Investing in Recession: Kraft Foods

I don't know how many of you are really tracking the stock markets these days. However, I do know that the stock prices today are quite unrealistic and are a goldmine for the astute, long term investor. You would be surprised to know that the stock price of Kraft Foods, which is listed on the New York Stock Exchange [NYSE] has traded lower this year than the price that the legendary investor, Warren Buffett paid for it last year.

If you look at what Kraft makes, then it beats your common sense how this company could suffer so much in a recession. So, one lesson to remember, while investing in recession, is to keep in mind that stock prices are sometimes beaten down much more than their intrinsic worth.

News Flash: Satyam Computer Services

I read this on www.sharekhan.com but they have got the news feed from Reuters. The flash is that Satyam Computer Services or Sify Technologies on the NYSE has been banned from business with the World Bank.

http://sharekhan.com/News/DetailedStory.aspx?NewsID=2789330c-3e08-4b9e-8846-d6cbba4e9b41

The piece states that this had nothing to do with the current fiasco at Satyam but it only goes on to show what a problematic company it could be. I have seen people asking at various mailing lists on stocks whether it would be a good time to buy Satyam as all the negatives have been built into the current price. I would not advice anyone to buy Satyam.

What is the Opportune Time To Buy Stocks?

Every time, there is an economic depression, specifically something like the present global slump, which is the second biggest in the century, people are going to lose all sense of reality and confidence and claim that depressed markets are not the right time to enter them. I would beg to differ. I understand that recessionary markets require a lot of guts and very deep pockets but at the same time, I would also like to state that when stocks are at multi-year lows, it is the time to enter right away. I know there is risk but with intelligent planning, the risks are reduced and the rewards really multiply.

US Auto Flip Flop

It is really sad that there is this political transition from the Republican Bush administration to the Democrat Obama Administration. In-between are caught the Big Three, the three big automakers in the US, Ford, Chrysler and GM. According to a report, if these three automakers fail, it could lead to close to 600,000 jobs being lost in Canada. There has been a bailout but it has been temporary. Right now, there is a major economic crisis which has been brewing and at this juncture, we have heard political noises from the US politicians that the Big Three have been responsible for making huge, gasoline guzzling vehicles. It is possible that this may have been the case and it is also possible that these three companies made vehicles which did not adhere to fuel efficiency norms. However, this is not the opportune moment to bring up such issues. The need of the moment, and I would reiterate, the pressing and urgent need of the moment is to ensure that these three big and iconic companies don't fail. If there are half-hearted measures or if these three companies fail, it is likely to have more serious impact on the US economy and by extension on the global economy.

How India Managed to Avoid the Financial Crisis

I am really impressed by the way western people can be so honest and candid, even in public settings. This is a great article that Joe Nocera wrote for the New York Times, where he compares the American banking system and the Indian banking system and how the Indian system was able to escape the malaise that has struck the American system. He is also all praise for Mr. Reddy, the former Chairman of the Reserve Bank of India.

Here is the link: http://www.nytimes.com/2008/12/20/business/20nocera.html?_r=1&8dpc

and the article is a must-read.

Off the Wires: ICICI names Chanda Kochhar CEO from May '09

ICICI Bank, whose stock took a severe beating this year and whose fall was accentuated after the Lehmann crash, has named Chanda Kochhar as the new CEO to succeed K. V. Kamath from May 2009. Kochhar played an important role in creating positive PR for the bank after the stock took severe beating due to market rumors and bad PR generated by the Lehmann exposure. This news was just off the wires, about five minutes ago.

Note: ICICI Bank is India's second largest listed bank.

Pound Sterling nears parity with euro

The Pound sterling is falling against the euro and is nearing parity.

Sterling nears parity with euro

By George Parker, Jane Croft and Peter Garnham

Published: December 18 2008 21:24 | Last updated: December 18 2008 21:24

The pound dropped to within 5p of parity with the euro on Thursday as it fell to a fresh record low against the single currency for the ninth successive day.

Sterling sank to 95.5p against the euro for the first time amid rising speculation that the Bank of England will follow the US Federal Reserve and cut rates to virtually zero.

The speed of sterling’s fall has been gathering momentum.

[Read further at the Financial Times, http://www.ft.com/cms/s/0/ddbc5f48-cd48-11dd-9905-000077b07658.html]

HDIL: The Ping Pong Ball or the Yo-Yo

When the markets were falling about three weeks ago and when Parsvnath was around Rs. 37 a share, I also observed HDIL, Housing Development and Infrastructure Limited, which is a real estate player in the Indian markets. It is a mid cap company with around Rs. 10,000 crore [$2 billion] as the market cap. I had a cash crunch, so, I was unable to buy HDIL stock but I tracked it carefully. So, about 3-4 weeks ago, it was at Rs. 75-80 a share. Yesterday, HDIL was going for Rs. 140 a share, which is an increase of Rs. 60 or 75% within a month. I thought that was phenomenal. So, in essence, this means that when the Bombay Stock Exchange index, BSE went up from 8000 to 10,000 levels, which is a 25% rise, the HDIL stock went up by 75%, indicating a minimum beta of 3. This is certainly very volatile but also quite fruitful for short term players. You can track HDIL online at various stock websites. You could try Sharekhan, www.sharekhan.com and enter HDIL to get the quotes.

Catchy Headlines

I guess you must have noticed my training in languages and creative writing in the headings which I give to my posts. However, looking at pun headlines, you might have seen a great headline in The Economic Times when the Satyam promoters backtracked:

Raju Ban Gaya Gentleman

[Raju (the Satyam promoter) became a gentleman] --This was the title of a famous Hindi movie.

The Satyam Story

Long before the IT space caught the imagination of the world and Indian IT companies made real hay on the street, I can recollect Satyam Computers in its original avatar. It used to be a stock that languished on the bourses and the grapevine was that you bought shares of Infosys or Wipro but not Satyam because the promoters were suspect. However, to give full credit to the Satyam promoters, this was never proved those days. History is a strange thing. It has a habit of turning full circles. Finally, the events of the last two days have proved what I 'knew' to be always right. the sleight of hand that the Satyam promoters tried to pull off by purporting to into Maytas Properties and Maytas Infrastructures was both brazen as well as shameless. It is also sad because Satyam chose not to do so when they were virtually unknown but when they are known as India's fourth largest IT services company, when they have ADRs on the NYSE, when they have built up a brand that is well-known. It merely shows brazenness and an attitude on behalf of the Satyam promoters that they have risen well above minotiry shareholders' interests. It also shows what greed can do to people. However, it also shows between a 'third world mindset' and a 'first world mindset'. I am really sorry for such stereotyping and being an Indian, I know that this stereotyping might come back to haunt me or hurt me in the future.

There have been a number of Indian companies with very shady accounting practices but when they branched out into the international shores, they made sure that they followed international norms and they made sure that they were beacons of progress. There are a number of Indian companies which have always had very transparent managements and they follow international best practices. You could count Infosys as one of them. The Tata Group is not far behind.

Maytas is Satyam spelled backwards and one of the two Maytas companies is listed while the other is privately held. Both are promoted by sons of the Satyam promoter. The Satyam promoters said that they were investing in these companies as they were sound investments and as they desired to derisk the IT model. This is pure hogwash. If at all, the Satyam management wanted to invest in the infrastructure space, there were a number of established and stellar (as also more profitable) companies both in the infrastructure as well as real estate space which are going abegging and which would have been great investments.

The promoters did not back down immediately in the face of protests from certain majority shareholders. They backed down when they saw that their ADRs on the New York Stock Exchange crashed over 50% and that their wealth had eroded internationally. I am happy they backed off but I wouldn't recommend Satyam stock till there is a change of management or till there is a sufficient period of time, which proves that the present management, if it is not changed, has been able to demonstrate better standards.

Major Indian Financial Newspaper Recommends Tata Steel

News Flash:

A day after I recommended Tata Steel as a great buy at current market price, we had The Economic Times also recommending the stock as a buy:

http://economictimes.indiatimes.com/Features/Investors_Guide/Tata_Steel_and_SAIL_Nerves_of_steel/articleshow/3838089.cms

Disclaimer: I would like to tell you that I do not know the author of the said article.

Buying Stocks for Dividends: Tata Steel

I guess you folks are going to scream at me for being so old-fashioned.

Tata Steel [BSE: 500470 NSE: TATASTEEL]

Tata Steel has been one of my favorite stocks. In January 2007, when the Corus deal was announced the stock promptly fell to it's three year low at Rs. 407 a share. Right now, after rising a bit in the last few sessions, the current market price is Rs. 218 a share. Last year's tax free dividend [tax free for Indians] was handsome and should generate around 7% return on the current market price. With bank interests hovering in the region of 10% with a top 30% tax rate, they too come to around 7%. Tata Steel's year high is around Rs. 950 and if it reaches Rs. 407, which was it's three year low in January 2007, it can still generate a return of Rs. 190 or 90% from it's current price. So, a 90% return in the next two years is handsome and if the company can maintain some of it's dividends, we can still witness around 100% return in the next two years.

One should not forget that Tata Steel is the world's fifth biggest steel producer and it is the world's cheapest steel producer as well.

Gujarat NRE Coke: Details

The details for Gujarat NRE Coke on the Indian stock markets are as follows:

BSE: 512579

NSE: GUJNRECOKE

You can see the BSE and the NSE Code and you can use it to track the company.

The Strange Case of Gujarat NRE Coke

I have had a long investment truck with this company. In 2007, I have bought the shares of Gujarat NRE Coke for as low as Rs. 30 a share and then sold it for Rs. 58, then I have bought them for Rs. 61 and sold them for Rs. 63, and three months of my selling the stock at Rs. 63, I have seen it zoom to Rs. 180!

Anyway, about two months ago, when the markets were falling (they are falling still!), I bought 250 shares at Rs. 38 a share (total investment: Rs. 9500) and last month, I got a bonus issue to the tune of 2 shares for every 5 shares held (2:5), which increased my holding to 350 shares. The present price is Rs. 24 at which my investment of 350 shares would be worth Rs. 8400. So, even though my investment is down about Rs. 1100, I haven't made a real loss because in bullish market conditions, if I can sell the stock at Rs. 60 a share even after a year, I could still take a nice profit. At Rs. 60 a share, my investment would be worth Rs. 21000, which is over 110% profit in a year. Ideally speaking, even if I can get a 110% in two years time, I'm still doing pretty well.

The bull run in the Indian markets of the last three years had made people forget the reality of life. Old timers in the stock markets have always believed that one should buy a company's stock with the express objective of doubling it within the next five years and this gain includes benefits gained from tax-free dividends as well. Doubling it within five years would still generate 20% return over a year, which is pretty good historically.

I hope you folks liked my assessment and experience of Gujarat NRE Coke. By the way, I forgot to tell you that it is also one of the biggest coke producers in the world. I know that one important reason for the price decline is the global slump and the second reason is the fact that the Chinese demand is slowing down, which would impact mining companies as well. However, I have observed Gujarat NRE Coke grow in the last 2-3 years and I am sure the company would continue to do better with the passage of time.

Reserve Bank of India cuts key rates

Today, the Reserve Bank of India (RBI) announced two important rate cuts. It has cut the repo and the reverse repo rates by 100 basis points each. So, the repo has been cut to 6.5% and the reverse repo has been cut to 5%. The RBI Governor has said that these rate cuts would allow the banks to cut rates and inject more money into the system. However, the last time, when these rate cuts were announced, the credit situation in India was so tight that it didn't make any major ripples. But I do feel that these are positive signals and makes it clear that the government is trying it's best to protect the economy from going into a tailspin due to depressing conditions, which have prevailed globally. I expect the markets to stage a smart recovery on Monday and this is what the government expects by making a rate cut on a Saturday.