Fundamental Analysis of 3 Blue-Chip Stocks

Hello Family, welcome to a new article of  Fundamental Analysis of 3 Blue-Chip Stocks I hope all of you are doing well and thank you so much for supporting me our website,first and foremost. A lot of you reached out yesterday article and asked me that hey Aman can you share some of the stocks, specific stocks that you are investing in? So I thought that why not let me share three specific quality stocks in which I’m currently investing. I have already made a bit of investments in these stocks, but I would continue to make more investments in these three specific stocks. So I’ll explain the reason why.That’s one. 

Second thing,Please do not consider this article as an investment advice. This is purely from educational purpose. I’m telling you my strategies how I’m going to play out in these stocks. Please read our article till the very end, because as the final step, I’m going to talk a little bit more about how am I investing? Just not where I’m investing, but how am I investing in these stocks and how you should play it out in case you’re taking my advice.

But please do your due diligence. With that said,

let’s get the video started and let me talk about the first stock in which I’m

bullish and I’m going to continue to make investments.

So the first stock is Tata Steel.

And I’m very, very bullish about the steel industry right now.

Let me explain why.

So if you take a look at the chart for Tata Steel, you will see this peak pattern.

So this is called as peak pattern. Now,

Usually whenever there is a kind of this type of a peak, which indicates that there

has been a sudden rise in the stock price, I would generally advocate not to invest.

I myself have never invested in a stock where there was this type of a peak pattern.

So this is the first time I’m doing it. But hear me out,

why am I very bullish about this stock?

Number one, the steel industry goes through a cycle.

Now, this is true for almost any commodity

be it gold, silver, be it steel, be it bronze, whatever any commodity goes through

a cycle, and these cycles last for a long duration.

With me till here? That any commodity goes through a cycle and these cycles tend

to last for several years, especially the steel cycle.

So let me now show you how this steel cycle has played out in the past.

So if you take a look at the last five years data, I’m looking at the last five

years data, you will see that in the last from 2017 to approximately

2020 onwards, we are looking at window od three, three and a half years this 3.5 years

the steel prices traded sideways.

So this was stuck at approximately 4000

levels and the steel prices were moving sideways.

Now post coronavirus, the steel prices have been going up.

Right. So this is the part that I’m talking

about, that the steel prices have been going up because the coronavirus pandemic

now this cycle has only lasted so far for how many years?

It has lasted for approximately one point two years, 1.25 years.

So there is still good one and a half

years left during this upswing of steel prices.

As the steel prices go up, the stock prices will also go up.

So till what extent do I see the steel

prices going up so we can quickly check the forecast that has been given here.

So forecast is a forecast, it’s not a guarantee.

So please don’t comment that hey Aman

what’s the guarantee of this forecast being right.

There is no guarantee. But this is what is believed by doing

data simulations and data excises that in the next five years,

if you take a look at the next five years, the forecast says that we are going to hit

approximately six thousand five hundred levels.

So from five thousand five hundred levels to six thousand five hundred levels

if we move, there is approximately 20 percent gain to be made.

This is the first key point that the steel or commodity prices have a cycle.

We are currently going through something called steel supercycle.

I’ll explain that in a minute.

But we are going through something called steel supercycle.

Now, this cycle is likely to last for another one and a half, two years. Now,

very important question and you should ask me.

So please ask me the comment that hey,

explain why this supercycle will last for another one and a half, two years?

So what happens is this, that whenever there is GDP contraction,

right, then what happens first? That the world demand goes down.

Now, because of coronavirus,

there was a massive GDP contraction all across the world.

It came to an extent where the national governments, be it U.S. government or

European governments, they had to print money and flush it in the economy.

So as for the demand to pick up. Right.

So the demand had been low post 2020 coronavirus.

Now, hopefully we are in a phase where

the coronavirus hopefully will go away and the demand is picking up.

So as the demand goes up, the demand for everything picks up.

For example, automobile manufacturing goes

up, more roads are constructed, more bridges are built.

So what is required for that?

So steel is required.

And therefore I’m saying that it has good

one and a half years left for this cycle to get completed.

This is the reason why I had already invested money in Tata Steel and I will

continue to invest more money as we go along.

One final point to add here is about the point around supercycle.

So the last supercycle in steel ran from 2004 to 2007.

So that was a time when the steel prices

went up and this again was a three, three and a half year period.

So I’m expecting that a similar period will continue post coronavirus.

Therefore, I’m quite bullish about this industry overall. Now, okay

so that is the industrywide analysis.

So let me just quickly do the company

analysis and let me talk a little bit about Tata.

I made a separate case study on the Tata Group, I will link it, please watch it, that will help you understand

how the conglomerate is approaching its business.

So the way Tata Steel is approaching is that they

are consolidating everything, consolidating things.

Consolidation means that they are going to mix business lines.

They are going to extract synergies out of it.

They are streamlining their management.

Then management in the past has been good and there is no reason why they will not

do well with this Tata Steel Ltd company as well.

Let us just quickly do some fundamental

analysis, especially around finance and valuations and see whether it makes

sense to invest in this stock or should we pick some other stocks.

So at this stage, if you pick some other steel stocks,

it’s also OK, but I’m quite bullish about 3 steel stocks.

So I’d mentioned that. So one is JSW Steel.

One is SAIL. Even Mr. Rakesh Jhunjhunwala

had made massive investments in SAIL and third is TATA Steel.

So let us look at some financials and do a very

quick analysis that are there any major red flags here.

So in terms of revenues, the revenues seem to be growing right, every year.

So this seems to be a good news that the revenues have grown.

The intrinsic value seems to be fine.

No red flags.

This is probably entry point,

as for Tickertape seems to be wrong,

but sometimes you need to consider the entire industry overview, right.

They might be picking up that peak thing

that I was talking about when I initially showed you the chart of Tata Steel.

So, of course, no doubt whenever such a peak is created,

investors should be a little bit scared in terms of entering it.

But if the industry prospects look really bright, then you should take a chance.

That is what I am also doing.

Now, great part is that this has very little

default probability. Now for a capital intensive business

like steel, if the default probability is low, that’s a very good sign.

So please keep that in mind.

If we compare the financial ratios here, then it seems okay to me, the PE ratio

of the stocks is somewhat comparable to its competitors. SAIL, I’m an investor

in this, as I have already said that I’m going to invest in this company.

So all these three stocks look okay to me.

I don’t see any fundamental problems.

And as the industry grow, all these stocks will grow with it.

Just because of the fact all these three

companies are major steel players and there is no reason to be scared

in the steel industry itself grows, these stocks will 100 percent growth from there.

The only thing that we need to keep

in mind is that these companies should not have massive debt.

As long as that is not there and they are

able to repay their debt, they will be OK. With rising Steel price,

their business will pick up and they will create massive impact.

Now, the second stock that I’m going to speak about is HDFC AMC.

Now, I feel that asset management company, asset management company, what do they do?

They essentially,

whenever you do your SIP, so you’re giving money to whom?

You are giving it to an organization like HDFC, Nippon India Management,

these are all asset management company.

They run different mutual funds, they run different portfolio management services.

So you give money to these big

organizations and then they put your money into the stock markets.

And that is what asset management company is.

Now, two very quick points here.

One is that the stock market in India is

not mature – compared to the stock market in developed countries.

So there is a lot of people who are still away from the stock market in India.

So this is something that is changing already that more and more people are

entering into the stock market. As more and more people enter into the stock market,

companies like HDFC, Nippon Asset Management, NAM India,

it is called Nippon Asset Management, NAM India.

So these companies will grow with it because they will get more AUM,

which is asset under management. As their AUM grow, it becomes highly profitable.

I will show you when I do the fundamental

analysis why I’m saying that these are highly profitable ventures.

But the industry overview is that as more

and more people enter into the stock market.

The business of these companies like HDFC

AMC, NAM India, it will keep on going up, that’s one.

Now very quickly about the technicals if you do a 200 DMA.

I taught this strategy earlier, please comment below that

if you understand what 200 DMA

means, tell me the full form of DMA, this is a small test for you, right.

So this is the 200 DMA, this is the Green Line, 200 DMA.

How do you put it up?

So if you go on Zerodha and if you put

your studies here, you will get the tab to put the 200 DMA.

Now you will see see that a stock is trading close to its 200 DMA.

Now, this is a great time to buy the stock.

Therefore, I’m quite bullish.

I’m already heavily invested.

I invest even more money in HDFC AMC

because the industry is solid and the stock is solid as well.

Now, before I analyze the fundamentals

of HDFC AMC, one final point that I want to make on the industry now.

This was a very interesting article that was there on economic times.

So it goes something like this that India has witnessed tremendous growth in its

mutual fund industry that has grown from 1.13 lakh crore to

31.7 lakh crore in AUM from March 2000 to February 2021.

So in 21 years, it has literally increased by 31 times, which is massive.

This industry is one of the highest growth industries in India.

So please keep this in mind.

Now, this is the reason why I’m very bullish on HDFC AMC and NAM India.

OK, now let’s just quickly move

on to the fundamentals of the stock and let us look at the financials.

Let us see if there are any interesting things that are happening.

So let us look at how strong the financials are.

So now if you take a look at the total revenues, are they going up or down?

They are going up.

If you look at the net income, is it going up or down?

It is going up and it has been growing massively up.

In literally 4 years, it has 2x-ed its profit, approximately 2x-ed its profit.

This is massive.

So the company is growing at a massive, massive rate.

Now, one concept that I’ve taught you and again, this is a test that if

the stock has made its highest ever profit and it is not trading at its highest ever

price, so this is not the highest ever price.

This is the highest ever price in the last five years.

If that scenario plays out, you should go and buy the stock.

Who said this? I have taught this multiple times.

So type out the answers.

Now, if you take a look at some of the key

ratios for HDFC AMC, you will figure out that the ROCE,

return on capital employed is close to 40 percent, that if you are giving HDFC

hundred rupees, it churns out a profit of 40 rupees on it, which is massive.

So it has one of the highest ROCEs.

And this tells us that this company knows how to use the capital very effectively.

Now, the interesting part is that in asset

management industry, whether it’s Nippon Asset Management or

whether it’s HDFC AMC, this is not a fixed cost business.

What this means is that your fixed costs are limited.

For example, let’s assume that the asset

under management for HDFC AMC right now is, let’s say, 1000 crores.

Now, if it grows to 2000 crores, are they going to double their

workforce? The answer is no, because it would hardly take any

additional effort to manage this 2000 crore portfolio.

So as more and more people enter

into the stock market in India, as the stock markets in India become more

and more mature, this profitability or that ROCE that I was talking about,

it keeps on going up and it becomes a massively profitable company.

So that is the reason why I’m quite bullish on HDFC AMC.

I plan on holding this stock for a long, long time.

This is the second key stock that I’m bullish about.

Again, this is not an investment advice.

These are my personal views. Now the third stock that I would recommend is ITC.

I made a separate video here,

so please watch the detailed fundamental analysis of ITC.

But this is the third stock in which I’m investing. Now very quickly why? Because No.

One, the stock is trading at around 200 days moving average.

It’s a good time to buy the stock.

Second, if we take a look

at the financials of the company, the total revenues have been growing.

Net cash flows have been increasing.

The net income has been on the rise.

It has been a consistent cash flow giving company.

It gives very high dividends. Right.

So I’m taking it as almost a risk free stock.

Rather than putting my money in an FD, I would put it in ITC.

Now, you might say and someone commented

the last time that hey Aman, that is very risky, that you are investing in ITC.

It’s a stock. Why don’t you invest in FD?

Because two reasons,

one is that the stock itself can grow.

So this is just the dividend.

How do you make money in the stock?

One is that the stock itself grows

that instead of 206 it might become 210.

Second is that ITC will give dividends

six to seven percent dividend it usually gives.

So this is two ways in which I’m going to make money.

Now, the point is that for ITC, the cigarette business is very, very stable.

Almost all the commentary that you will

read about ITC is that it’s not profitable in it’s FMCG.

But very quick point is that it’s cigarette business is very stable.

It’s not going anywhere.

It will continue to give cash flows.

Therefore, ITC will keep on giving dividends.

No problem there.

And over time, ITC FMCG business will also grow which will act as a growth engine.

So that is what will propel this stock further.

I am completely OK that if the stock price does not move beyond 220 in one year

because anyways, I am getting a dividend of six-seven percent.

A final point about ITC is that this is a defensive stock.

Now my portfolio is most aggressive, so if I’m adding some defensive stocks

onto it, something like ITC, I’m completely OK doing it because

at the end of the year, this has the potential of giving me at least seven

to 10 percent return very, very easily, easily 10 percent return.

Why?

Because of seven percent from here and at least three percent from here.

So, therefore, I’m keeping ITC in my stock list.

Now, before you drop off because I have covered three stocks, please listen to my fourth

the point that how am I going to buy these stocks?

The market will stay sideways and will generally go up.

I do not see a major correction coming.

It might fall by 15 percent.

There is no guarantee, but it will come up again.

So in that sense, if I take a five to ten-year window, the chances of Nifty going from sixteen thousand to twenty thousand is

much higher than Nifty coming from fifteen thousand to 12000.

Right. So I am generally bullish on this market.

Therefore, I’m investing in growth industries like steel, commodities,

small finance banks, finance companies, HDFC AMC type of firms.

Because I feel that the market is going to go up.

These are my aggressive stocks. That’s one.

I also have a few defensive stocks like ITC in my portfolio.

This is called as Portfolio Designing.

I made another separate video on this topic, that how to diversify.

Please watch that.

That can help you understand and design your own portfolio.

But the final word of advice here is that please do not put all your money

in these three stocks tomorrow, just because I’m saying it. Please but at dips,

whatever the stock prices are trading around their 200DMA stocks, Stocks like TATA Steel,

I don’t think that they will trade

at their 200 DMA because there is a massive cycle going on.

So it’s OK to buy that at not 200DMA.

But for the other 2 stocks, if you are investing in it,

try to invest around that two hundred DMA small amounts. Try to make

investments over the next five to six months.

Do not put all your money in one go.

So I hope you enjoyed the article.

Let me know your feedback.

I would love to hear from you.