Stock (Share) Investment - Basic Guidelines

Just a few of the recommendations suggested by Narendra Mehendale:

  1. Strong:
    Good combination of P/E ratio (~6) and Dividend Yield (>5%).
    Consistent dividend, increasing with raise in EPS.
    SHP: Promoters >50%
    D/E ratio: Close to 0 (0.0-1.0)
    BV close to CMP (BV/CMP < 1 is good)
  2. Medium:
    MP less than mid of 52week Hi-Lo. (Close to 25% range: Downside risk for the investment is relatively low)
    Better Year-over-Year results (Quarter-on-Quarter are appropriate only for a few Indian companies)
    Sales and Operating Profit proportional to Expenditure (consumption of Raw-material)
    Consistent allocation for Depreciation and Tax
    Interest (Finance Charges) in control
    Other income negligible, if not none
  3. Other:
    1. Management team's background, track record
    2. Intrinsic Value of the company: Assets & investments accumulated over years, Domain knowledge specialization, Barrier-to-entry.
    3. Zero debt
    4. FEMA company, for excellent Dividend Yield
    5. Sufficient volume for regular movement, liquidity
    6. Growth and associated plan to handle competition (new factory, JV, etc)
    7. Peer companies
    8. Weighted Average to "support" MP:
      1. Sweet spot: Increasing MP that brings 200DMA, Current VWAP and MP all very close.
      2. Weighted Average slightly below Price. (MP climbing up, closing the gap between Weighted Average and MP).
  4. Capital Efficient Business: See "Efficiency Indicators" in "Finance & Investments Terminologies".
  5. Company shows Growth, which is characterized by both, increase in Sales and increase in Profit.
     

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