»Profit Hunter by Equitymaster

On This Day - 8 SEPTEMBER 2021
The Top Stocks to Sell in this Bull Market

A journalist from a leading business daily recently asked my views on the top value stocks in the market.

My reply was that there were barely any. The lady was amused. She pointed out to me that a couple of leading brokerages had recently published their list of value picks.

A few of these lists apparently went into dozens of stocks. When she rattled off the names, my worst fears came true.

Among the so-called value buys were...

  • A steel producer that has struggled to produce positive free cash in a decade.
  • A textile company with more debt that it can ever repay.
  • A mining company with pitiable return ratios.
  • A bankrupt telecom company.
  • A fragile e-commerce company.
  • A NBFC with double digit bad loan ratio.
  • A power producer that has struggled to generate profits for long.
  • And several more troubled companies that have recently come into the limelight.

Each had its own set of problems that investors were happily willing to ignore.

{inlineads1}

There was only one thing common among them. They were all statistically cheap based on the price to earnings ratio (PE).

It turns out that PE is one of the most exploited indicators to lure unsuspecting first-time investors in every bull market.

A statically cheap stock can never be a good investment. But so called 'market experts' and talking heads find the PE multiple to be the most convenient and compelling number to endorse.

After all, it's not the investors interest that worries them. They're only keen to sell popular narratives.

Do you remember the story that Buffett's partner Charlie Munger once narrated about false narratives?

It goes like this...

Munger was once in Minnesota buying a fishing lure. That the lure was coloured pink and green surprised him.

He asked if the fish were truly attracted to the colourful lure. The old-timer behind the counter replied, 'Well Mister, I don't sell to fish'.

{inlineads2}

Munger narrated this story to explain market exuberance. It spells out why the market forecasters offer misleading views.

And what their incentive is to do so.

The PE ratio neither captures the real risks in the businesses nor the real long-term upside potential.

Thus, it becomes the easiest tool for mis-selling.

This is undoubtedly one of the worst indicators to buy or sell stocks in the current bull market.

In fact some of the so-called value stocks today are among the top stocks to sell in this rising market.

Not because of their valuations but because of the poor quality of balance sheet, cash flows, and management quality.

I've selected three such stocks to sell for my Great Indian Wealth Project.

I firmly believe getting rid of the wrong stocks is an important stepping stone to an eight-figure fortune.

I have laid out my blueprint in my report - Eight Steps to Your Eight Figure Fortune.

So the next time you are tempted to buy a 'cheap' stock by a brokerage report, be aware that you're probably a target for mis-selling.

Warm regards,

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

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