Friday, May 10, 2013

Defensive Stocks Accumulation Zones

Some defensive stocks to buy with a longer term horizon [2 to 3 years]

BBTC - Bombay Burmah Tea Corporation
Wadia controled vertically integrated tea company. Buy Zone in the 90-115 zone for targets 150+

HUL - Hindustan Unilever Limited
We all know the firm; best buy in the region 280-320 zone for targets 480-560
Dividend Yield is about 5% on CMP and can be about 9%. Stock is currently in overheated territory and 280-380 zone can be expected in 2nd half of 2013

A good defensive bet when the price is in 180-220 band.

Navneet Publications
Good stock with steadily growing business. Accumulation band below 50 for target 80

These counters may seem far off from their current prices but when the prices collapse, the falls will be severe [We had to wait for almost 1 year for gold to come down to USD 1450 / Ounce and when the collapse did take place, it just took 3 trading sessions and even 1450 support level disappeared for a few hours and that is the strength of bears when they inflict damage]

Stocks to avoid:

IT/ITeS/Education stocks like Educomp, MTEducare, Aptech, NIIT etc; these stocks do not create wealth in the long run for ordinary retail shareholders except for promoters and institutional divisions. The valuations tend to be over-heated like Enron where-in the next 30 years of profit is built into initial and follow-on offerings. Remember, if the business is so profitable, new entrants will come in and marginal revenues and profits have to be lowered. NIIT was offering Oracle, Java courses etc at more than 30k rupees per student only to collapse to sub-10k levels now.

Anything pertaining to high margin business especially in IT / ITeS space will eventually collapse and retail traders should avoid such counters.