It is always a risky proposition to buy stocks when the markets are rising. However, it is time to get used to "bottom up investing", which in essence is ignoring where the markets are and focusing on individual stocks.
The shares of Tata Motors is not very far away from its 52-week low of Rs 358. In fact, the 200 day moving average for the shares was Rs 465, which means you are getting the stock way below this average if you consider the price of Rs 382. The share price collapsed following the quarterly numbers for the year ending June 30, 2017. However, things may look up for the company in the quarters and there are reasons to believe so. The management and the newly appointed Chairman of Tata Group N Chandrasekaran is aggressively working on taking Tata Motors forward. The company is now laying an emphasis on the domestic markets with ensuring that it recovers lost market share in the commercial vehicles space. Addition of models is on the cards across the board.
JLR to continue to drive growth
The Jaguar Landrover (JLR) combination will drive growth in the future. In July, JLR saw solid growth in China including that for PACE, Discovery Sport, Range Rover Sport and Evoqueis. The recently introduced long wheel base Jaguar XFL also saw exceptional sales. A new engine plant begun operations in July in Changshu and Range Rover Velar has been delivered to customers. The Chinese and the US markets would continue to drive growth for the company and the recent drop in the stock is a good opportunity to buy.
Cheap on the valuations front
Tata Motors share is trading at Rs 382, while the Tata Motors DVR is trading at Rs 228. It is possible that with a recovery in domestic demand and also surge in demand due to the introduction of new JLR models as also the domestic demand, Tata Motors would see good growth going forward. By 2018-19, it is possible that Tata Motors reports an EPS of Rs 60. This takes the p/e of the stock to around 6.5 times at the current market price. Sensex stocks at the moment are trading at an average p/e of around 22 times and there is no reason why Tata Motors should get such a low discounting. A good stock to buy for a holding period of 2-3 years. Check stock quote of Tata Motors here
Coal India is another stock that is very close to its 52-week low. Again this is a stock that is a great share to buy using the "bottom up investing" approach. Like Tata Motors the share recently fell to a 52-week low, which is one reason we are recommending the stock. Quarterly numbers were not very good considering subdued prices of Coal. Worries that wages may cause margin pressures and some mines being downgraded for quality of coal has impacted the stock price. All these have played on the stock, but, there are some positives as well, which we shall take a look at.
The positives for Coal India
The incidence of tax would be lower given that the GST rate is now lower at 5 per cent. This is likely to result in an uptick in margins in the coming quarters. Also, the uptick in the quality of Coal this quarter is likely to reflect in margins and profitability. The biggest draw as always for Coal India has been the dividend declared by the company. It is difficult to predict the dividend likely to be declared by the company, but even if Coal India declared a dividend of 17 per share, for 2017-18 as against last years Rs 19.90 per share, the dividend yield would be close to 7 per cent. This is tax free and one of the biggest reasons to invest in the shares of Coal India. Check stock quote of Coal India here
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