High-priced stocks can spell profits too
by B G Shirsat / Business Standard
Quite a few scrips can give returns of over 100-500% if you invest in them even at their 52-week high levels.
Is it profitable to invest in stocks that have been trading at around 52-week highs? A BSRB study shows that in a bull market, growth-oriented stocks can give returns of over 100-500 per cent if you invest in them even at their 52-week high levels. The only cautionary note is: select only those stocks that have been posting sustained growth in profits.
Most of the big gainers are from sectors such as engineering, capital goods, infrastructure, housing construction, financial services, transport and logistics, cement, sugar, hotel, tea and textile mills with free land. The list also includes companies that have doubled their net profit during the trailing 12 months ended December 2005.
Arihant Foundation, a Rs 30 crore housing construction company, tops the list with price appreciation of 700 per cent over its 52-week level of Rs 36.90 reached on July 4, 2005. From Rs 36.90, the stock went up further to hit an all-time high of Rs 373.95 on September 9. The stock is currently trading at Rs 295.25 with trailing 12 months P/E of 16.63 times.
Ashco Industries ranked second in the list with returns of 618 per cent. The other big gainers in the list are Unitech 504 per cent, Elecon Engineering 466 per cent, Paramount Communication 457 per cent, Riddhi-Siddhi Gluco 454 per cent and Diamond Cable 428 per cent.
A-group companies in the list are Bharat Earth Movers, which gained 335 per cent from a high of Rs 399 on January 1, 2005 to Rs 1,735.20 on March 13, 2006. Siemens gained 220 per cent from its 52-week high of Rs 1,880 on April 18 to the current Rs 5684.80. Titan Industries was up 205 per cent, Reliance Capital was up 163 per cent and Bajaj Auto was up 135 per cent during the same period.
The study, based on 935 stocks traded under A, B1 and S groups, shows that current market prices of 154 stocks are 100-700 per cent higher than their previous 52-week highs.
Of the 935 stocks traded under these groups, as many as 150 have fetched returns between 50 and 99.9 per cent, while 147 others have appreciated between 25 per cent and 49.9 per cent over their previous highs posted during the 52-week. There are 243 losers in these categories with an average negative return of 21.8 per cent over previous 52-week highs.
The 154 stocks that have posted average returns of 147 per cent (100-700 per cent each) over their previous 52-week highs have recorded net profit growth of 69.2 per cent during the trailing twelve months ended December 2005. The profits growth rate for these stocks are considered to be high compared with 21.56 per cent earnings growth rates for India Inc.
These 154 companies however are currently expensive with price-to-earnings ratio (P/E) of 32.50 times compared with a year-ago P/E of 19.84 times. Of the 154 companies, only 12 are trading at P/E of below 10 and another 48 are trading at P/E of 10-20 times. As many as 94 stocks in these categories are currently trading at P/E of over 20 times.
However, as many as 40 of the 154 companies have discounted their trailing twelvemonth earnings growth rates by 1-2 times.
As many as 37 companies are trading at priceto-growth rate of 2-5 per cent, while 34 stocks are trading at price-to-earnings growth rate of over 10 times.
Click here for a detailed table. (File: Pdf, Size: 127kb)
True, there is a valide strategy wherein if the equity indice has been growing for more than 4 weeks in a row, then perhaps investing in stocks which are at their 52-wk high is the best startegy to make monies.
Warm Regards
Shankar
Posted by
Shankar Nath |
1:58 PM