»Profit Hunter by Equitymaster

On This Day - 28 JANUARY 2020
Forget the Budget! Buy this Smallcap Stock that's about to Make it Big

Richa Agarwal, Research analyst

Budget budget everywhere...but not a stock to buy!

This seems to be the state of things right now - The Union Budget 2020-21 is barely a week away and while every financial paper and expert are going on about the Budget and giving out views willy nilly on what to expect from the stock markets - not one is telling you the actual truth...

The budget hardly matters to the markets - and matters even less to your portfolio.

History shows that the market's response to Budget isn't predictable.

Your chances of making money based on the misguided musings and random ramblings of so-called experts are almost as good as the probability of a monkey hitting the mark while throwing darts blindfolded.

Focusing too much on the Budget rhetoric before the actual event makes little sense.

Just take a look at this...

So, for the sake of your wealth and sanity, I'll avoid adding to the speculative noise, and write to you about the Budget's implications once we get there.

For today, I have something much more interesting and concrete to share - my recommendation on an FMCG company with smallcap kind of valuations...

A big company with a small price tag

It's a stock I recommended to my Hidden Treasure subscribers a few days ago - that I believe had the kind of money-making potential everyone needs in their portfolio.

{inlineads1}

If you are a Hidden Treasure subscriber of course you can access the report here. For others - learn more about my belief in...

The small cap rebound trend.

Now, normally, typical smallcaps with the best potential tend to be obscure companies whose names you probably have never heard.

But this one is different - it's a household name and its products can be found in homes across the country. In fact, I myself have been an avid user and fan for years.

But this is no customer review. And Peter Lynch's 'invest in what you know' is not the reason either why I recommended this stock. Far from it.

In fact, it was only after 8 months of meeting the management and ensuring they were on the right track that I was completely convinced to actually recommend this company.

That patience has been rewarding. The stock price of this smallcap FMCG stock has fallen by over 28% since, extending the margin of safety.

The correction has made this stock a great bargain. But the price alone is not why I am recommending this - this company has so much going in its favour that I am now ready to bet on it. Here are some of the reasons why it is one of my favourites:

  • For one, the company's product is a niche market leader with high brand recall value. Like I said, it's a household name.
  • Second, it operates on a negative working cycle, i.e., the company collects cash well before making the sales. That means debt free balance sheet - a fantastic thing for any stock.
  • Third, the return ratios in the business are excellent, with five-year returns averaging at over 50%. The more returns they make, the more returns we as investors are likely to make.
  • Fourth, despite a slowdown in the economy, the company's performance has been resilient - with growth in both sales and earnings. So basically, an economic slowdown does not even slow down this great company!

And by the way, did I mention the cherry on the cake - a dividend payout of over 85% and attractive dividend yield at current price.

The company is currently at an inflection point- with the management all set to implement a plan to double its market share.

Amid these disruptive times, I believe this is one company with a sticky business model, where one could afford to follow Buffett's 'Buy and hold forever' strategy.

So forget what the Union Budget offers - that is just a little blip. I believe this smallcap is all set for a sharp rebound - and is ready for a great future.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

PS: The single most important stock market trend of 2020 is the Small Cap Rebound - are you on trend? If not, here's what you need: Click here to profit from the small cap rebound.

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