Stock Ideas

A stock screen is a filtered list of stocks which is arrived at according to some criteria that are likely to remove less investment-worthy companies from the list. They throw up investment ideas which can then be evaluated closely. Membership of BSE 500 index is basic qualification for our screen.

High Dividend Yield Stocks
Dividend yield measures the amount of income received in proportion to the share price. It is calculated by dividing the annual dividend income per share by the prevailing share price. This is one of the most important ratios that value investors take into account. Stocks often have high dividend yields if they are trading at relatively lower price (the denominator in the calculation). The high dividend-yielding stocks tend to under-perform during the bullish markets, as the growth oriented stocks race ahead. But they can prove to be quite valuable during times of uncertainty. This was evident during the years 2000 and 2001, when the markets were going through a slump. To illustrate, the top 15 out of BSE 100 stocks, selected on the basis of their dividend yield at the start of 2001, fell by just 2.45 per cent in that year, while the Sensex lost close to 18 per cent.

Therefore, such stocks can be your friends during the times of an economic slowdown. We screened for the high dividend-yield stocks in the universe of BSE 500 constituents. Our screen lists the ones with a dividend yield of 6 per cent or more, and a track record of dividend payout in each of the last five financial years.

The list is sorted in the descending order of dividend yield.

Relative Value
Our relative value screen aims to identify stocks whose earnings have grown at a faster pace than an average peer while they still trade at a discount on a relative basis. Our criteria requires that the PE ratio of a stock should be less than the industry average, while the three-year and one-year average annual growth rate of EPS should be higher than the industry average. It must be noted that we have used the median PE (and not the arithematic mean) as a measure of industry average PE. The logic behind this is that the presence of outliers distorts the arithematic mean to make it less representative of the industry average. To make the averages more meaningful, we restricted our search to only those industries which have least 20 companies out of the BSE 500 constituents.The list is sorted in the ascending order of PE ratio.

Fund Action
Media stocks attracted a lot of attention from fund managers. Prominent stocks in this space like Sun TV, HT Media and Jagran Prakashan figured among the most bought stocks. Steel was another sector which funds bought into heavily. Here Sail, JSW Steel and Monnet Ispat were among the favourites.

Zicom Electronic Security Systems is another stock which found favour with fund managers. This small cap stock has been held Magnum IT since long, but now Magnum Global and DSPML Technology.com have also bought into it. In the technology space TCS and iGATE were other two stocks to give company to Zicom. You can read about iGATE Global Solutions in detail in this issue's Stock Insight section. Other most bought stocks included banking majors ICICI Bank and HDFC Bank. On the other hand, cement stocks were at the forefront of the most sold stocks during the month of February. The fund managers reduced their holdings in prominent players like Grasim, Shree Cement, JK Cement, JP Associates and Binani Industries. It seems that measures to control cement prices announced in the budget did not go down well with the fund managers. One exception though was Prism Cement, which saw funds exposure rising by Rs 15 crore over the month.

Construction, capital goods and real estate were the other worst hit sectors. Stocks like Larsen & Toubro, Gammon, BHEL, IVRCL and Ansal Properties all witnessed heavy selling.