Four Principles of Stock Selection: Video interview of Kukkuji

Kukkuji in his previous interview had spoken about some low risk high yielding investment ideas on small capitalization stocks). In today’s interview he provides updates on the same recommendations ( viz: Balaji Amines, Hind Rectifiers and NESCO).

In addition he outlines his Four Principles of Stock Selection which are a must see for investors as there is a lot of learning to be derived from this video. A brief write up on the contents of the interview is included for the benefit of those who have difficulty with viewing videos.

In the interview he recommend’s booking partial profit in Balaji Amines and converting those profits into Hind Rectifiers and NESCO. Hind Rectifiers is expected to be a big beneficiary of the Railway modernization plans. Nesco which has been consolidating for a long time is his favourite pick and recommends to hold onto the stock.

His Four Principles of Stock picking are as follows

Strong fundamentals are the most important
Stock should have a good dividend paying track record and if the dividend yield is attractive it is an added bonus.
The ROCE of the stock should be greater than 20-25% and he finds that when markets turn these stocks have a high propensity of providing unusually high returns.
Replacement cost is another important criteria. If the replacement cost is high then this along with good dividend yield and book value which is at a discount to market price is a lethal combinations.

As per his opinion the stock that meets the Four Principle of Stock Selection criteria is PTC (India) Financial Services Ltd. At CMP of Rs 16 the stock is an attractive low risk high return investment opportunity. The attractive criteria for the stock are as follows

No NPAs
FY12 EPS of Rs 2.75 per share
Q1FY13 disbursals are around Rs 458 crores which is exceptional considering that during the entire FY12 the disbursals were ~ Rs 658 crore. Full year FY13 , PTC Financials expects to do about RS 1600 crore of disbursals.
It has current commitment for Rs 7,700 crore of disbursals
The NIM is also very strong at ~9%.
Maiden dividend possibility is an added attraction.

Disclosure: Kukkuji holds all the stocks mentioned in the video interview.

Brief Profile of Kukkuji

Kukkuji is a veteran investor who has built up an enviable portfolio investing in low capitalization stocks. He runs a internet group by the name of Investment Super growth which has close to 10,000 subscribers. Currently he is retired and spends most of his time travelling and researching on Indian stocks.

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