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Wednesday, August 12, 2009

Stock Chart Pattern - Container Corporation of India

Container Corporation is a Govt. of India company, promoted by the Ministry of Railways. Regular readers of this blog may know of my aversion to government-owned companies. So why am I discussing the stock chart pattern of Container Corporation?

A one-word answer: monopoly. I like a company that is well-run, generates cash flows from operations, makes profits, pays dividend and has low debt. If it has a monopoly in its line of business - in this case, storing, handling and transporting of containerised goods through the railway network, a classic play on the India infrastructure story - then it makes the company doubly attractive.

The government holds 63% of the equity. FIIs hold more than 25%. The public holds just about 1%. No wonder it has a high price, but because of its profitability, trades at a P/E of less than 18. If there is one drawback, it is the low volume of trading.

Last year's top line was flat due to the economic down turn that severely affected exports and imports. Still, the company managed to improve its operating and net profit margins.

The one year bar chart pattern of Container Corporation is a clear example of a market favourite that is charting its own course, far removed from the gyrations of the BSE Sensex index:-

Container Corp_Aug1209

The stock made a low of 540 in Nov 21 '08 and a higher low of 610 on Mar 4 '09, before embarking on a bull rally with periodic corrections and consolidations. On Jul 29 '09, the stock hit a high of 1149, a level it had last touched in Sep '07 (adjusted for 1:1 bonus issue).

Thereafter, the stock has started consolidating in a triangle pattern. Of note is the big gaps between the 50 day and 200 day EMAs and between the stock price and the 50 day EMA (marked on the chart with blue arrows).

Does that mean the stock will face a trend reversal? Probably not. But a good correction may take it down to seek support at its 50 day EMA at around 1000, and then to the 200 day EMA at around 850.

The triangle pattern is usually a continuation pattern, so the stock price may very well move further up and try to reach its all time high of 1222, hit on Jun '07, before starting the correction. But triangles are quite unreliable, and the stock may just continue sideways for a while, negating the triangle.

Other than the EMAs, which are moving up strongly, the other technical indicators are showing weakness. Both the RSI and MFI have slipped down from overbought zones. The MACD is positive, but below its signal line. The slow stochastic is dropping towards the 50% level. These are bearish signs, indicating a correction in the near term.

Bottomline? The stock chart pattern of Container Corporation demonstrates that given the proper environment and business model, a government owned company can generate excellent returns. Investors would do well to keep this stock on their 'watch list' and enter on dips.

7 comments:

Venkatesh said...

Dear Subhankar,

Thanks for giving a technical perspective on Concor. I am personally invested in the company at a level of 700 (very small quantity, probably fear got the better of me).....I too think that monopolistic companies are best bets for long term (govt / non-govt).....and given Concor's very strong cash flows and superior ROEs it is a must in a portfolio for the patient investor. I will try to add on dips if it approaches levels less than 1,000 as you have mentioned. Many thanks.

Venkat

Subhankar said...

Hi Venkat

Appreciate your comment.

Hindsight is always 20-20. You did well by not being greedy at a price of 700. Now that you have some idea where the stock can go, you can always determine suitable entry points and stop losses.

SG Money Mind said...

Here is thumb rule calculation.

If you take the four trailing quarters EPS, it works out to Rs.63. As the company has grown at the rate of 11-12%, it works out to Rs.756. Giving a little bit of margin for errors, I am ready to add this stock only below Rs.600. Anything above, I will let others buy it. But I won't sell my existing holdings.

Narinder Kumar said...

A very informative Blog even for a novice,like me, who has little or no knowledge about the Technicals. Beauty of the articles is that aside from Technicals, some brief fundamental details are also narrated. Kudos to Hon'ble Shri Subhankar Ji. Please keep it up for the general benefit of the members of the Blog and the visiting guests.

Subhankar said...

@SGMM: Thanks for pointing out the error, which has been corrected. I meant a P/E (not EPS) less than 18. The EPS is indeed 63.

At a price of 875, where the stock may fall in a correction, the P/E will be 13.89, giving an earnings yield (i.e. E/P) of 7.2%, which is the same as the current bank fixed deposit rate. So, zero 'Margin of Safety'. 600 will indeed be a much better entry point. Question is, will the stock fall that far again?

For those who have bought at lower prices, adding some more in the 850-900 range may not be a bad idea. The monopoly should count for a little extra premium once the economy is back on the 'rails'.

@Narinder: Thanks for your comment. The blog is specially for new investors - so that they can avoid some of the mistakes that every beginner in the market seems to make.

If readers like you find the posts useful and keep participating in the discussions, then all my efforts will be worthwhile.

D'SOUZA said...

Dear Subhankar,
The stock is now falling, its MACD is now below zero , it is close to ema200 ( 3 mth chart) .
OBV & acc/dist has dipped but are now moving sideways
SLOW STOCH is in over sold region and RSI is 37. it has breach the support line of 1331 and the next support is 1302 .
The volume are low and the ADX indicator does not show any trend .

Is this stock being accumulated since its moving sideways ( ACCUM/DIST INDICATOR) and no trend in ADX or is it good to wait and watch if it gets support at next level.

DSOUZA

Subhankar said...

The stock is under selling pressure, but should get support at the 200 DMA (around 1290). Below that, 1260 is a strong support level that may provide an entry point.