We were given the task of forming a portfolio of five stocks from the 12 stocks suggested by the officials of the Investment Corporation of Bangladesh. The suggested stocks are of UCBL, Apex Footwear, BATBC, Berger Paints, Pubali Bank Limited, Popular Life Insurance, One Bank Limited, Summit Power, Uttara Finance, Square Pharmaceuticals, Square Textiles Ltd. and Uttara Bank. Five of them belong to the banking sector, one belongs to food and allied, one belongs to fuel & power, one belongs to textile, one belongs to pharmaceuticals & chemicals, one belongs to tannery industries, one belongs to insurance and one belongs to miscellaneous category. The persons who advised us to start with these twelve particular stocks had their reasons to believe that these will perform well in the near future. They have indicated that the speculation made for the Dhaka Stock Exchange is mainly based on rumors and insider information when we consider the option of capital gain.
Mostly they have indicated these stocks on the basis of EPS and rumors. Now for choosing five stocks among these we applied three procedures in this paper. These are ratio analysis, behavior of return and correlation analysis. We have to make our portfolio by investing a hypothetical amount of Tk. 1000000 in these five stocks equally.
Spot Price of the Stocks:
The spot price of the shares on October 17, 2006 is given below.
Pubali Bank Limited819
One Bank Limited257
Square Textiles Ltd.74.5
Popular Life Insurance847.36
Now, we will examine all the twelve stocks PE ratio and EPS. Higher PEs are often taken to mean the firm has significant prospects for future growth.
Pubali Bank Limited: