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Saturday, January 3, 2015

Technical updates – Container Corp and Indraprastha Gas

Stocks of PSU companies have never been my favourite because too often, management decisions have been dictated by government prerogatives and their bulging cash balances have been used to fix problems arising from faulty fiscal policies.

But if some one pointed a gun at my head and forced me to pick two PSU stocks – these two would be at the very top of my list. Why? Their near-monopoly status, and consequent strong fundamentals.

Container Corp is debt free, with RoE of 14%, and net profit margin of 18.4%. Indraprastha Gas has a debt/equity ratio of 0.18, RoE of 20.4%, and net profit margin of 9.1%. Therefore, it is no great surprise that the former has a P/E of 26.6, while the latter has a P/E of 17.6.

The charts below show that both stocks are trading in strong bull markets. But the general public holds just 1.3% of Container Corp’s equity and 6.5% of Indraprastha Gas’ equity. Two excellent investment-worthy stocks – and the public doesn’t seem to care about them!

Container Corp

ContainerCorp_Jan0215

The stock price of Container Corp. consolidated sideways within a ‘rectangle’ pattern for a year before finally breaking out upwards on a volume surge. As often happens, a pullback towards the breakout point gave investors an opportunity to enter.

The stock closed at a new high of 1483 in Nov ‘14, but negative divergences in all four technical indicators - which failed to touch new highs with the stock (marked by blue arrows) - led to a correction. The stock dropped below its 20 day and 50 day EMAs, but has recovered since then.

Technical indicators are looking bullish. Some consolidation can be expected before the up move resumes. 

Indraprastha Gas

Indraprastha Gas_Jan0215

The stock price of Indraprastha Gas consolidated sideways within a bullish ‘falling wedge’ pattern before breaking out upwards with a volume surge. It has been a strong up move since then, with intermittent corrections that ensured that the stock didn’t become too overbought.

The stock touched a new closing high of 465.40 in Dec ‘14, but negative divergences in all four technical indicators, which failed to touch new highs with the stock (marked by blue arrows), have led to a correction that is continuing.

Any drop below its 50 day EMA will be an adding opportunity.

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