Stocks to invest in 2016

December 27, 2015   ·   1 Comments

stocks to invest

I have been doing research on past few days looking for new investment ideas mainly to chunk out the stocks whose growth has been muted in my portfolio for last 2-3 years and doesn’t looks like to get better in next couple of years. Stocks to invest in 2016 is picked on strong fundamentals, financials, good track of management, growing business prospects, cheap valuations. Stocks to invest is primarily focused on Indian stock market and provide good insights on stocks which can be picked in portfolio for investment

Selection criteria of the stocks to invest is:

  • Companies whose Sales and Net Profit has grown more than 25% compounded annually from last 5 years.
  • Average Return on Capital Employed which is measure of company’s profitability and the efficiency with which its capitalis employed is more than 20 for last 5 years
  • Average Return on Investment which is measure of amount of return on an investment relative to the investment’s cost i.e. tells common shareholders how effectively their money is being employed, is more than 20 for last 5 years
  • Current Ratio which measures the company’s current assets against its current liabilities. Ideally the current ratio should be greater than 1.5. Avoid investing in companies whose current ratio is less than 1. There are exceptions to this rule, some good companies can have less than 1 or even a negative current ratio when they receive money faster from their customers than they have to pay to their vendors. For Analysis companies having current ratio of 1.5 is considered.
  • An interest coverage ratio less than 1.5 is a red flag. The higher the ratio the less a company is burdened by debt. If a company has no debt or the loan interest is being paid by interest income from investments or other activities the ratio is zero which of course is excellent. A negative ratio tells us that the company cannot even pay its interest on loans from its operating income, stay far away from such companies. For Analysis companies having interest coverage ratio of 1.5 is considered.
  • Debt-to-Equity ratio varies across industries but many companies have a ratio larger than 1, that is they have more debt than equity. If the ratio is very high, raising more cash through borrowing could be difficult. Capital intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while IT companies have a debt/equity of under 0.5. For our analysis, we have taken it to be less than 7/3
  • Promoters having no stocks as pledged.
  • P/E less than 15 at current price. P/E ratio looks at the relationship between the stock price and the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings.

 

Key Metrics EROS Media Avanti Feeds Lycos Internet
Current Price 254 452 31
Market Cap 2,375.03 2,055.48 1507
Book Value 173.98 77.03 36.24
Sales 1917 1885 2104
Profit 304 146 372
EPS 32.61 32.26 7.8
P/E 7.8 14.34 4.05
Profit growth 5Years 24.60% 36.10% 59.96%
Profit growth 3Years: 20.45% 59.24% 21.29%
Debt to equity 0.33 0.22 0.06
Current ratio 0.69 1.83 2.95
Interest Coverage Ratio 12.55 167.68 36.22
Promoter Pledged % 0 0 0
Target P/E 20-22 22-25 22-25
Target 700 750-800 195

EROS Media: is in the business of producing Hindi/Regional films and TV serials mainly. Company has seen unprecedented growth with multiplex culture getting set as a trend even in now T-2/T-3 cities in India and is pioneer in the segment.

More on EROS: Eros International Reinforces Positive Business Fundamentals

Avanti Feeds: is in the business of supplying food supply to the sea farmers. Company has seen remarkable growth in last few years and is a the biggest in India in this business. Company doesn’t have much competition in the segment as compared to Demand which would keep the pace of growth maintained for next 3-5 years.

More on Avant Feeds: How Avanti Feeds has leveraged growth in shrimp demand

Lycos Internet: is the business of online and app based Advertisement being a technology company, it is the biggest in terms of tech ad business. Tata Elxsi is the next competitor but the growth with which company has grown is remarkable.

I have taken Target P/E looking at how stock fares to its peers and how much valuation it demands by looking on the sales and profit the company as compared to peers.

Disclaimer: I would be investing in all 3 stocks on Monday and would keep them in the portfolio. I would be completing coming out of Zee Media(Profit of more than 60%), IL&FS Transport(Loss of 65%, holded from IPO), MOIL(Loss of 40% ), SREI Infra(Loss of 25%, converted when came to know Rakesh Jhunjhunwala invested in stock).

Interesting Reads: Indigo – Should you invest, sell or hold?

If you have some interesting ideas on which stocks to invest in 2016, feel free to add it in comments.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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  • Ankush Jain

    Rajesh stay away from Lycos nd Eros. Eros is very fragile, any negative news in US will bottom it out. It showed some recovery in recent times but its case in US US still pending. Based on my research I think we should invest in infra and auto ancilarries

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