Saturday, May 16, 2015

Sensex: Pump Or Dump?

Did the Sensex just rally off a very decent entry point when it declined to almost 26.5K recently?  I’d say yes.  Are the odds of a return to this level or below likely?  I’d say yes again.  One must remember that if the U.S. farts, emerging markets such as India have a big dump.  This is the principal risk to the market.  And should the risk materialize the decline should be bought, for overall, things in India are looking up. 

Thursday, March 12, 2015

Hunting The Nifty Middle Ground

Sometimes stocks are very cheap for very good reasons: quality focused investors might shun such stocks.  Sometimes stocks are very expensive for very good reasons: quality investors might shun good companies trading at something other than fair price.  The middle ground can often be an interesting place to search for good companies trading at a fair price.  It is often in this area that boring, but solid consistent long-term returns can be found.

Wednesday, March 11, 2015

A Nifty View

On 11 March, 2015 The Nifty closed at 8,699.95, which represents a multiple of 20.29 times FY 2015 earnings.  For those with high conviction in forward earnings expectations, the Nifty trades at 17.23 times FY 2016 earnings.  These are expensive levels.  However, if expectations remain strong, and the strength flows into FY 2017, we could see the market multiple maintained one year on.  And if that occurs, we could see the Nifty trade at 10,250, which implies a return potential of near 18% plus dividends.  Markets have exhibited weakness in recent days.  Thus it might pay to be prepared with a list of stocks worth nibbling should a nice opportunity present itself.

Tuesday, March 10, 2015

Sensex: Hold Or Fold?

Since my September 30, 2014 post, the Sensex is up 7.81%.  Markets have risen even while earnings expectations have fallen, mainly because confidence in forward expectations have risen.

Earnings expectations for FY 2015 are down 6.53% since 30 September 2014.  The biggest contributors to the decline in earnings expectations for FY 2015 are Larsen & Toubro, ONGC, Reliance Industries, Tata Steel, Tata Power, Mahindra & Mahindra, Bharat Heavy Electricals and State Bank of India.  At 1,412, earnings growth for FY 2015 over FY 2014 is a meager 5.3%.

Thursday, January 29, 2015

Catastrophic Decline in Oil Prices is Bad News for the Markets

With the geographic composition of oil supply changing radically, during the second half of 2014 we saw the geo-political risk premiums getting squeezed out of oil prices.  That was good.  Consumers would benefit from more money in their pockets: great news for consumer discretionary and consumer staples sector.  It was also good news for the high energy intensity materials sector which would see stable demand from consumers, accompanied by margin strength as a result from lower energy costs.  Industrials too would power along with margins getting stronger as energy and material costs declined.  And technology would stay strong as economic strength would mean everyone would continue to hanker for productivity gains, and consumer technology would remain very much in fashion with a strong consumer.  The utilities sector would stay strong with declining energy costs too, but perhaps be of less interest to investors pursuing growth.  And people would joyously continue with the endless chatter keeping telecom sector busy!  The health sector would continue along its merry way with people getting sick and well regardless of the economic cycle: and while they have jobs and insurance, they continue to pay for healthcare services.  The financial sector, with its parasitic character would prosper as it does while other sectors are doing well.  And all of this would be very normal, for weakness in the energy sector is often a harbinger of an early cyclical recovery.

Saturday, January 10, 2015

Sensex Long-Term Returns

I decided to have a look at Sensex returns over the long-term.  It helps setting return expectations.  And by looking at real inflation adjusted returns, it also helps understand what exactly what those nominal returns really mean.

Since 1974, the Sensex has delivered an annualized return of about 14.76%.  Since 1984, the annualized return has been somewhat higher at 16.91%.  That is a pretty solid return, but perhaps not as solid as it seems at a first glance.  The median inflation since 1974 has run at an annualized rate of 8.32%, while the median inflation since 1984 has run at 8.43%.  Thus in real Rupee terms the annualized return has been a none to shabby 6.44% over forty years, and an even more pleasing 8.48% over the past thirty years.

If we assume that Raghuram Rajan shall succeed in altering the inflation inherent in the economy to the 4% levels, using history as a guide, we should expect nominal Rupee returns of 10.44% to 12.48% over the long-term.

Friday, January 2, 2015

How The Dogs Barked

These were the Dogs at the start of 2014, together with passive DIA, SPY, RSP and IWM noted towards the bottom of the chart.

Tuesday, December 16, 2014

India: A Time To Nibble?

India GDP growth dipped to 5.3% in the September-14 quarter from 5.7% during the June-14 quarter. It has recovered somewhat from sub-five percent GDP growth rates seen during 2012 and 2013. And GDP growth of 5.3% lies below the six and ten year average growth rates of 6.4% to 7.5% respectively. Barring a global crisis, the odds for GDP growth reverting to the six year average of 6.4%, supported by sound policy and some monetary accommodation are high.

Thursday, October 30, 2014

Wipro: Buy The Dip?

Wipro has been kind to buy and hold investors. If you applied for and were allotted 10 shares at Rs 100 per share during the Wipro IPO in 1980, you would have paid Rs 1,000. And if you held on to your shares, today I suspect you would have no regrets. After bonus and share splits, you would own 960,000 shares today: and those shares would be worth Rs 537.6 million. That translates to an annualized return of near 46.5% (excluding dividends) over 34 to 35 years. Nice! And Wipro is not particularly expensive today.
For those of you who are inclined to think in US Dollars, Rs 537.6 million is about $8.8 million today, while Rs 1,000 translated to $127 during 1980. That provides a not too shabby US Dollar denominated annualized return of 38% over 34 to 35 years.

Wednesday, October 15, 2014

Buy The Drop: Energy Long-Term Fundamentals Remain Sound

World Oil Demand during 2014 is at near 92 million barrels per day at present (3Q14). For 2014 it is expected to average 91.19 barrels per day.

OPEC.ORG: MOMR October 2014

Thursday, October 9, 2014

Infosys: A Hold With Much Upside From Multiple Expansion And Growth

Yesterday Citibank downgraded Infosys to neutral while raising their target price from Rs 3,875 to Rs 4,065. The stock responded negatively. And today, the stock is up about 0.5% while the Sensex is up nearer 1%.
Infosys has performed very well over the long-term. But off-late it has under-performed the industry. For the year to 31 March 2015, they have guided Dollar revenue growth of 7% to 9%. Which is nice, but it does not quite represent the growth investors dream. At the same time, the stock is not priced at a level to make value investors salivate.

Saturday, October 4, 2014

ICICI Bank: Looking For Gain Potential of 32% to 62% Over Six To Eighteen Months

We have a number of very decent private banks including Yes Bank, Axis Bank, ICICI Bank, IndusInd Bank, HDFC Bank and Kotak Mahindra Bank, set out in the order of low to high PE ratios.
Today I am looking at ICICI Bank. There are cheaper banks than ICICI Bank. And there are better banks than ICICI Bank. But ICICI Bank presents an attractive mix of quality and value. And like most other banks forming part of the financial services sector, ICICI Bank is poised to grow earnings quite nicely for at least a couple of years, if the economy continues to gain strength as I expect.
ICICI Bank is trading cheap relative to historic multiples market participants have been willing to pay for the stock. And it has a decent trigger in place to facilitate better price discovery. ICICI Bank recently announced a 5:1 stock split, though it has not yet announced the effective date of the planned split. And while a stock split matters not a jot to the value of the company, history says that stocks tend to outperform leading up to a stock split and beyond. One reason for this might be that a lower price per share encourages participation of the retail investor, and as a result, we see better price discovery.  Another reason might be that a split is associated with a high level of management confidence, which confidence is proven to have good cause in time.

Friday, October 3, 2014

Reliance Industries: A Value & Growth Opportunity With Upcoming Catalysts

I am having a closer look at Reliance Industries, mainly because I believe it is quite under-valued, both on an absolute level and versus the market. I also believe that there are significant catalysts which could be very positive for the company.
Firstly, Reliance Industries is a big beneficiary of diesel price de-control. And I expect diesel price de-control to be implemented before long. The market response to diesel price de-control has always been immediate technical strength to Public Sector Oil Marketing Companies (PSU OMC). In the long-term, Reliance Industries with its high quality refineries and infrastructure to market fuel to the masses is the biggest beneficiary. In fact, the PSU OMC's, with their ancient and inefficient refineries could be hurt by competition from private participants. In August, I read off a $13 billion plan to upgrade the Jamnagar complex, including the addition of a 400,000 barrel per day refinery. I suspect this new state of the art refining capacity might fall outside their SEZ plants, and allow Reliance Industries to refine and supply fuel to the domestic market.

Thursday, October 2, 2014

Is It A Bear, Or A Pause For Bull Refreshments?

The markets have been dropping off late. Oddly enough, the market has been crying out for a dip buying opportunity for a long while. And now that it is here, people are too scared to participate.
The chart below gives you a snapshot of market trailing twelve month multiples of S&P operating earnings over the past six, ten, and twenty one years. 

Wednesday, October 1, 2014

Riding The Indian Bull

There goes another quarter. The Sensex closed up 4.79%, while the NIFTY closed up 4.64% for the quarter. During the year to 9/30/14, the Sensex and NIFTY rose 37.41% and 38.87% respectively.

September 30th is an important date for me.  Exactly a year ago, I launched the Frontline Investable India and Midcap Investable India Strategies. A portfolio investing 70% in Frontline Investable India Sectors Strategy and 30% in Midcap Investable India Equal Weight Strategy, rebalanced from time-to-time returned 52.32% in Rupee terms and 61.03% in Dollar terms over the course of the year. And it did this with a beta (versus Sensex) of 0.88. The highest beta Midcap Investable India Equal Weight Strategy with a beta of 0.97 (versus the Sensex) returned 75%, compared with the high beta (well over 1.2) S&P BSE Midcap index which returned 70%, and the high beta CNX Midcap index which returned 63%.

Sunday, September 28, 2014

Plenty of Upside At Reliance Infrastructure

I've been looking around for a company which could be a beneficiary of the building 100 smart cities, and roads to crisscross the length and breadth of India. And one which can benefit from the build-out of rail networks connecting India and transporting masses within her cities. And finally, from one which can benefit from the supply of 24/7 power in India!

Saturday, September 13, 2014

Cipla: Too Far, Too Fast?

Cipla is available OTC in U.S. under the symbol CPLFY.  But it is lightly, if ever traded.  There is no way I would dabble with Cipla OTC's in U.S., so be sure to keep that in mind - this article has little relevance unless you are able to buy and sell stocks listed on the Bombay or National Stock Exchange in India.

I don't often write about Indian stocks, particularly those not listed on U.S. exchanges, because quantitative and fundamentals based information is rarely appreciated or used in the Indian market, where the typical non-institutional investor is driven more by technical positions and trends, which are areas where I add no value. I decided to write about Cipla today, because the technical position and trends for Cipla are hot. And I feel it has run as far as it ought to run.  But something tells me it could run further before a material decline - perhaps to as high as Rs 701.

Tuesday, September 9, 2014

Boeing: Buy Weakness, Sell Strength?

As I trawled through various companies, Boeing caught my attention.  Now I am not long Boeing, and nor am I likely to be long Boeing anytime soon.  But that does not change the fact that it presents an interesting upcoming trading opportunity.

What is to like about Boeing is simple.  It has been weak in comparison to the market off late.  A bit more weakness could be bought, and subsequent strength sold.  If the stock drops to near $115 it would be far more interesting, and this is possible given the weak recent technical position displayed by the stock.  But even at $128, Boeing quality with above market return potential makes the stock worth a closer look.

42 Good Companies: Do They Trade At A Good Price?

This is a list of 42 "good" companies. In this post I contemplate whether they trade at a "good" price!
The first column notes the economic sector of operation for the company. I like this field. If a person is clever enough (I'm not) to figure out where the economy is in the context of the economic cycle, they have reasonable odds of improving and timing their stock selections. You can have a look at how Fidelity reads sectors and the economic cycle here. You can also have a look at the sector weightages recommended by Ned Davis and S&P Capital IQ here.

Sunday, August 31, 2014

India: The Economic Cycle Turns & The Sensex Bull Rages Onwards

August is now behind us. The Sensex closed July up 1.89%, and built-up the quarter-to-date gain for the two months ended 8/31/14 to 4.82%.  The Sensex bull rages onwards.
Last year at about this time (8/21/13) the Sensex languished at 17,906. A year on, it trades at 26,638, up almost 48.8%. We have had a great run, and the market as always has predicted a turn in the economic cycle well ahead of the turn.
In August 13, we knew that GDP growth in June 13 languished at 4.4%. That was the fifth quarter of sub 5% growth in a row. And yet the market commenced a strong rally. A sixth, seventh, and eighth quarter of subdued sub 5% growth were recorded in subsequent quarters, and the market rallied through the depressing growth data. And now, in August 14, we finally have a GDP growth print of 5.7% for the June 14 quarter, which suggests that the economy is beginning to accelerate, just as the market had predicted.

Thursday, August 21, 2014

Home Depot: Expensive, But Not Overly So Relative to Market

I have been looking at Home Depot (HD).  Look at how it has run these past few days.  Indeed, look at how it has run over the longer-term too.  On April 1, 2009 the stock closed at $25.  Last night it closed at $90.75.  That provides an annualized return of 27.08%.  And that is not all for the company has paid a big bunch of dividends over the years.  The past five years have been spectacular, but even looking at just over ten and fifteen years annualized return (excluding returns) is a satisfying experience: the stock delivered an annualized return of 11.65% since 4/1/2004, and 7.19% since 4/1/1999.  That is plenty better than the market and the result is even more impressive when we look at total return (including dividends).

Normally after well over normal long and short-term returns, I get very skeptical about future performance.

Tuesday, August 19, 2014

IBM Comes With a "Yes, WOW" rating: Well Valued with 23% Upside

I am looking at the Dow Tech Titans at present.  I have looked at Microsoft (MSFT), Intel (INTC), and Cisco (CSCO) on several occasions in the recent past: the most recent look is linked to the company name.  Since I last looked at them, they have risen significantly: Microsoft and Intel have gone from being “Yes, Wow” stocks, to simple “Yes” stocks.  Cisco still remains a “Yes, Wow” stock.  But it is IBM (IBM) that comes with a “Yes, WOW” factor.

Monday, August 18, 2014

Visa: Great Opportunity to Capture Growth Alpha

I had looked at Visa (V) during mid-April when the stock was getting beaten up following an earnings report that the markets did not appreciate. It fell as low as $198.56 by 4/25/14. And since then it has recovered somewhat to $210.19.
In my view Visa remains amongst the best opportunities to capture long-term growth alpha. For those with a short-term investment time horizon, the stock is not without risk.

Friday, August 15, 2014

Verizon: Alpha Rich With Low Market Risk

Value Line research awards Verizon top marks for safety, timeliness and financial strength. You can download their report here. They set their 2017-2019 price target range at $70 to $85.

Value Line awards Verizon a safety rank of 1. This means that the total risk of the stock relative to the approximately 1,700 other stocks covered by them in The Value Line Investment Survey®, is low.
They award the stock a timeliness rank of 1. This means that the probable price performance of the stock relative to the approximately 1,700 other stocks covered by The Value Line Investment Survey® during the next six to twelve months can be expected to be favorable.
They also assign the stock a top financial strength rating of A++. Value Line classifies 1,700 companies' Financial Strength ratings from A++ to C, in nine steps. The lowest grade is reserved for companies experiencing serious financial difficulty. Balance sheet leverage, business risk, the level and direction of profits, cash flow, earned returns, cash, corporate size, and stock price, all contribute to a company's relative position on the scale. The amount of cash on hand, net of debt, is also an important consideration.
The technical rank for Verizon was 3, which implies that the technical prospects are no better or worse than the broad market. The stock was downgraded to 3 from 1 on July 25, 2014. For now, it remains at the top end of the "3" band. And I believe the weakening technicals have presented an interesting buy opportunity for long-term investors.
With Verizon, we are looking at a company with low risk and high financial strength, with an expectation of out-performance over the coming six to twelve months, with a slight recent deterioration in the technical condition.

Wednesday, August 13, 2014

Transocean And The Hunt For Hidden Needles In A Giant Haystack

Transocean (NYSE:RIG) reported earnings a short while ago. They delivered a healthy sized beat on both revenue and earnings. The market yawned.
Goldman Sachs has a sell rating and a price target for Transocean of $29. Deutsche Bank has a sell rating and a price target of $27. And even Jefferies, who probably have the best thought out, deep, and insightful coverage of the offshore drilling industry, have a price target of $41. Given that Deutsche Bank nailed the peak with a downgrade in February 2013, it is quite understandable that investors are fearful of downside risks - after all a 31% downside to their price target is no small sneeze.
I can accept the short-term downside risks implied by the recently lowered price targets, but in my view the sell rating does not do justice to informing investors of the considerable long-term gain potential.

Tuesday, August 12, 2014

Wal-Mart: Low On Market Risk & High On Alpha

With Wal-Mart we are looking at a company with low risk and high financial strength, with an expectation of inline performance over the coming six to twelve months, with a slight recent deterioration in the technical condition.
Wal-Mart is priced at a level which indicates a long-term (three-year) return potential of 18.3%, which as a result of low beta, delivers over 12% of potential Alpha over three years.

Sunday, August 10, 2014

Disney: Great Company, Not So Great Price

I like Disney the company and think it is a great pick for the consumer discretionary sector for long-term investors. However, in my view it is not well priced at present. I will keep the stock on my radar to see whether it dips enough to offer an opportunity to create alpha in the coming months.

Tuesday, August 5, 2014

Update: Smith & Wesson For The Value Hunter

In a recent post, I had suggested that $14.50 to $15 was the fair value for Smith & Wesson. Fair value is the level at which there is zero alpha: it is the level at which a long-term investor's return expectation of 12.50% would be satisfied, with 12.5% representing the risk adjusted return required by investors for selecting Smith & Wesson versus the market. The stock is now trading at $12.27. And I intend to go long Monday at open. Here is why.
The stock is now cheap. It offers alpha of about 18% to fair value of $14.50, after which a long-term return expectation of 12.5% can be expected.

Monday, August 4, 2014

The Markets Are Not Cheap, But They're Not Expensive Either

The S&P 500 closed July at 1,930, down 1.51% for the month - with the S&P 500 declining 2% on 7/31/14, all of the damage was done on the last day of the month! The Dow Jones Industrial Average fared slightly worse, closing at 16,826, down 1.56% for the month. Has the market commenced a bear market (20% or more downside from the peak of 1,991), or is this the start of a correction (up to 10% downside from the peak of 1,991)? In my view, I suspect aggressive sellers may find themselves regretting their decision to sell in six months' time.

Friday, August 1, 2014

India Sensex: Buy The Dip, Don't Sell The Rip

A few weeks ago, I slept in a beer-induced slumber. I awoke to find an inanimate me looking down at myself. A long while later, I noticed a fierce looking gentleman standing in the corner of the room. I felt a twinge of fear. And then felt a sense of great peace. I scowled at the apparition and said, "You are late". And Lord Yama, Lord of Death, winked out of existence. I awoke from my dream. Or was it a nightmare? I suppose dream or nightmare is a matter of perspective. And the perspective, as always, is ever so important.
The Sensex closed July at 25,895, up 1.89% for the month. 

Tuesday, July 22, 2014

The Markets Are Expensive, Several Dow Stocks Are Not

The markets are expensive, but several Dow stocks still offer very decent return potential, together with a considerable alpha opportunity.  The column titles marked (1) on this table come from Value Line Research. The rest of the column titles are simple arithmetic.

 Using the mid-point of the Value Line price targets, twenty-three of thirty Dow stocks offer alpha, or excess return as priced. Using the mid-point of the Value Line price targets, the annualized average total return expectation from the 23 stocks offering alpha or excess returns equal weighted is generous at 13.27%.  There are seven stocks offering a total return potential of over 15% using the mid-point of Value Line's target prices.

Friday, June 27, 2014

Goldman Sachs Picks Corning: Would You?

In this post I have a look at Corning (GLW), one of Goldman Sachs' fifteen picks for the present market.
In glass, Corning represents class. It is a good stock, but it is not presently an attractive buy candidate for new capital being deployed. Nonetheless, if owned, it is a good stock to own for the present time. There is price support as a result of the buyback program. There is upside to per-share estimates on account of buybacks. And as time passes and earnings grow, it is likely that the share will grow to be well valued, even cheap at $22.

Thursday, June 26, 2014

Goldman Sachs Picks Avery Dennison: Would You?


  • Avery Dennison was one of 15 stocks appearing on Goldman Sachs recently published buy list.
  • The stock as priced offers negative growth alpha of 132 basis points, which translates to 25% downside to my estimate of fair value.
  • At present investors can expect a total long-term return of 9.77% from the stock.
I conclude by saying that Avery Dennison is far from an attractive buy candidate. In fact, I would go so far as saying it is distinctly unattractive as priced, and is particularly unattractive for the present time.

Goldman Sachs Picks Aetna: Would You?


  • Aetna was one of 15 stocks appearing on Goldman Sachs' recently-published buy list.
  • The stock as priced offers negative growth alpha of 30 basis points, which translates to 6% downside to my estimate of fair value.
  • At present, investors can expect a total long-term return of 10.76% from the stock.
In this post, I have a look at Aetna (AET), one of Goldman Sachs' 15 picks for the present market
I conclude by saying that Aetna is an attractive buy candidate as priced for those comfortable with a risk-adjusted return expectation of 10.25% or lower. It is also an attractive buy for those with conviction that this expensive market shall continue to trade with a bullish bias for a while yet. However, in my view, Aetna is worth keeping an eye on for a decent entry opportunity at $76 or less - at present, it is too pricey for me.

Tuesday, June 24, 2014

Would You Buy Goldman Sachs' Buy List?


  • Goldman Sachs recently pitched fifteen stocks they felt were worth buying in the present environment.
  • The selection displays a strongly pro-cyclical bias with not a single pick from the defensive or energy sectors.
  • They lean away from defensive sectors, instead leaning towards valuation and dividends for the desired defensive characteristics.

Monday, June 23, 2014

Smith & Wesson For The Value Hunter


  • Smith & Wesson was cheap. Following the punishment in the markets on 6/20, it is cheaper still. But is it cheap enough to buy?
  • The stock as priced is close to, but not at my estimated fair range of $14.50 to $15.
  • Once at fair value, investors can expect a total long-term return of near 12.50%.

Friday, June 20, 2014

Microsoft For The Alpha Hunter

In a prior post I looked at Microsoft (MSFT), when it was trading at $37.89, because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. With the price now nearing $41.50, I am looking at whether Microsoft might still be suitable for the alpha hunter.
  • Microsoft remains well valued even after the recent run-up in price.
  • The stock as priced offers at least 53 basis points of growth alpha, which translates to a 15.4% gain potential to my estimate of fair value.
  • Once at fair value, investors can expect a total long-term return of near 10%.

Oracle For The Alpha Hunter

In a prior post, I looked at Oracle (ORCL) when it was trading at $40.81, because I saw it as a decent value opportunity. The price rose, but not by much, and now, as I write this late on 6/19, following an earnings miss, the stock is down over 5% to $40.38 in the after-hours market. In my view the dip in price presents a very decent alpha generation opportunity.
Oracle reported earnings after hours on 6/19/14. Total revenue was up 3% to $11.3 billion, non-GAAP earnings came in at $0.92. Excluding the impact of currency changes in Venezuela, which were not included in the prior guidance, adjusted non-GAAP earnings came in at $0.94. Analysts were expecting earnings of $0.95. It is clear that Oracle missed expectations for earnings and revenue. They committed the cardinal sin of missing earnings expectations by $0.01, and punishment was meted out by the markets.

Intel For The Value Hunter

In a prior post I looked at Intel (INTC), when it was trading at $25.02, because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. With the price now nearing $30, I am looking at whether Intel might still be suitable for the alpha hunter.
I conclude, saying that while Intel remains well valued for the alpha hunter, for those of you who took aggressive over-allocations to Intel when it represented value hidden in plain sight, the time to eliminate those aggressive over-weights and return to allocation is near, if not here. The easy money has been made.

Cisco For The Alpha Hunter

In a prior post I looked at Cisco (CSCO), when it was trading at $21.57, because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. With the price now near $24.50, I am looking at whether Cisco might still be suitable for the alpha hunter.
I conclude that Cisco remains well valued for the alpha hunter.  For those of you who took aggressive over-allocations to Cisco when it represented value hidden in plain sight, it may be well worth holding on a while longer. In my view, only part of the easy money has been made, more remains.

Wednesday, June 18, 2014

Apple For The Alpha Hunter

In a prior post I looked at Apple (AAPL) because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. It was, and so today I am looking at whether Apple might still be suitable for the alpha hunter following the recent run-up in price. 
I conclude that while Apple remains well valued for the alpha hunter, for those of you who took aggressive over-allocations to Apple when it represented value hidden in plain sight, the time to eliminate those aggressive ove-weights and return to allocation is near, if not here.  The easy money has been made.

Thursday, June 12, 2014

Correction 2014: Coming Friday 13th June, 2014?

Tomorrow is Friday the 13th. It is a day that monsters rule. Ghouls, Ghosts, Witches, Vampires, Werewolves, Ogres, Mummys, Goblins, Banshees, Gorgons, and monsters of all sorts shall roam The Street.
And as they roam, perhaps the Dark Pools shall rule, as the Vampire Squid sucks the life out of the humanity in markets, and cause a collapse such as has never been seen before.
It is also a full moon night, and so perhaps this is pre-ordained, and written in the stars.
Or maybe not!
There is consensus that the market is expensive. And perhaps in view of the context of the past six or ten years it is. But in the context of the past twenty-one years, it is not terribly expensive.

Sunday, June 8, 2014

India: Running With The Bulls

I started getting bullish on India during the third quarter of 2013. So much so that I published volume 1 of India Investment Strategy: The Hunt for Hidden Value on October 31st. On 9/30/13, (the date of inception of portfolios presented in the book) the Sensex stood at 19,380. Today it stands at 25,396, up 31%. That is not a bad market timing call, though I say so myself! Truth be told, my market timing is normally terrible, which is why I stick with an asset allocation model: it works far better for me than trying to be clever with market timing.
The question to contemplate now is whether after the spectacular eight-month gains, are there more gains to come? In my view, the market remains a buy the dip, don't sell the rip market. Though there is never any harm in returning to allocation on both dips and rips. Why?

Saturday, May 31, 2014

El Nino And The Soft Drinks Industry

I've been on vacation these past two weeks, and now it's that last leg of the holiday used to recover from the first phase of holidaying. And as I returned home, my phone died on me. This is most annoying. It is also very, very hot. The day I landed back in Delhi, the temperature hit 47⁰ C (that is near 116.6⁰ F).
Just before I left on vacation, El Nino chatter was running high. My first thought was energy and hurricanes: a strong hurricane season normally supports elevated energy prices. In prior El Nino years, we had terrible Ivan during 2004, in 2006 we had the less deadly Helene and Gordon, and in 2009 we had Bill, who was a softy. But as it happens, El Nino suggests odds are for a weak hurricane season - this post at NOAA says as much - they predict a weak Atlantic hurricane season, while highlighting that it takes but one baddie to make a difference. El Nino is believed to cause long and cold winters in Northern Europe (though this does not hold true if it is a strong El Nino year), and a warmer winter in Southern Europe. So we could reasonably expect El Nino to cause elevated gas prices this winter, and this expectation is also supported by the present Russia/Ukraine/Europe situation. I am done with hurricanes and cold weather, so I decided to move on to hot weather - because it is hot, hot, hot, and getting hotter!

Tuesday, May 13, 2014

The Pair Trade: Long Pepsi, Short Coca-Cola

The advantage of the long/short trade is that a smaller level of initial risk capital is at stake, but the risks are higher compared with a long only position. In many ways a pair trader is seeking pure alpha: the trader stands to make money regardless of market direction as long as the company specific assessment is correct.
The best case scenario would be one where the long position rose, while the short position fell. But there is a profitable outcome if the long position rose more than the short position rose, or if the short position falls more than the long position falls. The worst scenario would be one where the long position fell, while the short position rose. And of course there is a loss-making outcome if the long position falls more than the short position falls, or if the short position rises more than the long position rises. So really the primary objective is to be as comfortable as is possible that the long position will outperform the short position.

Saturday, May 10, 2014

India Event Risk Is Elevated & Markets Are Fully Valued: Book Profits!

In recent months I had started doing a monthly post covering Indian markets. There are several U.S. ETF's which cover Indian markets, but the one I tend to focus on is the i-Shares India 50 ETF (INDY), which represents the CNX NIFTY Index: an index from the National Stock Exchange of India covering fifty front-line Indian stocks.
This month I have not had the time to complete a regular post. In my post from March I had said "I guess what I am saying is buy the dip, don't sell the rip; though if you have been in the markets since September last year, it does make sense to book profits and return to allocation.". And I will say it again: this time with a greater sense of urgency.

Friday, May 9, 2014

Too Much Love At Qualcomm?

Qualcomm (QCOM) is priced at $79.50, and is probably among the most sought after stocks in the market today.
It trades at a trailing twelve month PE of 21.26, which is lower than the market cap weighted trailing twelve month PE for the whole market, the technology sector and the communication equipment industry. Its PE on non-GAAP earnings expected for the year ended September 2014, is at 15.35. And its PE based on non-GAAP earnings expected for the year ended September 2014, is at 13.83, which is lower than the market cap weighted forward PE for the whole market, the technology sector and the communication equipment industry. The stock offers a dividend yield of 2.11%, which is a slight discount to the market cap weighted dividend yield of 2.31% for the market, but it is higher than the 2.07% yield for the technology sector and 1.95% yield offered by the communications equipment industry. Little wonder value investors love this stock.

Thursday, May 8, 2014

Alibaba And The Amazon Opportunity

There is much excitement about the Alibaba IPO. And rightly so: it is a wonderful opportunity to invest in the next phase of China's development & the Chinese consumer. But it is not for me. I am hoping that the Alibaba IPO will well create a better entry opportunity for me at Amazon (AMZN). Why?
When Alibaba lists, in all likelihood it will be a hugely popular offering. It will be of sufficient size to make an impact on the markets. And the stock will appeal most to people who have investments in internet growth stocks like Facebook (FB), Google (GOOG), LinkedIn (LNKD) and Twitter (TWTR), and to people who invest in e-commerce companies like Amazon.
As these investors allocate capital to the Alibaba offering, they will reduce holdings in their internet growth and e-commerce portfolios. And as they sell, prices will decline to create attractive entry levels for new investors: perhaps GARP style investors instead of the more aggressive growth investor.

Tuesday, May 6, 2014

Falling By The Wayside

Something odd is happening with prices at Wayside Technology (WSTG). I will let this chart speak for me. We have seen weekly returns of 25.94% during the week commencing 3/24/14, and a weekly return of 9.45% for the week commencing 4/7/14. This compares with an average weekly movement over the past five years of 0.406% (median 0.347%), with a standard deviation of 4.73%. Thus it is clear the bullish moves of 3/24/14 and 4/7/14 are exceptional. Then we had the week commencing 4/14/14 when the weekly return was (15.12%) followed by the week commencing 4/28/14 when the weekly return was (8.14%): these bearish moves were also statistical oddities. A similar bullish move has been seen only twice in the past five years, while a bearish move of that magnitude has been seen only three times over the past five years.

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Sunday, May 4, 2014

Oracle: Capture The Alpha

I am looking at Oracle (ORCL) today as it approaches its all-time highs set in 2000. But this time, with a big difference. In 2000 Oracle reached for the skies backed by momentum. Today it is backed by momentum too. But unlike the past, today Oracle offers great value for value investors, great growth for growth investors, and great quality for those who focus on high quality offerings.