52-Week Low Stocks – Ultimate Guide to Find Hidden Gems in Market Crash - Rahul Jain

[00:00:00] Speaker 1: Hi friends, my name is Rahul Jain. I'm a SEBI Registered Research Analyst. In this video, I'm going to speak about a very, very popular investing strategy called 52-week low strategy. Three simple points I'll speak on. Number one is what is this 52-week low strategy and why this is so popular? Why a lot of investors use this particular strategy? Okay. Point number two will be how do we go about finding fundamentally good companies at 52-week low price and build a list of let's say 20 to 30 companies. Okay. Point number three will be that out of those 20 to 30 companies, we also need to see which companies have red flags and which companies potentially do not have much of the red flags. It's going to be full of practical learning video. The only humble request I have is please watch this video fully without skipping it so that you understand the nuances of this particular strategy. With that, let's get this video cracking. So let me first cover the first point which is what is this 52-week low strategy and why this is such a popular strategy and what are the traps of this strategy? Okay. On my screen, you see a particular company. The name of the company doesn't matter. I'm not showing you. I'm showing you last one year's price chart of this company. The stock is hammered down by almost 42%. And where was the low of this particular stock? Somewhere here at around 466, 471 rupees level. Right now, it is trading at around 506. So it means in the last one year, the company made a bottom somewhere here at around 470, 465. Okay. And after that, the company has rebounded. Now, this is the precise theory of 52-week low strategy that the stock will make a bottom at 52-week potentially. And from there, it might bounce back, giving investors an opportunity to create wealth for themselves. That's the entire thesis. But for the companies to be able to qualify to fall into this strategy, two things need to happen. Okay. Number one is that the company's stock price should be hammered down as we have seen. So this company is fulfilling that criteria that almost this company somewhere here was at 52-week low or nearing 52-week low. Okay. Right now, some little rebound has happened, but that's okay. We can ignore that, right? The second point which is more important is that this company must be fundamentally strong company and must have something unique, must have something different about this company so that it has a potential to come back because this stock price has dropped because of maybe a short-term reason. It might be war issues. It might be internal issues like inventory issue, or it might be short-term demand slowdown. It could be any of these reasons, but as long as this is a short-term reason, then what the investors are looking for is that can this company turn around from here, giving investors an opportunity, right? Now, it's very hard to find such companies which are fundamentally strong companies, but are trading at 52-week low and can rebound back. Why? Because the risk here is that 52-week low does not just mean that the stock price may not fall further. In fact, let me show you an example of this. Okay. What you see is another company here. And right now, if you see, it made a 52-week low somewhere here. Okay. 2278. Then afterwards, again, it made a 52-week low, which is further down 2259. And right now, if you see, it made another 52-week low, which is the 52-week lowest right now, 2164. So just because a company has hit 52-week low, it doesn't mean the stock prices will not fall further. It may fall further, right? That danger is always there in stock market or the equity market. I want you to have both the picture very, very clear that yes, there is a potential of the rebound. That is the upside, but there is a potential for the stock to fall further. That risk remains always, right? But let me now talk about the second point, which is how do we go about building, first of all, the list of, let's say, 20 stocks out of 500 stocks. If you want to build a list of 20 companies which are trading at 52-week low, but have good fundamentals, reasonable fundamentals, we will look at that particular list. And then from that list, we will further break it down to look at the type of companies that you should avoid in my view. Again, I will give you live examples of that. Continue to watch this video. And so far, if you're liking this, request you to hit the like button. Let me know in the comments, a simple thank you. It motivates me to bring such content to you at zero cost. And also, you can consider joining my YouTube community, where almost on a daily basis, I am sharing my strategies, my analysis. These are not buy-sell recommendations, but I will share the insights that will make you a better investor. Simply go to my channel, find the join button, and be my guest. With that, let me now move to point number two, which is how do we go about building this list? Now, moving to point number two, which is to build a list of companies that are trading at 52-week low. I'm going to go to Ticker Tape, a website. I've given you the link in the description and in the pinned comment. I've been using Ticker Tape for almost four years now, right? First thing here we will do is, I'm going to click on screener here, and we are interested in stocks. So I'm going to click on stocks and start screening, okay? Now, you will see a lot of companies coming up here. I am hiding these names because I do not know when you're watching this video. The prices will change. So that's why I'm not displaying the name of the companies. You can use the link that I've given in the description and follow it along if you want to, because I don't know when you're watching this video, okay? The first thing we will do is, we put a filter on the market cap. I want to only look at companies that are top 500. So what I'll do is, I'll put a filter here. So give me only those companies where the market cap is more than, let's say, 13,000 crore, okay? So I'll get around 500 companies here. If you want to do this analysis for mid caps or small caps or large caps, you can do it that as well. By simply using this market cap filter, it's very, very easy, okay? After this, what I'm going to do is, I'm going to remove some of these filters here. Let's remove this. Let's remove it. Let's remove it. I'm just going to leave return on equity here because this is important. So I want to only filter those companies where the return on equity is more than 10%. Okay? So I get around 358 companies here, right? But more importantly, I also want to look at last five years average return on equity. So I'm going to type in here return on equity. And I want to look at five year average return on equity. And I want to make sure that this is also more than 10%, meaning that in the last five years, cumulatively, the return on equity is more than 10%. Okay? This shows me that the company has generated double rigid return on equity. Okay? So, so far we have used these three parameters. Now I'm not going to look at other parameters, for example, profit growth rate or revenue growth rate. Why? Because if a stock is trading at around 52 week low, then the chances of the fundamentals, the recent fundamentals being very, very bad is high. Okay? So what I'm going to do is fourth filter I'm going to use is percentage away from 52 week low. Okay? What this is going to tell me is that the current price of the stock, how far is it from the previous 52 week low? Okay? And I want this percentage to be as low as possible. So I add this particular filter here. And I say that give me only those companies where this is between zero to 10%. So I'm going to put 10% here. This gives me 51 companies which are almost in 10% range of the 52 week low price, right? Hopefully, so far you're following this. These are four parameters that we have used to build a list of around 50 companies, which are almost trading at around 52 week low range. Now comes the most important part of this video, which is how do we find those companies out of these 51 which are likely to rebound from the 52 week low range? Okay? This is the most interesting part. The only answer is what are likely to be the future fundamentals of these companies? Okay? If in the future, there are few things, for example, the PE ratio, for example, the operational cash flow growth rate, for example, the EPS growth rate, if those estimates are positive, then that means that the company have a chance to rebound from the 52 week low price range. Okay? How do we find that out? What I'm going to do is I'm going to head back to the screener here and I'm going to add a few filters here. I'm going to say forward here. Okay? Now when you say forward here, you are going to get four filters, one year forward, revenue, growth rate, which is going to give you the estimate in terms of how much the top line can grow by potentially. Now this is an estimate. It's not guarantee. Okay? The second one is the one year forward EBITDA growth rate, which is the profitability metric. Okay? Third one is the EPS growth rate, earnings per share growth rate in the next one year. And last one is the forward PE ratio. These are four forward looking parameters and these are estimates. These are not guaranteed. But these can tell us whether the company is likely to rebound or not. Again, we'll do further analysis as well. But for now, I'm going to add these four parameters. And by the way, you see these asterisk marks here. This tells you that these parameters are only available for pro members for ticker tape. And if you want to use the pro membership of ticker tape, go and use my coupon code and you're going to get 45% off on the annual membership of ticker tape. This is a massive discount. And this tool you can use for mutual fund analysis, for stock analysis, and various other things. Don't miss this chance. Grab this opportunity. Now, the link is in the description and in the pinned comment. Now, let me add these four parameters here. Okay? So I've added these four parameters here. And what we are going to simply do is that we want the one year forward revenue growth to be positive. So I'm going to just simply say that more than zero. Okay, let's not over complicate here, more than 0%. One year forward EBITDA growth more than 0%. Okay, so let's say 0%. And one year forward EPS growth rate, as long as it's positive, I'm happy. So more than zero and forward PE ratio also, let's say more than zero, right? Now we get around 32 companies here. Okay, now these 32 companies have an estimation of a better forward looking future as an estimate, of course, not guaranteed. Now one last parameter, which is also very, very important that we need to add is the operational cash flow. Any companies that are generating positive operational cash flow, they are in my view, better companies because cash is the king. Okay. So for that, I'm going to add a filter here, which is operational cash flow, which is one year forward operational cash flow growth. Again, this is an estimate, but it's a very, very important filter. I only want to look at those companies where one year forward operational cash flow growth rate is more than 0%, meaning that next year, the company is going to generate better positive operational cash flow than the current financial year. Okay. So I'm going to say simply 0% and more. And now I get around 19 companies. So these 19 companies are almost trading at around 52 week low range. Okay. Their ROE return on equity in the past have been very, very good. And the future fundamentals of the company from an estimates perspective is looking positive as such, right? This is a very, very good list to start with. Now we have to do a thorough analysis. Okay. Now I'll show you two or three examples of out of these 19 also the companies that you could right away discard. Okay. There are two or three parameters that you need to look at. And very simply, you can say, you know what, this company is not for me. Doesn't matter what price I get this company at, because there are a few things that you need to look at. Let me walk you through those few things as well. Now, the first thing you can do is you can club these companies into subsectors so that you know, okay, this sector, I want to avoid for whatever reason. For example, you might say software services, we know what is going on with Indian IT companies. And you might want to say that, you know what, I don't want to take any bets into IT company. Or you might say that, you know what, pharmaceutical, I'm not comfortable. I do not really understand what's happening in the pharmaceutical world. Tariffs are kicking in. I don't know what the impact of tariffs is. You might say that I want to avoid these sectors for whatever reason that you have, or you might say that, you know, these sectors, for example, look very good to me. For example, stock exchange, or for example, four wheeler sector that looks very, very attractive to me, that is your call that you need to decide as an investor. But definitely this subsector will help you categorize them. After that, what you can do is quickly go to the financials of these companies. For example, I've opened the financials of three companies here. So first company is here on your screen. And here go to the P&L statement as a starting point and look at the annual margin view. Okay. Now, if you look at the annual margin view, what do you look here? You look at the EBITDA margin. Okay. How much is the margin around 7 to 8% in the last few years? Okay. And if you look at the net income margin, PAT margin around 1.7%, 2%. Now straight away, I wouldn't even look at this company. Why? Because the net income margin or the PAT margin of this company is so low, tiny net margin, right? If all of a sudden in a particular quarter or a year, if there is a one-off expense for whatever reason, like recently labor courts were implemented in India, right? And because of which, all of a sudden, one-off shock has come into the P&Ls, what will happen? They will deliver, companies like these will deliver very less profitability because the margins are very, very low. For whatever reason, if the margin contracts, then there is a danger of these companies producing losses. I personally, whatever is the price of the company doesn't matter. These are some of the things that you need to decide for you and say that, you know what, I don't want to get into these companies which are having low margin. Another example I can give you, second company, here you see EBITDA margin is better. 5.21% has been improved to 20%, 20%. Net margins also, here one year bad, 3.90%. But after that, around 11%, 12%. But look at the third company here. What you note here is the EBITDA margin have improved 24%, 34%, 37% almost. And net income PAT margin has gone up from 16% to 23% to 25%. This is the sort of business that I personally like, that EBITDA margin is very high, around 35%. And the PAT margin is also 25%. And not only that, in the last few years, the margins have improved. It means the fundamentally the company's margins are looking good. Now we need to find out what is the reason that the company is trading at a 52 week low stock price. Because definitely there is a short term red flag that we need to find out and we need to make sure that we are comfortable with that 52 week low red flag. It doesn't mean that we just blindly go and buy a stock just because it is at 52 week low. No, that is a recipe for disaster in my view. Let me now do a bit more analysis of this particular company and tell you what are the other things we can look at. The next important point that you need to analyze is the cash flow. So if I click on cash flow here, what do you note? That their net change in the cash is positive. Free cash flow is positive. 1266 here, which is looking very, very good. In fact, free cash flow has been increasing in the last few years. That is very, very good sign. Okay. Now if you look at the net change in cash here, look at the operating activity cash. Okay. How much of cash this company is generating from the operations? That is very important. It is positive 1289. Okay. These figures are looking very, very good. There are no red flags in the cash flow perspective. Cash flow is one of the important parameters that a lot of people are not looking at before you make any investment calls. I would highly recommend that you look at the cash flow. If the operational cash flow is positive, it is telling you that the company is able to generate good cash flow that they can reinvest back into the business. Very, very simple check that you can go back and do it, right? Coming back to the balance sheet here. Okay. Now few quick checks you can make here. What is the total liability of this company around 2156? Okay. So can this company fulfill these liabilities or not? So look at the total assets here. Okay. 4108, it means that's fine. Good situation to be in, but more importantly, look at the cash reserves here. So what is the cash in short term investments? 2521. So the company has enough cash, which is around 200521, which can easily take care of their total liability of 2156 crores. So the company is not going to go bankrupt, etc. These are the basic checks you can see. You can also look at the long term liabilities of the company. For example, total long term debt, not very high 2.49. Okay. So all in all, you need to look at the cash flow, then you need to look at the balance sheet and look for any red flags. So far, we have not found any red flags. If these numbers are correct. Okay. The next thing you will have to do is look at the sentimental analysis of this company to find out why then the stock is trading at around 52 week low price, right? So clearly you will see here challenges. Okay. So if you go to challenges section here, you will see that the company had a massive fire at one of their contract manufacturing, which has limited their supply position. Okay. This is a very, very clear short term problem. The company had a fire in their contract manufacturing facility that has disrupted their supply. And that's why last three quarters, the company has been performing very, very badly. There you go. You have the reason that this is one of the reason the company is struggling right now and the prices are down. But from a long term perspective, will this company not outperform? Yes, definitely. There is a potential here. So this company makes a good candidate for you to now do some further analysis, like who are the promoters? What is happening in the FI stakes, DI stakes, right? Any big news recently, for example, QIPs, et cetera, those things you can look at. And in my view, then you have done all your hard work, right? Now that's how you can build your investing thesis. That's all I can say. I cannot say that still it will give you profits or not, but at least you would have avoided a lot of traps that a lot of people get into by simply looking at the 52 week low price. That was the whole intention. Holistically, I wanted to teach you that even if you're looking for 52 week low stocks, look at these things as well. It's not going to take you more than half an hour or one hour of time. I've shown you literally in this video, how you can build this tracker very, very quickly on ticker tape using the pro filters, right? Also, you can look at how do you remove those companies that you're not interested in, looking at the margin view, et cetera. Even if you apply these simple methods, your investing game will become better. That's the whole intent with which I have created this video. If you liked that, request you to leave a thank you in comments for me and my team. We do a lot of hard work behind the background and bring you presentable content in like 20 minutes of timeframe. If you also want to join my community on YouTube, you're most welcome to do so. I write almost on a daily basis. Simply go to my channel, find the join button and be my guest with that. I'm going to see in my next video. Until then, keep rocking.