Despatches Of Jute Drop Over 8% In September
Finding a blue chip is easy. Finding a cheap stock isn't too difficult either. What is tough is finding a cheap blue chip. But it is precisely the sheer difficulty that makes the search so exciting. There is one technique that works particularly well while looking for such stocks. You should keep in mind the difference between absolute and relative valuation. It is unlikely that you will find a present day blue chip which is also cheap in absolute terms. However, if you look for blue chips which are cheap at the moment relative to their short term potential as well as other stocks, you can come up with some good selections.
The best time to hunt for them is when the market seems to be falling temporarily. And that is why The Smart Investor decided to scan the forward stocks to see if there are any that are cheap at the moment. From the 150 odd stocks in the A group we have chosen five stocks as best buys in the current uncertain market conditions. We have focused on A group because during uncertainty, it is better to be invested in highly liquid stocks. Anyway, volumes have reduced on the exchanges and trading in B1 and B groups is lacklustre.
The list of five is State Bank of India, Hindalco, Procter & Gamble, Cummins and Reliance. One might wonder why infotech and pharma stocks are missing. Though the infotech sector might have been hammered down from its highs, the scope for appreciation on a relative basis is lesser compared to these five stocks. The appreciation potential here is excellent with low downside potential.
Cummins
Cummins India (CIL), a 51 per cent subsidiary of Cummins, USA, is a good buy in the engineering industry. It enjoys the highest margins in the industry - 10 per cent at the net levels.
Power generation, the biggest market for CIL, contributes about 75 per cent to turnover. The construction and mining market contributes nearly 10 per cent to CIL's turnover. CIL engines are used in all types of earth moving equipment like excavators, dumpers, bulldozers etc.
With expectations of an economic revival and improving industrial production, CIL will stand to gain. An analyst says, "Even after the diesel prices hike, the cost of power produced using the diesel generators (DG) is much lower than powe