»Profit Hunter by Equitymaster

On This Day - 27 JANUARY 2021
Beware of Unhealthy Stocks Like Burger King

Editor's note: Have you watched the latest Momentum Moves video by Brijesh Bhatia? If not, I highly recommend you do. Watch Momentum Moves by Brijesh Bhatia here.


Before I tell you about the unhealthy stocks in the market, which you should stay away from, I have a quick announcement...

Please block your calendar for 5 pm tomorrow, dear reader.

Keep yourself free of phone calls and be prepared to take notes.

My colleague Richa Agarwal, Equitymaster's smallcap guru, will unravel some well-hidden profitable opportunities at the Smallcap Revival Summit.

At this online summit, Richa will talk about the huge profits available to you today in select small-cap stocks.

She will also reveal details of her top 3 smallcap recommendations.

Richa is excited to talk to you, and by the response we have received, I'm sure you are too. More than 31,000 astute readers of the Profit Hunter have already registered for the summit.

I hope you're one of them!

Sign up for the Smallcap Revival Summit here.

{inlineads1}

Now, let's talk about unhealthy stocks in the market...

The past few months have reminded us how important a healthy lifestyle truly is.

1 in every 5 Indians is obese. 20% of the nation is diabetic. 30% of the nation suffers from high blood pressure.

These health headlines may often force you to sit up and take notice. In some cases, they do convince you to change your diet.

They bring the realisation that you may be consuming more gratifying foods than nutritious foods.

And that a health disaster is around the corner.

Unfortunately, the most nutritious foods are also the least gratifying. You may resent having them.

But you need to ensure they form the largest portion of your daily diet. For that is the only way to ensure good health.

The reason I am reminding you of this, at the risk of sounding like a nutritionist, is because we should be thinking on the same lines about our financial health too.

{inlineads2}

But we don't!

If you ask me, the cornerstone of a good investing is taking care of the downside risk. The upside then takes care of itself.

Joel Greenblatt of Gotham Capital once articulated the secret of his investing success as follows.

  • My largest positions are not the ones I think I'm going to make the most money from. My largest positions are the ones I don't think I'm going to lose money in.

Unfortunately, some of the unhealthiest stocks in the markets today serve a junk diet to investors on a platter!

India is young and emerging country. So, assuming that millions of Indians would consume pizzas and burgers for decades seems logical.

With tons of brokers peddling the growth in pizza and burger businesses, these stocks are bound to be popular.

But the trend hardly aligns with the shift towards nutrition consciousness.

The stock of Jubilant Foodworks (which runs Domino's Pizza) currently trades at a PE ratio of 130 times!

{inlineads3}

You would have to believe the company would grow its earnings consistently at 25% for over two decades to justify the valuation.

And that's not an exception.

Westlife Development (which runs McDonald's restaurants across West and South India) and Burger King, (which recently had its IPO), do not even seem certain to have a positive return on equity over the medium term.

Yet the stocks are trading 15 times and 18 times book value, respectively.

The downside risk is enormous in stocks of businesses that claim to quickly satiate your hunger.

Even if you aren't an avid consumer of their products, ignoring the risk from them could be unhealthy for your portfolio.

Be careful of such stocks!

Tanushree Banerjee
Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)

PS: Join Richa tomorrow at the Smallcap Revival Summit. Richa will talk about the top 3 small-cap stocks in the market today. Sign up for free.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407