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Stocks corner: What to BUY, what to SELL!

Last updated on: January 3, 2013 11:29 IST

Stocks corner: What to BUY, what to SELL!

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Have a query related to Indian stock markets and investing? Every week our stock market expert Narendar Lokwani will answer your stock queries. This is the first set of queries sent by readers.

You can mail your queries to stockfundoo@rediffmail.com.

I invested in REI Agro at around Rs 9 in July. But it's moving very slow. It does not participate in rallies, no matter how much market goes up, it sticks to 50 paise up or down. What do you think would be the time frame for this stock to move to Rs 20 levels? It is getting frustrating day by day to hold this scrip. And I fear if market falls due to profit booking, it would again go down below Rs 10 levels. Please share your views on REI Agro.

REI Agro remains in a consolidation state from past 6 months after heavy fall during most of 2011 and first 6 months of 2012. It takes about 3 to 6 months for a stock to consolidate after heavy price shedding!

During this consolidation phase, stock transfers hands from weak hands to stronger ones with inside information. Promoters are constantly buying and quarterly holding from promoters is scaling up. Who are they buying from? FIIs are selling sporadically. Although, their sale is not as rampant as evident in some other stocks currently!

Technically speaking, the scrip is ripe for an up-move now. You would notice that most stocks would move only when you are about to lose faith in them! Market is an acute judge of retail sentiments!

Rs 12.5 level is a strong resistance for REI, from where it has suffered rejection at least three times in past 6 months, denoted by circles. The last candle on this chart, i.e., this Friday has been a Doji, denoting uncertainty again.

Right now is a crucial stage with 50 SMA trying to crossover 200 SMA and thus signaling end of bear market for this scrip. This can fail as this is crucial junction. But most probably, it should crossover.

Volumes have been steady or falling in consolidation phase and most probably you would see REI breaking this overhead resistance with heavy volumes and quickly reaching the next stage which is resistance around 19.

Fundamentally, if you see the quarterly results, things are improving, but for interest costs, which are about 10 per cent of the revenues. Debt is constant at about Rs 5,000 crore or so. Company is carrying high amount of debt, which is probably because rice processing is a highly working capital-intensive business. The business requires up to 14 months of inventory of Basmati paddy, which requires significant tie up investments in working capital.

In 2013, with interest rates moving down, the profitability would improve significantly as 10 per cent of their revenues are blocked to service this working capital need. So scrip can see good movement to Rs 25 or so.

However, until it breaks the Rs 12.5 level, please brace for more consolidation in the Rs 9-12.5 range. The downside risk is limited to Rs 9, and you have entered at a good purchase price. So I suggest reduce your holdings to your comfort level, book some profits and hold the rest.

Disclaimer: This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients.

Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

StockFundoo.com provides insightful and in-depth capital markets analysis. Powered by fundamental deep value investing and technical analysis, we offer detailed stock analysis updated on a daily basis.


Image: REI Agro's stock price movement in the last six months
Photographs: Rediff MoneyWiz

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Can you please do analysis of Harrisons Malyalam? What you think of this company in long term.

Harrisons has a diversified business lineup of Tea, Rubber, Cocoa, Spices, Engg Services and Exports. Firm is part of RPG group. Firm is also currently involved in a land dispute with State Govt.

Revenues are steady on an annual basis in last five years, but EPS is flat. Last three quarter EPS is in negative territory. High Book Value of Rs 172, and entire firm is available at a paltry market cap of just about Rs 120 crore!

Imagine owning a 150 year old, largest agri-business in South India at just about Rs 120 crore.

This is the fate of many diversified old-time businesses. Currently, one can name so many of them, with huge land tracts, huge book value, but share price is languishing in tight low range. Market is giving astronomical valuations to theme based new 'happening' businesses, but good old firms are laggards currently.

Probably market is waiting for some value unlocking process, before participants can re-look at such deep value scrips and start bidding up the price. Also high retail shareholding at 43 per cent is also a dampener to price rise.

The land dispute needs to be resolved and quarterly EPS needs to improve and come back to black before any chance of steep price increase in this scrip. Only for very patient investors!


Image: Harrisons Malyalam's stock price movement in the last six months
Photographs: Rediff MoneyWiz

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I have a question regarding Sintex and Sterlite. I am interested in finding out if they are fundamentally strong companies worth holding. I have been holding the stocks for around three months at the prices mentioned below:

Sterlite: Rs 100

Sintex: Rs 61

Sintex Industries

Like a lot of companies in this space, Sintex is reeling under debt issued under FCCB programmeme in 2008. Recently, a news item mentions that these FCCBs would be restructured in another programme due in 2017 at rate of Rs 75.6.

This is a welcome development in my view. This means that international investors believe in Sintex to the tune of Rs 75.60 per share.

Also other than debt, there seems to be no issue with Sintex. Firm is growing reasonably, making Rs 2500+ crore worth of revenues each year. Even with so much debt, operating profits are close to 20 per cent, net at 8 per cent or so. The stock is available less than Book Value, low PE ratio of 7.5, and reasonable market cap of Rs 2,000 crore, which is less than one year of revenue.

Technically speaking, support is at R 57 levels and resistance levels at Rs 68, Rs 76 and Rs 92. Rs 75-76 levels are doable in the short term, you can take some partial profits then and hold rest for larger gains.

Sterlite Industries

Sterlite is doing reasonably well with decent growth in annual revenues and quarterly revenues. Interesting thing about Sterlite is that public shareholding is negligible at 4.53 per cent and FIIs are growing their shareholding from last three quarters from 11.9 per cent to 13.3 per cent. This is good news indeed.

Latest quarterly EPS is at Rs 2, annual run-rate of EPS Rs 8 gives, PE ratio at about 12. Steady dividend paying company, I don't see any issue with fundamentals.

Technically speaking, stock has the habit of staying in a range for long time. Looks like this is favourite counter for day traders, so stays in a tight range for many months altogether.

Support is close at Rs 95 levels; next resistance is at Rs 112 and then at Rs 124 and then at Rs 138 or so. Rs 138 levels look doable in 6 months timeframe.


Image: Sintex Industries's and Sterlite Industries's stock price movements in the last six months
Photographs: Rediff MoneyWiz

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