»Profit Hunter by Equitymaster

On This Day - 19 OCTOBER 2020
I Trust Tanushree to Do a Jim Rogers and Unlock Huge Gains from Defence Stocks

Rahul Shah, Editor, Profit Hunter

Across most of my recommendations, I am the classic Ben Graham BUY and SELL guy.

For us Grahmians, the intrinsic value of a company is mostly static. It does not grow with time.

So, we buy a stock whose intrinsic value we figure out to be Rs 100 at a discount of 35%-40% and then sell as soon as the stock reaches intrinsic value.

Put differently, buying at Rs 60 to Rs 65 and selling when the price reaches Rs 100.

We are usually happy with our gains and once we book our profits, we move on to other stocks with similar characteristics.

I like to call the money made from such stocks as the more CERTAIN money.

As long as the fundamentals of the company are expected to remain sound, your returns are more or less certain.

However, CERTAIN money usually does not go hand in hand with BIG money.

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It is difficult if not impossible, to make both CERTAIN money as well as BIG money on the same stock using the Graham philosophy.

In order to make the BIG money, you need a different strategy.

The really big gains i.e. 500%, 1,000% or even 2,000% are made when you buy like Ben Graham and sell like Jim Rogers.

Wait, did I say Jim Rogers?

Yes, I did.

The following story will tell you why.

The story dates back to the year 1967.

It was the initial days of the famous Arab-Israeli war. The Arabs, led by Egyptians, were fighting with a lot of Russia made weapons while the US was a strong ally of Israel.

The first few days of the war left Jim Rogers baffled. He was surprised by how the Egyptian air force was shooting Israeli jets out of the sky.

On learning that Egyptians had deployed advanced electronic warfare equipment received from the Soviets, he immediately hopped onto a plane and started visiting US defence contractors.

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Lockheed, a company flirting with bankruptcy caught his attention. The troubled company had an advanced projects division that had come up with just the kind of sophisticated weaponry that the US needed to close the gap with the Russians.

Rogers investigated other companies like Northrop and then made his next big discovery in the US capital of Washington.

He discovered that even the Doves in the congress - the so-called peace makers - were in favour of the US Government spending on advanced electronic warfare.

Popular opinion at the time was that the US defense spending would be curtailed due to the end of Vietnam war and that defense firms were not on a solid ground. Therefore, there weren't many takers for defense stocks.

However, Rogers' meticulous research suggested otherwise. He was aware of big, fat contracts of defense companies that if renewed, could provide new earnings to these companies.

He was also aware of the changing nature of the modern battlefield. Rogers was convinced that a lot of the incremental US defense spending would fall in the laps of companies like Lockheed to help it achieve superiority over the Russians.

Thus, this high priority insight convinced Rogers and his partner to go big on defense stocks and which is exactly what they did.

It was a classic BUY at Ben Graham prices manoeuvre where the valuations were depressed but the upside was not Rs 60 going to Rs 100.

The upside was Rs 60 going to Rs 600 or even Rs 1,000.

Guess how well did Lockheed perform over the next 8-10 years?

Well, it blew even the most optimistic projections out of the water. Lockheed went up a hundred times over the next few years.

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It is a classic case study on what happens when a Ben Graham bottom up approach is mixed with a high probability top-down insight that Rogers was able to zero in on.

Are there any such opportunities in India currently?

Well, you have to look no further than my colleague Tanushree and her high probability insight on India's defense sector.

Yes, the same sector that landed Jim Rogers a huge 100-bagger.

Please note Tanushree is in no way implying that India is going to war anytime soon.

However, the truth remains that we have two increasingly belligerent neighbours breathing down our necks. We thus need to spruce up our defense capabilities to teach them a strong lesson should the need arise.

And this means no longer relying heavily on arms imports.

Tanushree believes that India's decision to ban imports of foreign weapons will lead to billions of dollars flowing to Indian companies.

In fact, she won't be surprised if few years from now, India boasts of its own home-grown Lockheed or even Boeing for that matter.

The opportunity is huge. We are talking of numbers of the size of 4 lakh crores over the next 5-7 years itself.

Tanushree believes that a handful of companies could reap solid profits from this opportunity and could see their stock prices rise exponentially.

Thus, even stocks that had more or less a static valuation of a few billion rupees could witness their earnings and therefore, valuations jump manifold due to the fresh defense earnings stream.

Tanushree's new reports...

  • How to Make Explosive Profits with India's #1 Defence Stock, and
  • 2 Atmanirbhar Defence Stocks Set to Go Vertical

... give you all the details you need to make a fortune in the years ahead.

Click here to know more about how you can get access to these reports absolutely free of cost.

It is a rare opportunity for you to get in on the ground floor of one of the biggest megatrends to unfold in India over the next few years. So, please hurry and grab this opportunity now.

Warm regards,

Rahul Shah
Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: Join Tanushree online on Thursday at the Explosive Profits Summit. Tanushree will reveal the huge profit opportunity triggered by the Chinese aggression on the border. Register for free here.

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