Investing Strategies

Growth

Stocks of quality companies that have been recording above industry average growth and are expected to continue doing so in the future are called growth stocks. Because of the company’s future growth prospect, market often assigns high value to such stocks resulting in a high PE ratio

Growth investors are primarily concerned with fast growing young companies which operate in rapidly growing industry. Investors who buy growth stocks focus on earning investment returns almost exclusively through capital appreciation resulting from increasing stock price. Growth companies usually retain cash for reinvestment purpose and do not pay dividends

Examples of growth investing strategy available on smallcase platform are:

Growth at a Fair Price

As explained above, market often assigns high valuation to growth stocks. But everything has a fair price and irrespective of the quality of the product/stock, one should never overpay. This smallcase is a collection of companies experiencing earnings growth, witnessing margin improvement and increasing return on capital, and are still available at justifiable valuations

There is also a low-cost version of this smallcase to buy and invest in regularly

Coffee Can Portfolio

This smallcase selects companies whose revenue has grown by at least 10% every year for each of the last 10 years and ROCE was at least 15% for each of the last 10 years. The strategy helps you rise above the market volatility and noise by going for a long time horizon of 10 years. Additionally, it also helps in saving transaction cost, as there is no re-balancing done once bought

Value

Stocks of companies which trade at a lower price relative to its fundamentals are termed value stocks. Mature companies with stable cash flows but moderate growth rates usually trade at low levels. However sometimes negative perception about the industry or company due to multitude of reasons might also result in stock price of the company taking a beating resulting in cheap valuation

Value investors seek out stocks with strong fundamentals – high operating and net income margin, positive operating cash flow, low debt to equity ratio, high return on equity etc – that are trading at a bargain. The investor hopes to gain via capital appreciation when the market identifies the true potential of the stock and price increases

Examples of value investing strategy available on smallcase platform are:

Bargain Buys

This smallcase is designed for a layman investor and consists of stocks which boast of strong financial position, manageable debt and stable earnings. It is based on Benjamin Graham’s investment philosophy. Also Warren Buffett’s mentor, Graham is widely known as the father of value investing. His belief – that inexperienced equity investors should invest into conservatively financed companies with long history of profitable operations – is reflected in this smallcase

Value and Momentum

This smallcase includes stocks which are undervalued compared to ther industry peers, however have been attracting attention off late as evidenced by their recent stock price movements. These stocks have also earned higher than expected profits during the latest reported period

Sustainable Earnings

This smallcase consists of companies which have been recording higher sales and earnings, increasing their cash flows but are trading at lower levels compared to their peers

Dividend

Dividend is a portion of company’s net profit that is paid out to shareholders. Dividends are usually issued as cash payments. Financially secure mature companies usually tend to payout dividends on a regular basis providing investors with a stable source of income

A simple dividend investing strategy involves investing in companies that have a consistent history of paying out dividends. You can buy the Dividend Aristocrats smallcase to execute this strategy

This smallcase consists of companies which have increased their dividend payout consecutively, for the last 10 years.

A slightly intuitive strategy involves seeking out companies that have a consistent history of dividend payout as well as high dividend yield. A high dividend yield / increasing dividend yield can be due to either higher dividend payout or falling price, with the former scenario preferable. A company whose dividend yield is consistently above industry average is a good investment bet

Tata Chemicals, which manufactures soda ash and sodium bicarbonate for diverse end user industries, has a consistent history of dividend payout over the last decade with the average yield during this period being 3.4%. This company is part of the Dividend Stars smallcase.

The smallcase consists of companies who have maintained an average dividend yield of at least 3% over the previous 10 year period without any slash in dividend during that period