Friday, August 14, 2015

Some Longer Term Buying Opportunities - Bargain Buys

The strengthening of the dollar has been playing truant as far as commodities are concerned. Hence, on Indian bourses also, we are seeing some blue chip names getting battered and for all one knows, these are perhaps buying opportunities with a 2-3 year time horizon

First things first, let us evaluate Dollar Index
The Dollar Index has surged from 75 odd levels in 2011 to 99 levels and even in case of extreme panic, it may spike to 101 levels. Almost 5 years now and a correction in Dollar index is on the cards. What news and events will take it there, I do not know. However, technical correction of 50% retracement will gradually take it back towards the 85 levels. Of course that will not happen immediately but over a period of 2 years

Even at constant commodity prices at current low levels, this dollar weakening will automatically propel commodity linked prices by 25% to 30%. As we are aware, commodity prices will also not stay stagnant. They will rise along with the weakening dollar giving an upside potential of 50% to 60% of blue-chip commodity price linked stocks

Tata Steel
Last time, Tata Steel had its fall arrested in the 200 zone. This time, even 200 may not hold and there is every chance that the stock may test 150 levels. That is fine. It is a Nifty bell-weather stock and will continue to be so. It will eventually surge to 350-400 levels

Let us ignore the Novelis loss for now. Fact of the matter is that Hindalco is the global leader as far as cans for food and beverages segment is concerned. It has been doing extremely good backward integration to reduce power costs [the biggest cost as far as aluminium manufacturing is concerned]
Short-term, the stock may go to 75 levels also and that is fine. With recovery in aluminium prices, and weakening of dollar, the stock will find its way back to 150+ levels

The stock has its price linked to crude oil prices. In between, there was a risk of losing out cash with merger with Vedanta. Now that majority share-holders have rejected that move, it is still a crude oil price play. To the extent Cairn steers clear of merger with Vedanta, the max downside that this counter can have is in the 100-120 zone. However, when crude prices will eventually surge towards 65 dollars per barrel, this counter will come to 275+ levels IMHO

The regular index will follow its own course. However, there are instances when there are good opportunities to pick at bargain prices and hold in the portfolio. These counters IMHO are right now presenting opportunities to be picked. They may not end up multi-baggers like the FMCG, IT or Pharma but still have potential to generate 30% CAGR returns over the next 3 years

Disclosure: I have personal holdings directly / indirectly through family members in these counters. I have also recommended these counters to people in my professional network

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