BUY/SELL Plan for Safest Companies
It is very rare that we get the fundamentally strongest stocks at a great discount to their intrinsic value. Since they are the best stocks in the market according to fundamental analysis, they will often be trading higher than the Discount Price (DP).
And an exception needs to be made for such exceptional stocks. Which is why at MoneyWorks4me.com, it is recommended that even if these stocks are above DP, they are still a good buy – provided you phase out your investment in these stocks in the right tranches.
The tranches for buying and selling your investment in these stocks are given in the BUY/SELL plan. This BUY/SELL plan will help you make the most of the opportunities presented by the best stocks in the Indian stock markets.
The new BUY/SELL plan for such stocks is explained below along with the criteria for such stocks.
On which Stocks is the BUY/SELL Plan Applicable?
To define which stocks require this BUY/SELL plan, we created a new criteria – that of 'Value Creation'. A company which is able to create significantly more economic value for its investors can be termed as a value creating company. 'Value Creation Index' for any company can be calculated with the following formula
Thus if a company is consistently generating an ROCE (Return on Capital Employed) which is significantly greater than the WACC (Weighted Average Cost of Capital), it is known as a 'Value-Creating' company.
I. The Buy Plan for the Safest Companies:
For a company creating value for its investors, the BUY plan allows you to phase out your total planned investment in the stock in 5 tranches between MRP and DP and 1 tranche below DP. Each zone is calculated internally by the analyst team at MoneyWorks4me for a value-creating stock.
The BUY Plan is designed to help you exploit good buy opportunities that the stock market presents by averaging your buy price for the stock as close to the DP as possible
II. SELL Plan
The safest stocks often trade beyond the MRP. Hence it is important to sell your stake in them in a way that you can make maximum returns from those.
The objective of the SELL plan is to exploit the high ranges in the best large cap stocks in the market and sell those stocks when they are well above their MRP.
For other companies, existing Timing Signals will continue to apply. To learn more about Right Timing Signals, click here.
ROCE: Return on Capital Employed (ROCE) is a financial ratio of net operating profit after tax to total investment made by the company.
It gives a sense of how well the company is using its money to generate returns. Higher the ROCE, more is the efficiency in the utilization of capital by the company.
WACC: Weighted Average Cost of Capital (WACC) is the return that the providers of a company’s capital require. The WACC is the average weighted costs of each type of capital – namely equity and debt