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The Equitymaster Research Digest

An Unusual Stock Recommendation
Aug 11, 2016

  • A prime example of the 80:20 rule
  • SAILing in the wrong boat
  • Don't wait for the Robins

Returns close to 120% in less than six months is a great achievement whichever way you look at it. Although we didn't know Hindalco would trade close to its target price so soon, I doubt our StockSelect subscribers mind. Stock prices are notorious for following the 80:20 rule. That is, eighty percent of the stock price movements happen in 20% of the time. And Hindalco is a prime example of that.

I remember the day we decided to recommend the stock. The discussion was heated. And not without reason. Nothing that was going right for the company. Quantitatively, it looked like a sure winner. But qualitatively, serious questions needed to be addressed.

The commodity cycle is close to its multi-year lows. Excess capacity and slow economic growth in most of the world have severely dented prices and volumes. Add in the high debt on the company's balance sheet and huge depreciation expenses and you are staring at a stock with its back firmly against the wall.

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