Some Short Term Picks

Graham would turn in his grave after reading this. Buffett would also be disappointed. But my investing style seems to be getting more and more inclined to Lynch....

Markets respond to Earnings and the rest is just commentary! 

Asset plays are not making much sense to me anymore. Every night I see Anant Raj promoters buying from open market but I just fail to convince myself to follow them the next day.

So, let me try to pick a few stocks which look good for short term (2 months to 2 years) based on earnings growth. Turaga says you can't do this consistently... If you do it for 10 yrs, I will give you all my funds & will retire. May be I will fail, but anyways lets try-

• Canfin Homes- Housing finance company selling at 5 PE, 0.7 PB with nil NNPA having grown loan book 50% last year. This year EPS should grow at least 25-30% (even after assuming some margin contraction) due to last year's loan book growth. Company is growing well this year also. Return Expectation- 60-80% in 2 years.

Now the tougher question- Canfin or Repco?
My last post said buy Repco. Now I say Canfin. So what's better? Canfin or Repco? Here is the answer-

		Repco	Canfin
	Price	280	140
	EPS	13	26
	P/E	21.7	5.4
	Book per share	102	192
	P/B	2.7	0.7
	Loan Book Growth	26%	50%

Based on this data, I expect Canfin to outperform Repco in next 2 years; though due to higher ROE & no need of capital, Repco should always trade at higher PE- PB to Canfin.

• Navneet Pub- Navneet publishes educational syllabus book majorly in Gujarat & Maharashtra. Now the story here is syllabus has changed in both these states because of which Navneet's competition (its old books) is gone. Because of this, Navneet should have a good 2014. Expected return= 30-35% in 1 year. 

• Mirza Int- Produces and sells shoes majorly into UK. INR depreciation & subdued 1h13 should help Mirza in showing good growth in 1h14. And 5 PE should make market tensed & take this higher.  Expected return= 20% in 6 months 

• Atul Auto- Expecting good 1Q results due to margin expansion. Revenue numbers are easy to project for Atul because they give Auto sales number every month. Now company has done some cost cutting exercise after 1q13 and hence 1q14 PAT should be atleast 35% higher than 1q13 PAT, Revenues will be 15% higher. Expected Return= 15% in 2 months.

And on the Reverse side-

• Repco Home- Had an amazing run after 4q13 results.. A guy on Moneycontrol sums the expected situation in Repco correctly... Copying him- "Following are the drivers in near term.
  Improvement in credit rating (so cost of fund will come down).
  Meet the priority sector lending regulations. (Cost of fund will come down).
  The NPA is steadily coming down. (will lead to better valuation).
  IPO money is available for disbursement : So no equity dilution ((QIP) required in near term. higher EPS."

Now credit rating is still the same. No improvement here. But look at Page-20 of this ppt. NPAs are seasonal and hence should increase in 1q numbers. Hence, provisions will also be higher & 1q PAT should be lower than 4q13 PAT, in my view. Market may not like that and stock may correct a bit given huge run it has shown till now (It would be a good point to enter Repco then if your horizon is more than a few quarters). So, Repco is a Reduce till either unexpectedly good results or expected results and some fall then.

Enough of predictions for today!! Lets end this with a quote from John Galbraith- 

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

Let see the results of these forecasts!!