Are Nestle And Sun TV Classic Examples Of Good Shares To Buy On Bad News?

Investment

oi-Sunil

By Sunil Fernandes

Updated: Wednesday, June 10, 2015, 11:00 [IST]

In Dec of 2013, Wockhardt was facing worries over US FDA inspections and import alerts at some of its plants. Not one single analyst was ready to bet on the fact that one day the company would be able to resolve its issues with the US FDA. In Dec 2013 the share price of Wockhardt hit a low of Rs 340.

Slightly more than a year later the stock hit Rs 2000, rising several fold giving investors who kept their faith in the stock, returns several times over.

The company was able to clarify and set its path on the right course and work again to get US FDA approvals. The shares appreciated almost 6 times in 15 months. That is an astronomical return in the short time frame.

The good quality shares always tends to bounce back unless there are serious worries, which cannot be resolved. It's happened with many good quality shares tumbling when their results were bad, there was a change in management or for whatever reason. It gave investors a chance to buy into good quality names at lower levels when individuals were dumping the shares.

Nestle India on Tuesday rallied a huge 9 per cent after the Singapore Health regulator on Tuesday said Maggi which was made in India was free from health risk. Singapore is known to be a highly quality conscious market and regulations there are considered the most stringent in the world. Investors gave a thumbs up to the stock after dumping it in the previous trading sessions.

Now, should a few more countries agree to the findings of the Singapore health regulator, be rest assured that Maggi would be back on the shelves, if not immediately than a few months now. And the share price will recover with it.

Stocks like Nestle India are considered to be high quality stocks and their valuations have always been steep. As soon as we see a slight dip in these shares there is heavy buying interest that emerges.

Sun TV was yet another share that saw a bounce back on Tuesday gaining 4 per cent after falling as much as 25 per cent on Monday after Home Ministry had struck down an Information and Broadcasting Ministry's proposal for giving security clearance to 33 television channels Sun TV Network.

This is a slightly different case than that of Nestle India, which always has the scope to change Maggi ingredients and get back on the shelves.

If the case of the licences for Sun TV Channels takes an ugly turn, it could be in trouble. For Nestle India in case of Maggi there is always a scope for improvement.

So, buying on bad news may not necessarily be profitable. If there is a scope of the bad situation being corrected, you can buy the shares and hold onto the same with patience.

You believe it could get worse, it's best to stay away from the stock.

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