Our Option Trading series is continuing. Yesterday, we added HCC to the list of likely trades.
One of the stocks mostly in our shorting list is TATA MOTORS.
Many people ask why we can not buy it at the current low levels.
There are buyers ans sellers for every stock at every price and both of them are right.
Let us have a look at the chart and then discuss why it should be avoided.
TATA MOTORS has been an under performer in a strong market.
These things happen with a reason and most of the time we do not know those reasons until much later.
I have stated many times that stocks trading near 52 week lows are not meant to be bought.
They are more likely to make another low few days later.
Such behavior is apparent from the chart above.
Technicalities apart , let us come to the reality part of it now.
Buying a Car :
When you think of buying a car for your personal use which brand do you think of first?
I bought my car 3 years ago.
The first brand that usually comes to mind is Maruti Suzuki.
Then we think of Hyundai, Honda, VW, Ford and others. TATA MOTORS is really very low in the preferred or the first recall brand list.
Even we do not see too many INDIGO Taxis on the road. That brand ruled the taxi market in the early years of this millennium. NANO has been a big let down for the company after the initial positive noise.
We understand that JLR is doing well. Good for the company. If that were not the case, the stock price would have still been lower.
Company has come up with few new brands which we understand are doing well currently. But new brands means expenditure now and returns much later. Profits if any are further down the line.
Such companies do not make good investment candidates.
Two Year Horizon :
Two years in the stock market is a long time. Many things can happen.
But the stock which has not kept up with the rising market is not likely to buck the trend if markets decide to go south.
Two years ago on May 06, 2016 NIFTY was 7733.
Tata Motors stock price on that day was Rs. 398.70.
NIFTY is about 37% higher currently at 10620 but TATA MOTORS is languishing at Rs. 334.40.
Until and unless the company comes up with a product in the Passenger Car segment which sells like Hot Wheels ( Cakes would not help much ) we do not see a big up move.
Commercial Vehicles :
Commercial vehicles was and is the core strength of the company. It is still doing well in that segment though competition is much intense now with Ashok Leyland having turned the corner in the last decade.
Then there are brands like AIWA and TATRA in the Heavy Earth Movers category which provide a very stiff competition.
To outshine all the competition is a tough ask.
To Summarize :
At present nothing points to a BUY signal in TATA MOTORS .
Stocks at 52 week low are mostly not a good BUY, so TATA MOTORS is also not an exception.
Unless the numbers in the passenger car segment of business improve, it should be avoided.
I may be wrong in the above assessment but being wrong in one stock does not matter if you are right in others.
Thanks for reading
Venkat Kalagarla May 7, 2018 at 10:02 am
Sir, Would you still suggest to fresh buy 330 PE for Tata motors?Reply
Jatin May 7, 2018 at 5:48 pm
Pramod sir I couldnt agree more with you…on the opposite end,as your rightly mentioned,there is a mind boggling craze for the Maruti Suzuki cars even though I doubt that their build quality would be on the same benchmark as Tata Motors.
I think there’s one ( I guess there would be many more) similar stock to Tata Motors is Bharti Infratel.Reply