Companies going at a discount can be great bargains

The equity and commodity markets are in a slide. Gold, one of the sensible investment options, is no longer attractive after the import duty curbs by the finance ministry. Real estate is in a slump.

So where do you put your money?

dna decided to look at companies that could be worth picking up as good investment possibilities.







Remember, technical analysis is for traders and market savvy people. For most common people, fundamental analysis is safer. So here is the second of a series of lists:

These companies were selected on the basis of some very sound principles. 
We only looked at companies that have an asset base of over Rs 100 crore.
This way we eliminated companies that could be listed today, and could disappear tomorrow.

We selected companies that had an inbuilt respect for money. It does not matter whether the money comes from shareholders, from banks, or is with the company either by way of accumulated reserves or accumulated depreciation.
Money is money.  And if it cannot earn at least a 12% rate of return, you should not be looking at them. And we looked only at those companies that had a three-year track record in earning a 12% or higher rate of return.

We were aware that some companies have invested money in assets, which could become productive a couple of years later.  Hence, we have deducted capital work in progress from total money with the company (equity + reserves + total borrowings + accumulated depreciation, less CWIP).  This way we get total money that could be put to productive use. We have selected only those companies that have been able to meet this benchmark of a 12% return on adjusted capital employed for three years continually.

We then sorted the companies which sported market prices close to, if not lower than, their 52-week lows.

We then focused on the 25 that were the closest to (or lower than) their 52-week lows (access the entire list on the dna website).

Ideally, you should be looking at those companies that are close to, or lower than, their 52-week lows, and which have also earned a decent rate of return. If the discount is great, and the return on adjusted capital employed is high, they could be worth a second look.

Warning: Remember that since these companies’ shares are being offered at low prices, they may warrant a second careful look. At such times, it is never a good idea to trust low prices alone.

Also remember the best time to purchase shares is when the ratios appear right, the company is good, and others are too scared to enter the market.

A few caveats
These companies have been selected on the basis of some very transparent ratio analysis.

Nobody can predict the way markets would move. But it is possible to identify ways in which risk could be reduced. And while the companies listed below appear to sport the best discount even to their 52-week lows, it is important to first ask savvy marketmen why they are going at a discount. Do the markets know something that the balance-sheets don’t tell?  Or is it that prices have fallen because the investment climate was soggy?

The trick is to set your own benchmarks and not get too ambitious. If your benchmarks have been met, you should reassess the share, and then become ready to sell it. Invest the proceeds in another share which makes immense sense on the basis of fundamentals.