Avoid Hot Stock in Hot Industry!

The ideas given by Peter Lynch in one up on Wall Street holds good even now. In the book he wrote: "If I could avoid a single stock, it would be the hottest stock in the hottest industry."  

 

In the current market scenario 5G stocks are trading at the highest multiple. 

 

Take for example Tejas network which is the hottest stock in the segment. Since so many people simply want to own Tejas  networks, it has ballooned up from the corona low of ₹30 in 2020 to ~₹700 now. In the last 2 years it has gained 23 times  without any major change in its fundamentals. Interestingly the  company is yet to make any profits; it  has gained only on sentiments. Last year it made  a net sales of about ₹550 crores but it trades at a staggering market cap of  ₹10k. It commands higher multiples than a highly manipulated Adani group of companies. Tejas networks may soar higher, but looking at where it will be in the future requires a great leap of faith.

If you don't like to gamble with your money, you may well follow the simple rule  of Peter Lynch investing strategy outlined in his book one up on Wall Street. One  may buy a stock in a stable industry that doesn’t attract rapid  competition with an earnings growth of between  10% and  25% and is well under the radar of analysts. Probably one may think of oracle financial services software (as most of our group members are working in IT services, it’s easy to understand this company) that operates in the banking IT software space and is currently trading at ₹2900+. 

 

It offers a good risk to reward ratio and has a stable business. Oracle financial services is trading at a reasonable price earning multiple of less than 14,  with a RoE of 26+%. price to book of little over 3 and more importantly it commands an impressive dividend yield of 6.5%. It looks like a compelling buy but it may not make a major move tomorrow, next week or next month. However it may give a decent return over the next 2-3 years. Of course, today’s investors want quick money and they prefer to gamble with Adani kind of expensive stocks.