Why is a stock that cost Rs. 50 cheaper than another stock priced at Rs. 10?
It was 17th Dec 2011, we recommended Cera Sanitaryware as Hidden Gem stock of the month at price of Rs 167, later it went up to Rs. 450 in period of 15 months. Based on strong quarterly numbers, attractive valuations and consistent performance, we recommended buy again in the range of 350-450 which was taken as a surprise by our members as we received several queries and feedback.
Below are some of the common queries of our subscribers which often lead them to opportunity losses.
2. Cera is almost 3 times moving from 170 to 450, why are you suggesting buy again?
5. I want to buy more no. of shares, hence please recommend low price stocks below Rs. 10.
The story does not end here, there is a long way to go. Our suggested stocks is with a view-point of 1-3 years at least and not just 6-9 months. If fundamentals of the company are intact, we would not suggest our members to do profit booking or exit. Investors who stayed away just because of high price simply missed yet another opportunity. We continuously recommended Cera during last year to our members at much higher levels.
Lets try to understand this with an example, Tide Water Oil share price was Rs. 1450 on 1st Jan'12 (stock split and bonus issue adjusted price, actual price was 5800). Today the stock price is at Rs. 5543 giving absolute returns of 282% i.e. almost 4 times in 4 years against double digit return of Sensex in the same period. We suggested Buy on Tide Water Oil and many of our subscribers might not have invested in it thinking that they can buy hardly 2 shares by investing Rs. 12,000 but now those 2 shares are actually 8 shares post stock split and issue of bonus share and share price is also near to the the recommended price.
Lets try to understand this also with a simple example, Lanco Infratech is a well-known company from Infrastructure sector. At the beginning of 2010 the stock was around Rs 55. Today it is hovering at just Rs 5.20. Those who purchased that stock during 2010 are in 91% loss! Rs. 1 lakh invested in Lanco Infratech in Jan 2010 is valued at merely Rs. 9,000 today, a complete wealth-destroyer! Isn't it? Those who thought this stock at levels of Rs. 30 and later again at Rs. 10 to average out thinking that stock has came down from all time highs of Rs. 85 are still waiting to get their buying price back. There are many such stocks like Suzlon Energy, GMR Infra, GVK Power and Infrastructure etc which have continuously destroyed wealth of investors over a period of last 5 to 7 years.
We do not state that all low price stocks are wealth-destroyers, it all depends on the fundamentals of the company. So, do ensure that you check out the fundamentals and valuations while investing in stocks instead of looking at stock price. Please get out of the misconception that low priced stocks will fly high faster giving you extra-ordinary returns. Always remember that stock price is just a barometer, actual valuations of a company can be determined by its fundamentals.
If you wish to invest in fundamentally strong small and mid cap companies which can give you far superior returns compared to major indices like Sensex or Nifty in long term and help you creating wealth, you can join our services like Hidden Gems, Value Picks & Wealth-Builder.
The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.
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Also Read: How to Pick Winning Stocks for Investment?