In the current market condition, Big Horses like Infosys, TCS are high priced. Let us analyze other IT Businesses, which could be Future top caps.
Warren Buffett Checklist
|History of Consistently Increasing Sales, Earnings & Cash Flow||The Sales, Profits & Cash Flows shows increase in the past 3 years.|
|Durable Competitive Advantage||Company is building its Product Portfolio which should yield to core competitive advantage.|
|Future Growth Drivers||As the Indian IT is expected to grow 11%, we expect NIIT to gain a substantial position enabling compounded future growth. link|
|Conservative Debt (long term debt < 3 Net Profit)||Current Liabilities is less than 3 Times of Net Profit, means the company can sail well in next 3 years.|
|Return on Equity must be Above Average||ROE should be above 15%, NIIT shown 20% which is a very good value for ROE.|
|Low CAPEX required to maintain current operations||Company requires moderate CAPEX.|
|Management is holding / buying the stock||Management had shown selling of stock.|
|Price is Under Valued (< intrinsic value)||The intrinsic value shows around Rs. 400 & the market price is Rs. 271.|
|Stock Price is consolidating||Recent SENSEX highs made the stock too rise. But, still good to buy in current range.|
Additional Futurecaps Checklist
|PE, PB Ratio||PE Ratio as on October 2013 is 8. Company is quoting around it’s book value.|
|Cash Flow Positive||Latest Cash Flow shows 30 Crore positive figure.|
|Paying Dividends, Tax||Dividend Rate is 20% above. Company is paying taxes.|
|EPS Growth Rate||Company had shown 20% EPS growth rate.|
|Expected Gain in 10 Years||5 Times gain is expected. A down time around year 2016 could be accumulation opportunity, if fundamentals are intact.|
|Power of Brand||Branding attracts more sales, more profit margins. NIIT is having its own brand in the Educational segment. In the product portfolio, it should build an International Brand reputation.|
|Corporate Governance, Reputation of Leaders||The company keeps a good corporate governance culture. link|
Based on the Parameters above, we declare NIIT Technologies as a Moderate Multibagger.
3% to 5% of your Portfolio.
Futurecaps recommends 20 to 25 multibaggers per year, we recommend a 25% to 50% allocation of your savings in equity. The stocks recommended here are gone through Analysts of several years experience in stock market. Although they were successful in predicting future multibaggers, the overall stock market is a risky game. So we recommend the reader to put his/her own thoughts & invest wisely.
On October 23rd 2013, the NIFTY PE Ratio clocks at 18.
NIFTY PE Ratio is the Stock Market Barometer for Fundamental Investor.
Stock Market runs in cycles. Whenever NIFTY PE Ratio crosses 25, there is a Crash on the schedule; 2008 January was such a stage. Similarly, whenever the NIFTY PE Ratio goes below 13, there is a U-Turn possibility & Fundamentally Good stocks will be Cheaper to buy then. The cycle repeats itself every 8.4 years.
A wise investor has to position for a LONG TERM VISION to take advantage of the cycles.
Stock Market reacts faster than Economy
Stock Market reacts 6 months before Economy. If the real economy is going to be better after 6 months, the market will show the growth today. On the reverse side, if the economy is going to be down ahead, market will do the discount today itself.
Base on the NIFTY PE Ratio, we can see there is a steam for 50% growth ahead.
NIFTY can go above 7000
SENSEX can go above 23000
If RBI holds the Rupee tight, then above levels are possible.
Current Stock Strategy would be:
- Do not buy Blue Chips in current price, they are over heated now.
- Go for Growth Stocks with Good Margin of Safety