Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
These good quality stocks are cheaper than Govt bonds - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 23, 2012

    These good quality stocks are cheaper than Govt bonds

    Can a stock be valued cheaply than a bond? Or for that matter a Government bond? Looks unlikely, isn't it? After all, a good quality stock will continue to raise its earnings for many years into the future. But a bond has no such possibility. Its coupon payments will remain as similar five years down the line as they are today.

    Thus, it goes without saying that stocks will continue to trade at lower yields than Govt bonds or in other words, will command a higher P/E.

    However, as we all know, markets don't operate with robotic precision. A lot of times, stocks, even good quality ones, start to trade at prices that make them more attractive than Government bonds.

    Clearly, what better opportunity for a value investor to fish in a sea of such stocks? Not only are these stocks good quality but they also have a margin of safety in the sense that they are available at lower or at par valuations of Government bonds.

    In our view, stocks that are currently available at a P/E of 10 or less are the kind of stocks that could qualify for the criterion mentioned above. Why a P/E of 10? Well, a small Google search will tell us that a 10-year Indian Government bond currently trades at a yield of around 9%.

    Thus, a stock with a P/E of 10 or less is the one that is trading lower than the bond. Besides, it is also important that the stock be of good quality i.e. have a D/E ratio of no more than 0.5 times so that the chances of the same going bankrupt or the stock turning into a value trap is minimized to the best extent possible.

    The table shown below indicates the stocks from the mid cap universe that are not only good quality (D/E of less than 0.5) but are also trading at attractive yields.

    Good quality Mid Caps cheaper than Government bonds...
    Company name Trailing 12 month P/E Total D/E
    Gujarat Narmada Valley Fertilizers Company Ltd. 3.60 0.50
    Gujarat State Fertilizers & Chemicals Ltd. 4.61 0.14
    Clariant Chemicals (India) Ltd. 5.68 0.00
    Glodyne Technoserve Ltd. 6.84 0.29
    Educomp Solutions Ltd. 6.86 0.42
    Gujarat Fluorochemicals Ltd. 7.79 0.33
    Housing Development & Infrastructure Ltd. 8.07 0.45
    Maharashtra Seamless Ltd. 8.18 0.04
    Polaris Financial Technology Ltd. 8.35 0.00
    Birla Corporation Ltd. 8.94 0.50
    Graphite India Ltd. 9.12 0.19
    Kalpataru Power Transmission Ltd. 9.52 0.28
    MOIL Ltd. 9.77 0.00
    Source: Ace Equity
    It should be noted that the stocks listed above can only be a good starting point to start one's research from. Investing only on the basis of criteria given above and doing no further research may not achieve the desired results according to us.

      Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.



    Equitymaster requests your view! Post a comment on "These good quality stocks are cheaper than Govt bonds". Click here!

    3 Responses to "These good quality stocks are cheaper than Govt bonds"


    Apr 1, 2012

    P/E is 5.69 check it at
    moneycontrol (stock quotes)


    Nikhil H Shah

    Mar 25, 2012

    When you click on Clariant Chemicals, it shows a PE ratio of 27.62 whereas in the article it shows 5.68.

    Please clarify.





    Mar 24, 2012

    I clicked on Clariant Chemicals and it shows P/E ratio as 27.62, five times 5.68 shortlisted as cheaper stocks than govt bonds.

    Can you confirm which one of the two is close to actual.


    Equitymaster requests your view! Post a comment on "These good quality stocks are cheaper than Govt bonds". Click here!

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)