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Top 6 undervalued stocks to add to your watchlist

Top 6 undervalued stocks to add to your watchlist

Stocks that trade below their intrinsic value are considered undervalued.

Investment value, a concept that is centuries old, still holds true today. This is because investments are made based on the true value of the business.

Warren Buffett, Charlie Munger, and Bill Ackman all follow the value investing concept in their own style.

What exactly is value investing?

Value investing is an investment approach in which investors attempt to identify companies that trade above or below their intrinsic value.

Stocks that trade above their intrinsic value are considered overvalued. Stocks that trade below their intrinsic value are considered undervalued.

Price-to-earnings (P/E) and price-to-book (P/B) ratios are two value ratios investors use to determine if a stock is undervalued or undervalued. overpriced.

According to value investors, undervalued stocks offer excellent buying opportunities.

Here are the 5 most undervalued stocks on the market today. We have shortlisted using Equitymaster stock screener.

Power Finance Corporation No. 1

Power Finance Corporation (PFC) is the most undervalued stock on our list. It is one of the leading non-banking financial groups in the country.

PFC’s current P/E is 1.9 while P/B is 0.5.

Compared to its peers, it is trading at a much lower P/E ratio. The financial industry average P/E is 45.

PFC’s main business is to extend financial support to the domestic power industry. It provides loans to power companies for the generation, transmission, distribution of electricity, etc.

With a market share of 20%, the company is the dominant player in the industry.

Its customer base includes various state power boards, state, central and private sector power companies, power departments and equipment manufacturers, among others.

Over the past three years, the company’s revenue and profit have grown at a CAGR of 12.1% and 5.8%, respectively. This mainly comes from loan disbursement and higher net interest income. The company has also maintained a net profit margin of 15.4%.

In the most recent quarter results, the company’s revenue grew 6.1% year-on-year while net profit increased 17.8% (YoY).

The PFC benefits from new government initiatives aimed at meeting growing electricity demand.

Check out how the company’s stock has performed since January of this year.

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#2 HOLD

REC, a Navratna company, is second on our list.

The company’s stock is trading at 2.9 times earnings (P/E) and 0.6 times book value (P/B). IRFC, the closest competitor in the financial sector, is trading at a P/E of 5.6x.

REC is one of the leading infrastructure finance companies under the Ministry of Electricity. It funds power generation, transmission and distribution projects with parent company Power Finance Corporation (PFC). PFC holds nearly 52.6% shares of the company.

REC has an extensive network of 22 offices across the country. It provides financial support to state governments, state electricity councils, independent power producers and rural electricity cooperatives.

Over the past three years, REC’s revenue and profit have grown at a CAGR of 13% and 13.4%, respectively. This is mainly because higher loan disbursements lead to higher interest income.

The company’s three-year average net profit margin is 20.9%. It already contains the running costs quite well.

In the most recent quarter results, the company’s revenue grew 14% year-over-year. The company’s profit increased 23.2% YoY and net profit margin was 26.9%.

The pandemic has presented both challenges and opportunities for the power sector. While industrial demand was close to zero during the first three months of the lockdown, consumer demand picked up significantly after that.

Government reforms in the electricity sector will also increase transparency and accountability across the value chain. This will have a positive impact on the REC.

Check out how the company’s stock has performed since January 2021.

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#3 Steel Authority of India

Steel Authority of India Limited (SAIL) is one of the largest steel producers in India. It has also made it to our list of undervalued stocks.

SAIL’s current P/E ratio is 3.7 while its P/B ratio is 1.

It is trading below the industry average. The average P/E and P/B of the steel industry are 12.6 and 4.5, respectively.

SAIL is a Maharatna company. It produces steel and iron at 5 general and 3 specialty steel mills across eastern and central India.

It has an installed capacity of 21.4 million tons per year (MTPA) and is planning to double its capacity to 50 MPTA by 2030.

SAIL’s revenue increased 11.8% year-on-year in fiscal year 2021 due to increased steel sales volume. The company’s net profit also grew by 91.1% YoY in the same period due to lower input costs and interest expense.

In its most recent quarter results, the company’s revenue jumped 58% year-over-year. Net profit increased by 1,075.4% YoY. SAIL’s plan to modernize and expand as well as eliminate leverage has resulted in operational efficiencies. Its profit margins have improved significantly in recent quarters.

During the pandemic, the steel industry was constrained in terms of demand.

According to the World Steel Association, steel demand will grow by 5.8% in 2021 and 2.7% in 2022. Demand will be supported by digitalisation, automation and infrastructure initiatives. floor.

SAIL, as one of the largest steel producers in the country, will have a significant share of the growing demand.

The company’s stock has delivered a 51.6% return since January 2021.

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#4 Tata Steel

Tata Steel, part of the Tata Group, is fourth on our list.

Shares of Tata Steel are trading at 4.4 times earnings (P/E) and 2 times book value (P/B). Its closest competitor, JSW steel, has a P/E of 8.5 and a P/B of 3.5.

Tata Steel is one of the world’s leading steel companies. It has operations spread across 26 counties and exports products to more than 50 countries.

In India, it has an installed capacity of 20 MTPA. In Europe and Southeast Asia, installed capacity is 12.4 MTPA and 2.2 MTPA respectively.

It has a diverse product portfolio catering to the construction, automotive, packaging and engineering sectors.

In its latest quarter results, the company’s revenue grew 54.6% year-over-year, driven primarily by higher sales and output growth.

Its net profit also increased 676.8% YoY.

With the recovery in the manufacturing sector, steel demand is forecast to recover strongly. Along with that, the government’s strong promotion of infrastructure will also boost domestic steel demand.

Shares of Tata Steel have returned nearly 81% since January 2021.

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# 5 Indian Oil Corporation

The Indian Oil Corporation (IOC) is one of the most undervalued stocks in the energy sector.

The company’s P/E ratio is 4.7, while the P/B ratio is 1. This is much lower than the industry averages of 13.8 (P/E) and 2.7 (P). /B).

IOC is a Maharatna energy company with presence in oil, gas, petrochemical and alternative energy sources.

It accounts for nearly half of the market share of petroleum products as of 2020-2021. It has a strong geographical presence through its subsidiaries in seven countries.

The company has a refining capacity of 80.6 MMTPA and has a pipeline network of over 15,000 km for fuel distribution and transportation.

The IOC operates through 29,000 retail gasoline pumps and 7,000 bulk consumer pumps. The company’s Indane LPG gas is marketed through a robust network of 12,700 distributors.

In recent quarter results, IOC’s revenue grew 46.5% YoY due to higher international oil prices.

Its profits increased only slightly from the previous quarter. This is because the revenue growth is offset by higher costs.

Strong government ties, high operating margins, strong distribution network and capital investment in the pipeline segment are all key growth drivers for the company.

With government initiatives like Atmanirbhar Bharat, and a growing population, the country’s energy needs are expected to be high in the long term. The IOC will benefit from growing demand as it has almost half the market share of petroleum products in the country.

IOC shares have yielded 30% since January 2021.

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#6 Bharat Petroleum Corporation

Bharat Petroleum Corporation (BPCL), India’s third largest oil refiner, is on our list of top undervalued stocks.

The company’s stock is currently trading at a P/E of 4.7, well below the industry average P/E of 13.8.

Its P/B ratio is 1.6 while the industry average is 2.7.

BPCL is a PSU formed by merging Burmah Shell Oil Storage and Distribution Company of India with Burmah Shell Refinery.

The company’s products span the supply chain – petroleum, LPG, aviation, lubricants, gas and industrial products.

With an installed refining capacity of 35.4 MTPA, it is India’s second largest oil marketer. It has a strong marketing network with 18,637 retail points and a 2,241 km product pipeline.

BPCL owns a substantial stake in the well-known listed joint ventures Petronet LNG and Indraprastha Gas.

In the most recent quarter results, the company’s revenue increased 54% year-on-year due to production growth and rising fuel prices.

However, its net profit increased only slightly.

Its well-established retail network, strong operational efficiency, extensive branding initiatives and continued support from the government are its key growth drivers.

Check out how the company’s stock has performed since January 2021.

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Should you buy undervalued stocks?

Valuation plays an important role while selecting undervalued stocks. But that’s not the only criterion for investing.

A viable, sustainable business, with good growth prospects and consistently profitable, could be shortlisted as potential candidates.

Strong fundamentals are another factor that you should consider. A company with good fundamentals is considered a high-quality business. Such businesses tend to provide good returns over the long term in any market conditions.

All successful value investors focus on investing for the long term rather than timing the market.

If you have an investment plan, set a long-term investment goal to reap maximum benefits.

Happy investing!

Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.

(This article is provided from Equitymaster.com)

(This story has not been edited by NDTV staff and was automatically generated from a syndication feed.)

https://www.ndtv.com/business/top-6-undervalued-stocks-to-add-to-your-watchlist-2652374 Top 6 undervalued stocks to add to your watchlist

Emma James

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