Category: Research

India ideas (Mar 29, 2021)

investingclass

The market seemed ready to rollover just before the budget on Feb 1. But as the budget was being announced, there was a huge rally that spread across almost all sectors. #Nifty was up +4.7% and 2.6% on Feb 1 and Feb 2 respectively and made a recent high on Feb 16. Since then, it has been struggling to move back up and looks ready to roll over again.

Chart sourced from investing.com

Portfolio Allocation: Looking at the setups of some current leaders, I have a few test trades with small allocation right now. These will guide me whether to increase my exposure over the coming days and weeks.

Here is what I am seeing currently on the sector level:
– Secular trends (leadership in 3m+ period) continue to persist in Software and Trading companies (eg, Indiamart). Most of the stocks in these sectors have been rangebound/declining for the past 3 months or so. Whether it is a time correction or a sign of an impending downtrend in overall market, time will tell.
– New leaders have started emerging in Retail (eg. Vmart), Professional Services (eg. Quess, Teamlease etc.) and lot of re-opening related plays.
– Financials drove the whole market up since November last year and are taking a breather right now.
– Chemicals participated on the upside post Covid upto September/October and then lost leadership for 5-6months. They have started moving again in the last one month or so. So that’s another area to keep an eye on for the next run up.
– Metals is another area which is grabbing global attention. Stocks (Hindustan Copper, Vedanta, Tata Steel etc) have a nice tailwind with the global inflation narrative. Some allocation in this sector with right risk reward would be advisable.
– Cement companies seem to have a consistent bid as well. With re-opening, this sector is expected to contribute to growth in this fiscal.

Few names that look interesting right now for Long exposure – in no particular order of preference:

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

China – Electrical Equipment theme (Jan 7, 2021)

investingclass

Let’s start with a sector leadership comparison in China (Jan 7, 2021):

The highlighted sectors are the ones where leadership continues to stay and would have resulted in great gains for the investors. I highlighted one such theme (Beverages) in November 2020 – link here.

There has been a sector rotation in the last 3 months and hence new leaders have emerged in the picture. With reflation and economic growth narrative, it’s reasonable to see Metals and Paper jump into the mix of sectors.

In this note, I’ll cover a few names in Electrical Equipment theme, most of these names can also be subclassified into battery/alternate energy.

  • You’ll notice that all stocks are extended, so it would be prudent to wait for a collective intermediate-term pull back from recent bounces to start accumulating.
  • Short-term traders can still potentially reap quick returns as they can manage their risk when the market turns.

Theme: Electrical equipment (Jan 7, 2021)

Eve Energy (300014.SZ): The company is primarily in the business of producing Lithium batteries. It went parabolic recently, worth keeping an eye on.

  • Decent ROIC @ 10-20% in last 10 years

Contemporary Amperex Technology (300750.SZ): It produces EV battery and energy storage battery systems. Fundamentally, undoubtedly impressive revenue and net income growth over the years. Declining ROE and ROIC might potentially cap future returns. Nonetheless, a good one to keep on watchlist if the sector consolidates a bit.

Sungrow Power (300274.SZ): It sells renewable solar and wind-powered products in China. Looking at the financials, it is no surprise why it is an investor favorite in this space. Very extended short term, another name for watchlist to buy on consolidation.

Ginlong Tech (300763.SZ): Involved in sales and service of core inverters for distributed photovoltaic power generation systems.

  • Youngest company in this article (IPO’d last year); much higher growth rate for revenues and income
  • TTM ROIC @ 27%

Charts sourced from aastocks.com; Fundamentals from morningstar.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

Year-end thoughts and positioning for 2021

investingclass

2020 was a year of the “unprecedented”. Pandemic, Unemployment, market volatility, multi-baggers, income disparity, geopolitics etc. I am glad this year is coming to an end and wishing for a better and rather boring 2021.

In terms of trading and investing, what worked?
– Almost anything related to Healthcare, Software, Innovation, Chemicals in the 1st 9 months of 2020.
– Then came reflation and economic growth related flows in the last two months propelling banks and energy among other sectors. It’s exciting to note that these few months could be a potential turning point against a multi-year downtrend in the energy sector.

Going forward, which sectors are investors focusing on implicitly from recent flows and overall strength? I have done this analysis based on
1) where the stocks within each industry are relative to the overall market (i.e. their relative strength) and
2) to themselves (compared with 50 day volume weighted avg price).

Below is a table showing this for 5 major countries I follow: Japan, HK, China, India, US.

Note: Shaded sectors show an overlap across 2 timeframes in the same country.

One can amend or incline their portfolios in the market’s direction or choose to be a contrarian. Neither is wrong, I prefer the former.

Feel free to reach out for a discussion on companies in the listed sectors.

Happy holidays!

US ideas – low volatility names (Nov 29, 2020)

investingclass

Most of the ideas here are not actionable right away. And it is expected as the markets ran up a lot in November and it needs a lot of guts to jump on the train right now. Hence, I am now looking for stocks that are already taking a breather before potentially starting another leg up (if at all).

WDFC – gapped up post earnings on Oct 21. Putting this on my watchlist as it consolidates over next couple of weeks.

SAIA – wedging up price action post a small pull back (7-8%ish from Nov peak). Placing this on watchlist too as I want to see another small contraction develop before it breaks out of Nov high. From fundamental perspective, the whole transportation sector did well, so it’s probably the sector tailwind.

CULP – this is developing into a good pullback buy setup as it broke out of a nice vol contraction pattern. Fundamentally, it doesn’t look good yet, easily inferred from the downtrend that began in Aug 2018. But the market is always trying to smell out future outcomes. In that case, I’ll put this stock on my watchlist as well.
Things I don’t like about this setup:
– Low volume breakout from the pivot

IAA: This looks interesting as a swing trade idea, finding support around 20DMA and currently hovering around it.

BLL: Tightening up on right side, will observe it for another 1-3 weeks.

DORM: finds support at 50DMA and did that on Friday as well. I don’t expect it to be a quick mover on upside but looks decent risk wise for a small move up.

Charts sourced from stockcharts.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

HK – sector rotation (Nov 12, 2020)

investingclass

In this post, I am going to explore few themes that became dominant over the last 3 months in HK equity market.

Technology related sectors (Software, Semis, Internet marketing etc.) dominated the returns in almost all markets globally for a good part of last decade, and had monstrous returns post the Feb-Mar sell off. However, a lot of Tech companies are either consolidating their earlier gains right now or downright breaking down from an uptrend. It is of utmost importance to recognize the shift in investor sentiment.

I won’t talk about banks, airlines and hotels coming back to life as everyone sees these sectors as the direct beneficiaries of re-opening and vaccine related optimism.

Below is a list of select sectors and companies that have been exerting their dominance over the last 3 months. I invite active traders to take a look at graphs of these companies. Try to identify the points where one could’ve/should’ve noticed the changes in market sentiment. For fundamental analysts, this could be a useful exercise to recognize the catalysts which were not accounted for.

That said, this post in no way implies the demise of tech sector. It will probably come back and sooner than most people would expect it to. Aim of this analysis is to maximize the returns one can make at any given time.

Would you rather sit on an investment with say negative to +2% monthly return (given ongoing consolidation in your favorite companies) or find a way to make that capital work for a relatively higher return?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

China – Beverages (Nov 6, 2020)

investingclass

I highlighted this theme on LinkedIn about 2 months back. It has played out quite well since then and it looks like the party isn’t over yet.

Here are few rocketships:

LUZHOU LAOJIAO (000568.SZ): Paused for a month or so in Sep to mid-Oct and then blasted away. Few observations looking at financials:
– Positive trending revenues and EPS
– Positive free cash flow
– ROIC = 23.57%

Shanxi Fen Wine (600809.SH): Price action on this stock says it all. Stocks like these can make an year’s worth of returns in few months. Fundamentally, it looks even better:
– Increasing revenues and EPS yoy
– Positive cash flow
– ROIC = 32%!

Jiugui Liquor (000799.SZ): Significantly small compared to the previous two companies in terms of revenues and cash flow. ROIC not that great either.

Stock price explosion, however, tells there is something going on here. One on my watchlist for sure!

Charts sourced from aastocks.com; Fundamentals from morningstar.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

Japan – state of the market (Oct 18, 2020) – Part 2

investingclass

This is a continuation of last week’s post on sectors showing relative strength. You can check out the first batch of sectors here. Below, I have listed out some interesting names in the remaining sectors (Homebuilding, Recruitment, Entertainment & Mortgages).

Homebuilding:

Sumitomo Forestry (1911.T): consolidating in a tight range post mid-Aug gap up.

Sanei Architecture (3228.T): Power gap up on Friday backed by ~7x volume! I feel buying now would be chasing the move. Better to wait for consolidation for couple of days/weeks.

Human Resources: These are very high beta stocks, so need to exercise a lot of caution. UT Group is ~4x and Outsourcing ~3x from March lows.

UT Group (2146.T): consolidating upwards since Mid-September, think this offers a relatively low risk position if it breaches 3865 on upside.

Outsourcing (2427.T): Good to see some consolidation action last week. Ideally want to get 1-3 more days of tight price action near 1015-1030 which can potentially set it up for another leg up.

Movies and Entertainment:

J-Stream (4308.T): this one is a rocket-ship. Fundamentally, I don’t see how this company can run up so much with not so spectacular growth numbers (see below). Nonetheless, this should be on the list for nimble players out there.

Avex Group (7860.T): Quite a beaten down stock, recently came out of a downtrend around mid-September. Not sure if the recent rally is due to short squeeze or fundamental reasons. Technically, the setup is developing and looks very interesting.

Thrifts and Mortgage Finance:

Aruhi Corp (7198.T): This mortgage financier is on a roll, specially given how financial sector has been beaten down globally.

Charts sourced from investing.com and financials from morningstar.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

Japan – state of the market (Oct 14, 2020) – Part 1

investingclass

I have been studying the Japanese equities market over the last few months and have identified sectors that are exhibiting a positive trend. These sectors warrant a closer look as we could find potential outperformers/multi-baggers.

The broad sectors that I see gaining a lot of investor attention over the course of the last 3 months are:
– Agricultural & Farm Machinery
– Air Freight & Logistics
– Automotive Retail
– Footwear
– Healthcare Services
– Homebuilding
– HR
– Internet + Direct Marketing
– Movies and Entertainment
– Multi-line insurance
– Specialty stores
– Thrifts & Mortgage Finance

Looking at these sectors, one can notice that some of these have been strong since Covid hit in early 2020. But quite noticeable are the sectors which indicate re-opening and economic growth. I will explore some of these below and put together a list of good looking stocks in each sector.

I invite you to do the fundamental analysis and help me choose companies with the best prospects:

Agricultural & Farm machinery:

Kubota Corp (6326.T): consolidating since a big run up just before end-Aug.

Yamabiko (6250.T): Notice that this particular company went on racing upwards even though September was a tough month for most equities.

Air Freight and Logistics: It is a global phenomenon that this sector is getting bid up. Logistics is definitely getting a lot of attention (similar to FedEx in US):

SG Holdings (9143.T): looks a bit stretched right now, keeping an eye on this one when levels become interesting.

Maruwa Unyu Kikan (9090.T): I like the technicals on this one, big volume up days vs low volume down days.

Automotive Retail:

Nextage (3186.T): Something seemingly awesome is happening here, big volume buying, making multi year highs. 3x since April 2020! Is that a bit too much for a business that “provides a range of services in the used car business, including sales of car supplies, insurance contracts, vehicle safety inspection, vehicle repairs after accident, and vehicle purchasing”?

Fuji Corp Miyagi (7605.T): pulling back a bit but still looks bullish. A lot of institutions won’t touch this one given it trades only $400k-$500k a day.

Healthcare Services

Elan Corp (6099.T): Very strong price action, long term uptrend. Business: provides services for rental with laundry service of clothes, towels, etc. combined with supply of daily necessities to persons admitted to hospitals and elderly facilities.

Charm Care (6062.T): another company that helps nursing care business. Although technically I feel it requires some consolidation for a better entry.

Alright, that’s 8 companies across 4 different sectors. Will cover the rest in Part 2!

Hope it’s helpful.

Charts sourced from investing.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

India – weekly insights (Oct 2, 2020)

investingclass

What a week this was! Just when it felt that the market will collapse, Nifty posted +3.32% WoW performance, led primarily by Banks (+6.02%).

Sector performance:
#Auto +3.87%
#IT +2.45%
#Pharma +1.96%
#Media +6.02%
#Banks +6.02%
#Metals +4.08%

On an index level, while the performance on the surface looks great, the buying has been on declining volume, very typical of a bear market bounce. Nifty is still around the 50DMA. Before the news about POTUS catching Covid, it would have been reasonable to assume that Nifty would dance around the 11300-11400 for a couple of days before potentially rolling over. Might not take that long now specially given how US indices reacted last night..

Nifty Index

Another factor that is weighing heavy on the outlook for India (and Emerging Markets in general): Dollar. It seems to have reversed from the downtrend that began around Jun-end and is making higher lows. Certainly something to keep an eye on.

DXY chart
USD/INR chart

Coming to specific names, IF the market doesn’t fall apart, the following names can have a place in one’s long portfolio as they have been acting well in price action compared to peers:

TVS Motor Company: It has been one of the best auto stocks, consolidating since Aug-end and closed above Aug high.

Hero MotoCorp: Another 2-wheeler company which started its consolidation back in end of August. Challenging highs but general market weakness keep it in check.

Godrej Consumer Products: Coming out of a 2 month base on good volume

Dabur India: Another FMCG name coming out of a one month base. It is choppier than I like, but depends on one’s risk appetite (long term trend is up).

Tech Mahindra: Strong price action last week, came up like a rubber band from 20D VWAP line.

Mindtree: one of the best IT names, consistently being accumulated by investors:

On the #Pharma theme, one could throw a dart at any company and have made a killing in last few months due to the covid related tailwind. Following 2 names look interesting to me given the growing revenues and earnings:

Laurus Labs: consolidating right now after more than tripling since March

Granules: Been consolidating in 370-400 area, with earnings season approaching, this should be on your radar because if it works, it can pay very well.

Now comes the fun part.. What to short and when??

HDFC Life Insurance: Short on bounce to 580-585 area with a Stop loss @ 592. Target 540.

ICICI Prudential Life Insurance: Short on bounce to 426-430 with a Stop @ 450. Target 380.

ICICI Bank: Short @ 369 with stop @ 380. Target 324. Last week’s rally in banks and financial services companies is providing some good opportunities for hedging the portfolio.

Do note that shorting is specially risky as the beaten down stocks tend to bounce very violently. So have to manage the risk with stops appropriately.

All the best!

Charts sourced from investing.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital. Stop loss levels mentioned are indicative for the risk I would be willing to commit on these trades with my trading style. Everyone’s different, commit what you can stomach losing.

$TLT Butterfly (Oct 1, 2020)

investingclass

Long end US Treasury yields have been in a downtrend for a LONG time.

Chart showing 30yr yields since 2006

Investors made a lot of money buying these bonds and gaining on capital as the yields headed lower (inverse relation between bond price and yields).

With 30yr @ 1.46% now (was as high as 3% in Jan 2019), how can one play this instrument? Given that Fed is trying to avoid negative rates, how low can 30yr go from here?

For the past 1 month, 30yr has been in the range of 1.322%-1.524%, so clearly it is closer to top end of the trading range in a long term downtrend (current yield 1.462%).

To be long Treasuries and yet not block a lot of capital in the trade, I have put on a Call Butterfly on $TLT 160/170/180 for Nov monthly expiry.

Assuming the 30yrs stick to the previous month’s range, price range of TLT should be roughly between 161.34-167.58 (-1.2% to +2.65%), current price of 163.26.

With elections around the corner, it is possible that there will be a flight to safety, even if it is momentary. This provides an opportunity for making 10%-20% in couple of weeks time.

Risk: Sudden spike in yields and/or change in market growth/inflation expectations.

You can check out this link to get a primer on Butterfly spreads.

Disclosure: I have a position on this trade.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.