers can get real gems at fabulous prices in “Hall of shame” stocks
Ayesha Faridi asked yet another brilliant and leading question.
“The other cluster is the ones walking the walk of shame …. Is there any hunting opportunity within this pack or would you say, do not be a cowboy?,” she asked.
Manish explained that the so-called “Hall of shame” stocks is a gold mine for intrepid investors, with diamonds waiting to be picked up.
“It is a space that I look at personally,” he revealed.
Manish explained that whenever there is a forced seller, who is selling because he has no option, the buyer can get real gems at fabulous prices.
He cited the famous case of Warren Buffett‘s purchase of American Express in the “salad oil scandal“.
While all investors dumped American Express like a hot potato in the wake of the scandal, Warren Buffett rushed in and invested 40% of his capital in the stock.
Needless to say, when the dust settled and the scandal was a forgotten memory, Warren earned mega multibagger gains from American Express.
In fact, the “salad oil scandal” is one of the defining moments of Warren Buffett’s illustrious career as a brilliant investor.
There is travesty in valuation of media stocks – 50% of India’s eyeballs for less than $7 billion
As an example of the “Hall of shame” stocks, Manish referred to ZEE which is beaten down out of shape owing to the forced sale of stocks by its promoters.
He pointed that all media stocks are quoting at rock bottom valuations, which is not sustainable.
“If I add up Zee, Sun and Network 18, that is 50% of the eyeballs of India, in aggregate the market cap of these three is less than $7 billion,” Manish said, even as Ayesha and Nikunj stared at him with disbelief in their eyes.
He emphasized that all of these companies are free cash generative businesses and have a robust business model which will be unaffected by the onslaught of OTT.
He also opined that the buying power of the Indian consumer is such that he will be loath to pay for OTT like Netflix and will continue to watch TV.
“So they deserve to be six times EV/EBITDA,” he said, pointing out that chemical companies (which are commoditized businesses) are demanding valuations of now 15x EV/EBITDA.
“There is a bit of a travesty happening over there,” he added, hinting that we have to rush and scoop up these stocks.
— Ritesh Mehta (@ritesh120) October 16, 2019
Sir we are ardent follower of you and also investors in zee media stock who runs zee news, zee business but don’t understand the reason behind almost 90% fall in share price. Plz guide small investor like us. @AnilSinghvi_
— Adv Chirag Shah (@genexexim) October 10, 2019
What about Radhakishan Damani’s fav media stock – TV Today?
To Manish Chokhani’s list of undervalued media stocks, we can add TV Today Network.
TV Today Network is the favourite of Radhakishan Damani, the 14x Billionaire.
Radhakishan Damani Portfolio Stock Buy Recommendation: Robust Balance sheet, Strong Return Ratios, High Cash On Books. Market leader. Attractive valuations. Favorable risk reward. Beneficiary of tax reforms https://t.co/lvZBIqs50O pic.twitter.com/9kP35Rsfhh
— RJ Stocks (@RakJhun) September 23, 2019
According to HDFC Securities, TV Today Network is a must-buy for the following reasons.
One of India’s leading Hindi-English news television networks
‘Aaj Tak’ continues to be a dominant player
Rising ad rate
& yield per hour to boost revenues & profitability
Boast strong experienced & known anchors
Digital & Radio would also drive performance
Robust Balance sheet and Strong Return Ratios
Estimate 12% revenue and 24% EPS CAGR over FY19-21E
It is also stated that TV Today has a strong balance sheet and is on a strong footing.
TV Today has maintained its leadership in the Hindi news segment across cycles and enjoys a robust balance sheet with net cash of ~Rs 400cr, it is stated.
It is also pointed out that the stock has corrected significantly ~38% in the last 12-15 months and offers favourable risk reward.
Moreover, recent tax reform would also boost profitability of TV Today, as company was paying 33-35% taxes in the previous years and which will come down to 25-26%.
The stock is still available at attractive valuations of ~9x FY21E P/E. We recommend BUY at CMP of Rs 310 and add on dips to Rs 288 with sequential targets of Rs 343 and Rs 388 over the next 3-4 quarters, HDFC Securities has advised.