Arohan’s investing life

A quick note regarding several investments that were recommended (and the author took a personal stake at the time of recommendation).

WSCI: WSI Industries was recommended as a growing metal working company with excellent prospects. I took a position in the company in the $4-$5 range several months ago. In the last one month, I have liquidated my entire position in the company in the $9-$10 range for close to a double. Very satisfying return for a few months work. The stock today is trading close to $14. If I had held for another month, I could be looking at a triple instead of a double. But I have no regrets. The company is approaching 40 PE and is getting quite frothy at these levels even if you take into account their projected growth for the next few years.

CFC:I am still holding Countrywide. If you recall, the play here was to buy Countrywide as a cheaper way of getting into Bank of America. The risk is that the Bank of America acquisition of Countrywide may not close. I am still comfortable in my position and will continue to hold

WM: I am still holding Washington Mutual and am currently underwater. However I am willing to wait out the current crisis of confidence as I think the company is taking the right steps to ensure that it survives
C: I have since my last writing on Citigroup increased my position in the company. The company is very quiet on what they are doing to improve their capital structure. However, they recently entered in an agreement to liquidate a part of their debt portfolio (to private equity) for about 10% discount. I think the company will correct course and come out stronger than many expect and in 3-5 years time should reward a patient investor handsomely

Additional notes: I have also increased my stake in BAM (Brookfield Asset Management), MKL (Markel), ACAS (American Capital Strategies), LUK (Leucadia), SLT (Sterlite Industries) and added positions in BRKB (Berkshire Hathaway B shares) and EPI (Wisdomtree India ETF)

Please note that if you choose to act on any of the recommendations/ideas outlined above, make sure that you conduct your own due diligence and understand the risks you are taking. I am not a financial advisor

Industrial Finance Corporation of India has decided it doesn’t want to sell after all

Funny thing is, SLT stock took a hit when it came to be known that they are interested in buying a stake in IFCI. After the deal fell through, the stock is down some more

It was a buying opportunity then, it is a better buying opportunity now.

Disclaimer: The blogger owns stock in SLT

We have previously written about Sterlite Industries as a possible triple play on Indian growth, Commodities and fair valuation. Over the last 2 days the stock has declined, possibly in response to its bid to acquire stake in Industrial Finance Corporation of India in partnership with Morgan Stanley.

This is a curious turn of events for Sterlite and one has to wonder what is behind this move. As with most miners, Sterlite does generate significant amounts of cash flow that has to be put to use somewhere. The story posits that a possibility is for Sterlite to apply for a banking license if the deal consummates. Does the Sterlite board intends to move into new sectors/industries and turn the company into a mini-conglomerate? This remains to be seen. Also unknown is their capabilities in the banking/finance industries (and hence a partnership with Morgan Stanley)

If this is a positive project with a good ROI, I say go for it

‘Hot Commodities’ as Jim Rogers would say, have been in an extended bull cycle for some time. Many pundits believe that this cycle will continue for at least a decade. Generally the commodity bull cycles are driven by either

a. Demand: for example, rapid industrialization, or
b. Supply: for example, years of underinvestment or reduction in capacity in this sector

This time however, both these factors are in play. Surge in demand comes from rapid growth in the BRIC (Brazil, Russia, India and China) countries and other emerging markets. Commodities demand has increased rapidly in China and India due to growth in the industrial sector as well as a massive buildout of infrastructure in these countries. The infrastructure needs are dire and are likely to remain so for some time, specially in India that has had decades of underinvestment in infrastructure (roads, airports, power generation, ports, you name it). 8%-10% annual GDP growth in these countries cannot be sustained for long unless the basic infrastructure is improved

Sterlite Industries (ADS: SLT) is a metals producer in India that produces Copper, Zinc, Aluminum, and Lead. This company is part of the Vedanta Resources that is listed on London Exchange. Shares of Sterlite trade on Mumbai Exchange as well as on NYSE (SLT). The ADS represent about 19% of the company. While the available information is quite sparse on these shores, here is a basic profile of the company

Essential facts:
- Mostly fully integrated producer with own mining operations
- Owns mines in Australia
- Claims to have the lowest cost of production for several metals in the world
- ADS trading at a PE of around 11, Market Capitalization around 16 Billion USD
- TTM revenues around $6.5 B, Net Income around $1.2B
- Sitting on $4.2B in cash on the books with debt load around $403 million
- Looking to grow and expand in India in different ways. One of the ways it plans to do this is by entering into power generation (it already generates all the power that it consumes in its operations)
- Also looking for acquisitions of mines outside India, if it makes economic sense

Many of the financial information can be seen on the Yahoo financials page.

This is a company that I have just started to look into. This appears to be a fairly or attractively valued stock in a generally overvalued commodities AND Indian markets and is a direct play on commodities and Indian growth (most of the commodities demand in India for infrastructure projects is still in the future). However, some more due diligence needs to be done before I can commit any capital to this issue. Please stay tuned to this blog for updates