Personal Finance: Forget Big Game, Try Cats & Dogs

PERSONAL FINANCE: STOCKS
Forget Big Game, Try Cats & Dogs

Cats and dogs. That's market-speak for bottom-trawling scrips: they've hit 52-week lows and are headed northwards. It's not big game, but it's for you.

By Roshni Jayakar

Intrepid (nevertheless, circumspect) investor, it's time to go hunting. Not for big game, but for cats and dogs. That's right; you heard it correct the first time. Cats and dogs. That's stockmarket speak for scrips that are bottom-trawlers: they've touched their 52-week low. Like Indian Shaving Products Ltd (ISPL), a 51 per cent subsidiary of Gillette, and a stockmarket favourite till early 2000. On January 7, 2000, the scrip was quoting at a high of Rs 2467; on July 21, 2000, it fell to a 52-week low of Rs 811.

Why did ISPL's price plummet by almost 67 per cent? Some analysts posit that the damper has been the merger of Duracell India, another of Gillette's subsidiaries, with ISPL, and the talk about the company acquiring the Khaitan's Eveready business. Explains Nirjhar Handa, 26, Analyst, Parag Parekh Financial Advisory Services: ''The possibility of ISPL acquiring Eveready and, therefore, the company no longer remaining a focused shaving products company, has led to investor disenchantment.'' But for investors looking for the next great buy, ispl could well be it. True, the cost of acquiring Eveready may weigh on ISPL's top-line in the short-term, but in the long-term, the company's prospects do look good. The stock may not gain seven-fold immediately; but history has shown that stocks bounce back by at least 20-30 per cent after touching their 52-week low.

It isn't just ISPL. There are other value-for-money buys among the 250 scrips that fell to their 52-week low on July 24, 2000, the day the BSE Sensex dipped by 275 points to 4188.34. It isn't easy to pick them. And there's always the risk that cats and dogs will remain, well, cats and dogs. Says Deepak Mohoni, 44, CEO, Trendwatch: ''The possibility that stocks ignored by the market today will continue to be ignored by it tomorrow is high.'' Still, that's what makes stock picking fun-and sometimes, profitable.

Indeed, some of these scrips have been hit by the market's disenchantment with companies that have nothing to do with the New Economy. Agrees Jigar A. Shah, 29, Analyst, K.R. Choksey Shares and Securities: ''The falling price of some of these stocks has no relevance to the fundamentals of these companies. In the race for Information, Communication, and Entertainment (ice) stocks, the perception of stocks belonging to other sectors has changed, resulting in some of them being dumped.'' That apart, several mega-buck portfolios ignore these scrips, since they are not in favour. In the long run, though, it is difficult to keep ignoring companies with good fundamentals. The upshot for those who pick the right stocks? There's going to be little competition for these stocks. And the first tip is right there: look at the fundamentals.

Picking the Good 'uns

Searching for companies that could offer good investment opportunities, BT looked at the scrips that had reached their 52-week lows. The best way to start is to have a dekko at historic stock price movements. The websites of the BSE (www.bseindia.com) and the NSE (www.nse-india.com) have this data. And based on this, try and answer a few questions. Has there been a steady depreciation in the stock? Or have the prices been volatile over the whole of 1999 due to illiquidity in the stock? Has the stock price taken a beating in the last few months after a steady appreciation? Remember to avoid the obvious bad ones. Exhorts Gul Teckchandani, 43, Chief Investment Officer, Sun F&C Asset Management (I): ''Low price is a good lead, but hunt for growth stories among them.''

Take CRISIL. On July 24, 2000, the stock was quoting at Rs 246 against a high of Rs 849 on December 22, 1999. The company's first-quarter results for 2000-01, which show a top-line growth of 19 per cent, are better than those for the last quarter of 1999-2000. And a footnote to the first-quarter results states that CRISIL is likely to start earning income from its treasury operations again by 2000-end. Add to these the fact that Standard & Poor's, which picked up a 9 per cent stake in the company four years ago for Rs 290, is keen to acquire more. As Shah of Choksey infers: ''It's clearly a growth stock for the future.''

The second thing to look for is future earnings potential. Consider Archies Greetings. The stock has fallen over 200 per cent from its August, 1999, high of Rs 819. This, despite the fact that the company recorded a steady growth in earnings for the year-ended March, 2000, and got an on-line subsidiary, Archies online.com, off the ground. The fact that its sales are a mere Rs 71.21 crore could make the company's stock unattractive in the eyes of the big boys-they cannot buy enough stock to make a real difference to their performance-but that shouldn't worry individual investors. Face it: greetings-on-line and off-line-are going to be around.

Then, (surprise, surprise) there are 25 ice stocks (sampling: Mascot Systems, Kale Consultants, Compucom Software, Cybermate Infotech, and mm Softek) on the list that cannot be ignored. After all, at least some of them that are quality businesses are definitely undervalued at their present prices. Thus, while scanning the market and compiling a shopping list-with an obvious bias towards software stocks-it might be a good idea to choose those which have hit their 52-week lows, after assuring yourself on their fundamentals.

The downside? You could be stuck with cheap stocks that may never regain their 52-week highs in the next five years. But if you pick stocks extra-carefully, you will have little to fear even in a rocky market. There could well be a rare pedigree or two in the pound.

Issue Contents Write to us Subscriptions Syndication