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Showing posts from October 9, 2011

Catch Them Young

Small companies with robust financial performance could be multi-baggers of future Equities can deliver flying returns in a matter of days or investors have to wait patiently for years. They have the ability to outperform other asset classes in the medium to long term. Among the different categories of stocks, the best returns are provided by small- and mid-cap companies. Small but well managed companies can graduate to the mid-cap category and become large-cap companies. The natural progression is based on robust financial performance on continual and sustainable basis. Small companies are a must in the portfolio of investors looking to earn spectacular returns. Infosys Technologies, Cipla and Wipro started as small-cap stocks and graduated to the large-cap category over a decade. There are many such examples. More small-cap companies now have the potential to become big looking at the country's promising long-term future. An economic growth rate of over 6% is almost given in th…


A Class Apart
Stocks with consistently high return on equity have a better probability to outperform the market
It is fashionable during a market downturnto announce that stocks are available at attractionvaluation. The various exhibits displayedto justify the proposition includeP/E, BV and dividend yield. Another oftquotedcurrency is return on equity (ROE).The belief is that the market favours companiesgeneration high ROE.
Take for instance, Cummins India. Thestock has consistently outperformed theoverall market in calendar years 2006, 2007,2008, 2009 and 2010. The maker of dieseland natural gas engines gained 392% comparedwith the BSE Sensex, the benchmarkequity index, which returned 118.2% between30 December 2005 and 31 December2010.
The clues to Cummin India’s marketperformance can be found in its financials.The stock has delivered superior ROE overthe last five years. Its ROE stood at 35.1%in 2010-11, 30% in 2009-10, 34.7% in2008-09, 27.6% in 2007-08 and 28.2% in2006-07%. Moreove…