Thursday, January 10, 2013

Stock Chart Pattern - Hindustan Unilever (An Update)

These were the concluding comments in the previous update to the stock chart pattern of Hindustan Unilever back on Sep 21, ‘11 (marked by grey vertical line in chart below): “Valuations are not cheap, but the stock is worth its weight in gold. Regular dividends are an added attraction. Use dips to accumulate.”

The stock price had closed at 339.30 on Sep 21 ‘11. A few days later (on Oct 5 ‘11), the stock price closed at 322. That was the lowest closing price the stock touched in the last 15 months. At today’s (Jan 10 ‘13) closing price of 516.65, the stock has gained an annualised 42% since the previous post – not counting the substantial dividends paid.

Not bad for a stock whose valuations appear expensive to most small investors. Gold appears expensive too, but many investors would rather by gold than HUL stock – despite the fact that gold pays zero dividends.

What does the 2 years closing chart pattern of Hindustan Lever show us? It is still in a bull market, but undergoing a period of consolidation. Is this a good time to enter?


Note that over the past 2 years, the stock had undergone three prolonged periods of consolidation (marked by light blue ellipses) which lasted between 3 to 4 months each. The current consolidation has been going on for more than 2 months.

The stock price had broken out upwards from the three previous consolidations, and each time negative divergences in the daily technical indicators (which failed to touch new highs – marked by blue arrows) led to the next period of consolidation.

Will the pattern get repeated this time as well? All four daily technical indicators are showing positive divergences by touching higher bottoms while the stock price has been moving sideways. However, the technical indicators are bearish, which means the consolidation may not be over.

The company continues to deliver on both sales and profit fronts and generates a ton of cash. The best way for small investors to accumulate the stock is to start a monthly SIP by buying 5 or 10 stocks each month (about the cost of a night out with friends at a pub or restaurant).

Bottomline? The stock chart pattern of Hindustan Unilever is in a bull market, making steady rather than spectacular progress. Growth and margins are back on the upswing. Valuations are not cheap, but the stock is worth its weight in gold. Regular dividends are an added attraction. Use dips to accumulate. (This is a repeat of the concluding paragraph of the previous update – did not see any reason to change it.)


Jasi said...

Common sense isn't so common after all, as they say!
You do a great service to common folks like me helping us believe that investing is no rocket science.
Keep the good work up Sir.

Subhankar said...

Appreciate your comments, Jasi.

Ajay said...

Appreciate your analysis to spot on to see a bull market in HUL.
Regret for not having followed your advise. Sometimes PE, Yield and valaution doesnt matter. It is true for this stock so far.

Subhankar said...

Thanks for your comments, Ajay.

Valuation metrics for buying vegetables, ice cream, a Rolex watch, a BMW car are different - and so they should be.

Of course PE, yield, RoE matter. But if your mind is set on a Rolex - and you don't have the money now - just SIP a little every month to work towards your goal instead of buying a 'cheap' substitute.