We finally seem to have a vaccine that works! Pfizer this week announced positive results from the phase-3 clinical trials of their COVID-19 vaccine and they are now applying for emergency approval. If all goes well, the first batch of people may just get their vaccines by the end of the year. If you are healthy and below the age of 50, you'd probably be asked to wait.
On the back of this news, stocks worldwide played such a funny game. All defensive stocks that rallied during the pandemic came down crashing - Zoom (-17%) & Netflix (-9%) were in deep red while Indigo (+8.85%), Royal Carribean Cruises(+29%) were up. The markets are calling an end to the pandemic. Is it the beginning of the end? If it is, are consumption behaviours going back to what they were? We doubt it!
IN TODAY'S EDITION
Q2FY21 results update & upcoming results calendar
Corporate announcements this week
That's what they said - Soundbites
Trend watching - The biggest winners of this COVID-19 chaos
New column series - The secrets to Buffett style investing
Introducing MEETA - The trading algorithm which made Rs.22,20,800 in a back-test over the last 7 years
We have been looking at the Q2 FY21 financial results and comparing it with how companies performed in the same quarter a year ago.
How to read this graph?
Horizontal axis represents sales growth year on year in %
Vertical axis represents profits growth year on year in %.
The center point at the graph where the 4 different quadrants meet is origin (0%, 0%). By virtue of it, Quadrant A (top right) represents positive sales growth & positive profits growth. Quadrant C represents negative sales growth & negative profits growth and so on.
The size of the bubble represents market cap. Bigger the bubble, bigger the firm.
Companies in some industries are highlighted with different colours.
608 companies are in our coverage list as of now. Some of them are off the chart, so you won't see them all.
Stating the facts
Media companies have posted rather poor results during this pandemic. Thanks to a massive decline in advertising income, their businesses are struggling. D B Corp, HT media, Jagran Praskahan have all come out with bad results.
Some consumer durable businesses (yellow dots) like IFB industries, Crompton greaves and Dixon technologies have posted surprise sales and profits growth last quarter while others like V-guard and Voltas weren't as fortunate.
We are saying this for the third time, but more data has come this week to further strengthen our conviction. FMCG are leading the race (blue dots).
Pharma companies are the close second (red dots). Even animal vaccine manufacturers like Hester Biosciences have posted robust sales growth (+20%).
Talking about outliers - Wonderla holidays, once investors' darling stock, posted Rs.0 in sales for two consecutive quarters now. They'd have to post one more quarter of Rs.0 sales to be awarded a hat-trick golden duck award.
Other big losers who posted large sales decline include Future lifestyle (-74%), Aditya Birla fashion (-56%), Lemon Tree hotels (-69%), Safari industries (-63%) and United Breweries (-43%).
UPCOMING RESULTS CALENDAR
Abbott India Ltd.
Nov. 11, 2020
Page industries ltd.
Nov. 12, 2020
3M India Ltd.
Nov. 13, 2020
KEY CORPORATE ANNOUNCEMENTS
Escorts tractors posted results this week. Revenue was up 24% while profits were up 123%. Defence equipment manufacturer Bharat electronics also good posted results this week, revenue and profits were up 16% y-o-y. Here is a link to our stock stories on Escorts and BEL.
Saudi Arabia’s sovereign wealth fund called PIF (Public investment fund) has agreed toinvest $1.3 Billion in Mukesh Ambani’s Reliance Retail for a 2.04% equity stake in the business. The company has raised a total of $6.4 Billion since September this year.
Majority government owned railway engineering company IRCON international ltd., this week announced that the government will divest another 15% stake in the business by the end of the year. The company was listed in the bourses in 2018. Additional stake sale is also expected on IRCTC and RVNL (Rail Vikas nigam limited).
THAT'S WHAT THEY SAID
Soundbites from last week
"Our recent reforms in agriculture open up new exciting possibilities to partner with the farmers of India. With the help of technology and modern processing solutions, India will soon emerge as an agriculture export hub". - PM Modi during a global investor virtual roundtable meet this week.
“I WON THIS ELECTION, BY A LOT!” – Donald Trump on Twitter this week. For the next few hours, the hashtag which was trending on twitter was – “#NOYOUDIDNOT” 😉
"The manner in which she has been appointed as president reeks of fraud and flagrant disregard and violation of statutory provisions” – Ruchir Modi, son of Lalit Modi in a letter to the SEBI requesting for a probe into serious irregularities and corporate fraud at Cigarette maker Godfrey Phillips India Ltd. The company is run by Ruchir’s grandmother Bina Modi.
“The demand has shifted from shared mobility to personal segment so obviously the fleet segment has been impacted.” – Tarun Garg, Director at Hyundai Motor India, about the massive decline in orders from fleet operators/taxi service providers more than compensated by increase in orders from retail public.
The biggest winners of the COVID-19 chaos
Canadian multinational e-commerce firm Shopify released results last week. The company builds tools for shop owners to quickly set up an e-commerce platform with a payment gateway. Needless to say, they are thriving. Q3 revenue and gross profits were up a full 100% and 87% respectively compared to the same period a year ago.
There are clear winners and losers in this pandemic. Airlines, tourism businesses, banks are clear losers in the pandemic stricken low-interest rate environment that we are in. But there are some really big winners too. And Shopify is just one of them.
The world’s largest latex gloves manufacturer is based in Malaysia and is called Supermax Corporation Berhard. In the quarter ended June 2020, they posted profits growth of…wait to fall down from your chair…2,815.4%. In other words, profits went up by 28 times in the last one year. Their share price has gone up by 14 times since the beginning of the year.
Technology stocks have all done well. Semiconductor chip and integrated circuit manufacturers have done even betterbecause of the number of people who came out in force to buy new laptops/phones to cope up with the WFH trend. TSMC (Taiwan semiconductor manufacturing ltd.) and Intel both posted near 20% increase in profits at quarter end of June 2020.
The winners from India have mostly come from the healthcare and pharmaceutical space. Bajaj healthcare, the manufacturer of Chlorhexidine Gluconate, a key component of sanitisers, posted a record 100% growth in revenue and profits from the year ago period. Little known makers of bulk drugs, medicinal chemicals, botanical products and pharmaceutical products like Kopran, Laurus labs, Anuh pharma, Marksans pharma have delivered exceptional results.
Pharma companies and their stocks have been in a decade long slumber. But has the COVID-19 pandemic finally woken them up?Briefly or for good? We are still looking for the answers.
THE SECRETS TO BUFFETT STYLE INVESTING
In 1965 Omaha, Nebraska, USA...
Berkshire Hathaway was born as a result of a merger between Hathaway manufacturing co., a manufacturer of synthetic & cotton textiles and Berkshire fine spinning, a giant producer of fine cotton textile products in the year 1955. At the time of the merger, Berkshire Hathaway’s book value of total assets was $55 Million. The business performed so poorly over the next decade that book value dropped to just $27 Million in the year 1964.
That year, a young 34-year-old Nebraskan, took management control of the company by acquiring majority ownership in the business. He was a millionaire already by then. But his total wealth at that point in time was quite-frankly ‘chicken-feed’ compared to his total wealth today. Yes, yes, it is Warren Buffett we are talking about.
Today, Berkshire Hathaway is not a textile company at all. Every single textile operation was shut down by the year 1985. But that didn’t lead Buffett into ruin. The company is worth $500 Billion today! An amount of $10,000 invested in the company that year in 1965 would have equalled $274 Million as of the end of 2019. But how did he do it? And what can we learn from him?
To look for answers, it is imperative that we study the annual letters Buffett sent to his shareholders in Berkshire Hathaway since 1965 and before that to the limited partners in Buffett Partnership. This weekly column will capture brief summaries from each of those letters from 1957 to 2020. Our objective – Understand Buffett’s investing style.
Annual letter to limited partners – 1957 – Warren E. Buffett
The 3 different Buffett partnerships that existed as of 1957 were launched during different years. They were invested in the same stocks in the same % and operated on the basis of 2 investment strategies.
General-issues, which are minority investments in undervalued stocks
Work-outs, which are investments made with the intent to gain management control and unlock value through mergers, liquidation, tender etc.
In 1957, the partnerships was predominantly invested in general-issues (85%).
NOTE : The third partnership which clocked in 25% returns was launched the year before in 1956 when markets were at a lower level and stocks were attractive. Two additional partnerships were launched in 1957.
Intrinsic value vs. Market overvaluation
WB opens the letter by saying that the general market level is expensive and priced above intrinsic value. He says that if his view is accurate, then there is a possibility of substantial decline in stock prices. Buffett's plan was to deploy more money into the markets if prices corrected significantly. If they did not, WB suggested that the partnership will book profits on the stocks and increase investments in ‘work-out’ portfolio. Buffett says that the primary objective of the partnership was to invest in companies that were substantially undervalued.
To offer some context, the year 1956 witnessed a moderate decline in stock prices. However, it was Buffett’s opinion that earning potential of businesses had declined substantially. So, in essence the investing public was much more bullish about stocks than the general economic picture warranted. We draw a parallel to a time like now when stock prices have significantly recovered. However, earning potential in several businesses have substantially decreased following the pandemic. Could it be true then that the intrinsic value of the businesses are overvalued and we could expect a correction in stock prices? If it does, then as Buffett says, are we ready to invest more money into the markets?
Value vs Growth stocks
Due to the nature of Buffett’s investment style (value investing), he says that during bear markets he’d expect his portfolio to do better than the index. But he’d be quite happy to just match the index during bull markets. This is a statement he’d repeat several times over the next few years.
Why is that? Value stocks tend to do better in bear markets. This is because in value investing, the main objective of the fund manager is to identify such stocks where the difference between market capitalisation and book value of assets is quite low. And this book value of assets provides a cushion to stock prices during bear markets. Growth stocks on the other hand will suffer the most in bear markets as growth outlook becomes more grim and the stock market valuation premium attributed to profits growth gets erased. The euphoria around growth stocks works both ways. So in bull markets, value stocks typically tend to appreciate less in prices compared to growth stocks. This is why Buffett makes that statement several times.
Introducing MEETA - The trading algorithm which made Rs.22,20,800 in a back-test over the last 7 years
Note : This column, like every other post on EveryFin, is meant to be for informational & educational purposes only. This is not investment advice and should not be treated as one. Trading futures contracts without fully understanding them can lead to significant losses. Please consult with you financial adviser before doing so.
Currency markets are very unlike equity markets. Unless it is the Turkish Lira we are talking about, most other exchange rates are remarkably stable over long periods of time. This is the chart of GBP-INR exchange rate over the last 7 years.
At the beginning of 2014, you could exchange one British pound for Rs.102. Fast forward 7 years to today, that value is Rs.97! More or less unchanged. Go back 20 years to 2000, GBP was still priced at Rs.70 - in essence appreciating by just 1.7% per year over two decades. This is perhaps why the FX market is the perfect place to trial out algorithmic trading strategies – which is precisely what we set out to do.
We built Meeta,our in-house Python based algorithmic model which backtests trading strategies across asset classes. We put Meeta to work in the FX market.
And here are the results.
Our total cash outlay in the form of span margins was around Rs.1,20,000.
The algorithm turned a profit 82% of the times.
From all winning trades, it made a total profit of Rs.24,71,375
Average amount of profit per winning trade was Rs.37,445
In all losing trades, it lost a total of Rs.2,50,575
Average amount of losses per losing trade was Rs.17,898
Total earnings were Rs.22,20,800
That means our money grew by 18.5X in 7 years!
To read how currency exchange rates work, what strategy we deployed and how the algorithm works, hit the link below.
P.S : The algorithm is called Meeta, because she is really sweet 🙂
Disclaimer : All content published on this newsletter or on any other post on everyfin.in are meant to be for information & education purposes only. It is not intended to be investment advice or a solicitation to buy or sell securities. Please do your own due diligence or consult with your financial advisor before making any investment decision. While the information published on everyfin.in and the newsletters are obtained from reliable sources, neither the author, the publisher nor any of their affiliates guarantee the accuracy or completeness of any such information.