Top 10 Stocks based on Warren Buffett Principles – Should you invest?

Top Stocks based on Warren Buffett Principles – Should you investTop 10 Stocks based on Warren Buffett Principles – Should you invest?


Warrant Buffett, top investment guru in the world has specified certain principles on how to pick-up best stocks for long term investment. Based on these principles, I have filtered 5 large cap stocks in India with the analysis. I have checked that it passes all tests which Warren Buffett has been checking in picking up the stocks. Should you invest in these 5 top stocks that are filtered based on Warren BuffettPrinciples? Do we need to consider them as best stocks to invest for long term in 2016?

How Warren Buffett picks companies he wants to invest?


While there are several parameters Buffett considers for investment, there are 5 major parameters he considers before investing in a company.

Also Read: Where does Indian Warren Buffet Rakesh Jjhunjhunwala investing now in India?

1) How the company has been performing?


Companies that have provided a positive and stable return on equity (ROE) for many years are more preferable than companies that have only had a short period of solid returns. The longer, the tenure for good Return of Equity, the better. For the purpose of my analysis, I have taken 20% ROE for over 5 years.

2) How much Debt does a company have?


Larger debt means company servicing debt. All its earnings would go towards repayment of debt. What Warren Buffett believes is low debt ratio is good for investment. For the purpose of my analysis, I have taken Avg. Debt to Equity Ratio in last 5 Yrs at less than 0.5.

3) How much margins company is making?


While revenue growth is good, one should look also how much margin/profits the company is making. Buffett loves to invest in companies that have consistent improvement in margins. Again, long term performance about improvement in margins is better. For the purpose of my analysis, I have taken minimum 20% Avg. Dividend payout ratio in last 5 Yrs in last 5 years.

4) Are company shares are available at discounted prices?


Many of us would invest in good companies, but would not make profits. Why? Investing in strong fundamental companies is good. However, they should be purchased at the right time. One should look at company shares which are available at discounted prices where there is scope for high profits. For the purpose of my analysis, I have taken P/E ratio in between 0 and 15 for over 5 years.

5) Does the company offer unique products?


Warren Buffett says companies which have products that can easily be substituted to be riskier than companies that provide more unique offerings. For e.g. an oil company’s product – oil – is not all that unique because clients can buy oil from any number of other competitors.

Top 10 Stocks based on Warren Buffett Principles – Should you invest?


Here are some of the top stocks that are filtered based on these Warren Buffett Principles.

1) Coal India – CMP Rs 307


Coal India Limited is an Indian state-controlled coal mining company headquartered in Kolkata, West Bengal, India. It is the largest coal producer company in the world and contributes around 82% of the coal production in India.

  • Avg. Return on equity in last 5 years –35% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs –0 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 66% – Warren Buffett test passed
  • P/E Ratio – 13.7 – Warren Buffett test passed
  • Last week, Bulls Eye recommended to buy this stock from a long term perspective.
  • SudarshanSukhani, stock market expert recommends to buy this stock.
  • Edelweiss recommends to buy this stock for a target of Rs 376.
  • SPA Research recommends to buy this stock for a target of Rs 394.
  • Prabhudas recommends to buy this stock for a target of Rs 400

2) Alembic Pharma – CMP Rs 562


Alembic Pharmaceuticals is Asia’s most respected and integrated pharmaceutical company and caters to over 75 countries around the world.

  • Avg. Return on equity in last 5 years – 32% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0.2 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 23% – Warren Buffett test passed
  • P/E Ratio – 14.6 – Warren Buffett test passed
  • ICICIDirect recommends this stock for a target price of Rs 790.
  • KR Choksey recommends to hold this stock for a target price of Rs 623

3) Torrent Pharma – CMP Rs 1,353


Torrent Pharma, the flagship company of the Torrent Group, is ranked amongst the top pharma companies of India. It is a dominant player in the therapeutic areas of cardiovascular (CV) and central nervous system (CNS) and has achieved a significant presence in gastrointestinal, Diabetology, anti-infective and pain management segments.

  • Avg. Return on equity in last 5 years – 29% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0.4 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 29% – Warren Buffett test passed
  • P/E Ratio – 13 – Warren Buffett test passed
  • CLSA Says Torrent Pharma a good play on India and US story.
  • Edelweiss says buy this stock for a price target of Rs 1,840
  • Religare says hold it for a price target of Rs 1,560
  • Sharekhan says buy this stock for a price target of Rs 1,740

Also Read: Best Stocks to invest in 2016 for long term investment

4) Orbit Exports – CMP Rs 222


Orbit Exports operates across multiple verticals, from women’s apparel to Christmas crafts and home decor, with further interests in occasion specific fabrics and finished products.

  • Avg. Return on equity in last 5 years – 29% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0.3 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 20% – Warren Buffett test passed
  • P/E Ratio – 11 – Warren Buffett test passed
  • SP Tulsiansay this stock can move upto Rs 475

5) Avanti Feeds – CMP Rs 472


Avanti Feeds is the leading manufacturer of Prawn and Fish Feeds and Shrimp Processor and Exporter from India. Avanti Feeds Limited has established a joint venture with Thai Union Frozen Products PCL., the world’s largest seafood processors and leading manufacturer of prawn and fish feeds in Thailand with integrated facilities from Hatchery to Shrimp & Fish processing and Exports.

  • Avg. Return on equity in last 5 years – 28% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0.1 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 20% – Warren Buffett test passed
  • P/E Ratio – 13.5 – Warren Buffett test passed

6) IL&FS Inv.Managers – CMP Rs 15


IL&FS Investment Managers Limited (IIML), a subsidiary of Infrastructure Leasing & Financial Services Limited (IL&FS), is one of the oldest and largest private equity fund managers in India, with over $ 3.2 bn under management.

  • Avg. Return on equity in last 5 years – 27.9% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0.1 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 48% – Warren Buffett test passed
  • P/E Ratio – 8.5 – Warren Buffett test passed

7) J.B. Chemicals – CMP Rs 243


Established in 1976, J.B.Chemicals& Pharmaceuticals Ltd. (JBCPL) is one of India’s fastest growing pharmaceutical companies.

  • Avg. Return on equity in last 5 years – 22.8% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 51% – Warren Buffett test passed
  • P/E Ratio – 11.7 – Warren Buffett test passed
  • Reliance Securities recommends to buy this stock price target of Rs 320.
  • CD Equisearch recommends to buy this stock price target of Rs 333.

8) Good year India – CMP Rs 519


Goodyear is one of the world’s largest tyre companies. It employs about 68,000 people and manufactures its products in 50 facilities in 22 countries around the world. Its two Innovation Centers in Akron, Ohio and Colmar-Berg, Luxembourg strive to develop state-of-the-art products and services that set the technology and performance standard for the industry.

  • Avg. Return on equity in last 5 years – 21% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 24% – Warren Buffett test passed
  • P/E Ratio – 12 – Warren Buffett test passed
  • Aashish Tater, stock expert says Good year may test Rs 705.

9) Munjal Showa – CMP Rs 180


Munjal Showa Limited in its joint venture with Showa Corporation, designs and manufacturers shock absorbers and struts for leading two-wheelers and four-wheelers. The Munjal Showa manufacturing plant is spread over an area of 24075 sqmt in the industrial area of Gurgaon, Haryana, on the outskirts of the National Capital Territory of Delhi, India.

  • Avg. Return on equity in last 5 years – 20% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0.1 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 22% – Warren Buffett test passed
  • P/E Ratio – 11.9 – Warren Buffett test passed
  • SP Tulsian and Karvy recommends to buy this stock for a price target of Rs 240

Also Read: How to identify blue chip stocks to invest in 2016?

10) Gujarat Mineral Development – CMP Rs 69


Gujarat Mineral Development Corporation Limited is a major minerals and lignite mining company of India. It is a State owned company owned by the Government of Gujarat. GMDC was founded in 1963. Its corporate headquarters is at Ahmedabad.

  • Avg. Return on equity in last 5 years – 20% – Warranbuffett test passed
  • Avg. Debt to Equity Ratio in last 5 Yrs – 0 – Warranbuffett test passed
  • Avg. Dividend payout ratio in last 5 Yrs– 20.3% – Warren Buffett test passed
  • P/E Ratio – 9.2 – Warren Buffett test passed
  • Bulls Eye and Ashwani Gujral recommend to buy this stock.

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Suresh
Top 10 Stocks based on Warren Buffett Principles

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