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Two key stocks to acquire during market corrections

June 25th, 2008

When markets correct, there is one batch of people who enter into the picture. While the traders take rest sitting aside, it is the long term investors who are bullish on the stock markets who enters into the picture. These people have a higher horizon / time frame - generally of the periods of 3, 5 or even 10 years. Their investments go into companies that are generally large cap, that have good reputation, into companies working either in diversified sectors or a focused sector, into companies who are the leaders in their segment or those that feature into the top 3 companies of its category. Because of the market correction, these stocks becomes very attractive to buy.

Two such large cap stocks that underwent huge unwinding in recent times are Reliance Industries and Larsen & Toubro.

Reliance Industries is in news these days for wrong reasons - it is one of the hugely corrected stock and since it is the mostly wide held stock by investors, people are getting nervous about what to do with the stock. Its 52-week high is Rs. 3298 while 52-week low is Rs. 1248. Its last traded price is Rs. 2135. Most people do not have to think much about the price at which one can enter into the Reliance counter simply because of the trust in the management. The hope is that no matter at what price they enter, given some time staying invested, the stock surely will enter into new highs in a gradual manner. Reliance has made many millionaires who have stay put with the stock for sometime. Infact there are few investors who always stayed invested for over a decade or ever since the Reliance raised money via the IPO route. Reliance is currently trading at 16x FY09 and has an EPS of 131.34. Needless to stay, this is an attractive buying opportunity.
L&T is our other stock pick. It is a well known engineering company. L&T and BHEL are the leaders in the segment. L&T has the edge over, say, BHEL, since it has well diversified business. It has a number of subsidaries where there is a huge potential available. L&T seems to be coming out of its diversified subsidaries by selling them off and hence bringing money to the investors table on one side and ensuring its focus on core engineering is always maintained on the other makes it look like a company with a good strategy. Apart from that, L&T itself has a huge order book which will keep it busy for the next few years. Looking at the inflation numbers and elections due next year, the next few months will be a bit of testing times for L&T in terms of getting new order. However, considering that which ever Government comes into power later next year, infrastucture will be seen as a major area that needs to be addressed and L&T will surely be the company that will be watched out for.

L&T is trading at Rs. 4690 few days back. With the current market correction, the stock tumbled down to Rs. 2313, the 52-week low being Rs. 2235. We feel that stock has corrected enough and every subsequent correction should been as an attractive buying opportunity considering there is a huge upside available for this stock. Many Market Research firms have already raised the flag of this stock to buy. Macquarie for instance in its recent research report said that the company is an outperformer and gave a target of Rs. 3416.
Before we wind off, just a word of suggestion. Considering the huge volatility (aka uncertainity) in the stock markets, it is always advisable to buy stocks in small lots at different times. i.e the investment needs to be spread over time rather than taking the buy calls on a single go. This way, we can mitigate the risk involved in buying a stock in hurry at a higher price and yet seize opportunities without sacrificing too much.

Entry Filed under: Equities, Oil & Petro Chemicals, Infrastructure