Top 5 Value Stocks in the Market Today

Value investing is one of the best ways to build long term wealth in the stock market.

This investing style was developed by Benjamin Graham, who is known as the father of value investing, about 100 years ago.

The core idea of value investing, in Graham's own words, is this...

• An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.

The stocks that promise 'safety of principal' and 'adequate return' are called value stocks. These are shares of companies with good quality fundamentals and decent growth prospects.

However, do to any number of reasons these stocks can be undervalued by the market in the short term. This makes value stocks very attractive to long term investors. If purchased is sufficient quantities at the right price, these stocks can deliver very high returns.

So how do you find a good quality value stock that also happens to be undervalued by the market?

Well the first thing to understand is that a stock is undervalued when it is trading at a price below its true value, also known as intrinsic value.

The intrinsic value or the true value of a stock, is its actual worth, irrespective of what investors and speculators are willing to pay for it at that time.

Sometimes, due to negative market sentiment, the price of a stock falls below its intrinsic value. At such times it can trade at a discount to its peers or the industry average. This is an example of an undervalued stock.

This is a good time to buy the stock if the pessimism is overblown. You might make good returns.

However, other times this pessimism is warranted. The company could have succumbed to competition or could be a victim of rapid technological changes or is being run by incompetent or unethical managers.

Whatever the reason, such companies that fail to perform despite the inexpensive stock price, eventually become value traps. The key to sidestep these stocks is by do your research.

Investors should look for fundamentally strong companies available at a discount to their intrinsic values. There are several methods to do this. Valuations tools like the commonly used Price to Earnings and Price to Book ratios can help you find a good value stock that is trading at a discount to its historical valuations.

You can also find the most undervalued stocks using Equitymaster's powerful stock screener.

In this article we highlight 5 value stocks that you can research further.

#1 ONGC

ONGC is the largest oil and natural gas company in India. It's engaged in the business of oil exploration and production. It produces 70% of India's crude oil and 84% of India's natural gas.

Currently, ONGC operates in eight basins, of which the company discovered seven. It has also discovered its ninth basin, which will soon open for commercial production. It plans to add more basins to India's production map in the next three to four years.

In the last four years, its revenue has grown at a CAGR of 10.5%, driven by growth in volumes. The net profit has grown at a slower CAGR of 1.8% largely due to the fall in gross margins and the windfall tax levied by the government in FY23.

It plans to spend over Rs 310 bn for oil and gas exploration in the next three years. ONGC also signed an agreement with the Solar Energy Corporation of India to develop renewable energy.

Going forward, the company plans to diversify its revenue base and continue to improve its existing business.

To know more about ONGC, checkout its factsheet and latest quarterly results.

#2 Oil India

Oil India is an India-based integrated exploration and production company in the upstream sector, which is engaged in providing crude oil and natural gas. The company's segments include crude oil, natural gas, LPG, pipeline transportation, renewable energy and others.

It owns and operates facilities and equipment to carry out seismic and geodetic work, two-dimensional (2D) and three-dimensional (3D) data acquisition, processing and analysis, drilling, oil and gas field development and production, liquefied petroleum gas (LPG) production, and pipeline transportation.

The company owns and operates an approximately 1,157 km long fully automated crude oil trunk pipeline between Naharkatia-Barauni.

The company is strategically diversifying its investments in various clean energy sectors, with focus on establishing green hydrogen valleys and exploring the geothermal potential in Himachal Pradesh.

For this, the company has formed partnerships with academic institutions. They have partnered with IIT Guwahati to explore the possibility of creating a hydrogen valley in the northeastern region.

Additionally, Oil India is in discussions with IIT Bhubaneswar to potentially establish another hydrogen valley in Odisha, although this project is still in the early stages.

For more details, see the Oil India company fact sheet and quarterly results.

#3 Tata Chemicals

Tata Chemicals is the world's third largest soda ash producer with manufacturing facilities in Asia, Europe, Africa, and North America. The company has a strong position in the crop protection business through its subsidiary company Rallis India.

It's a global company with interests in businesses that focus on basic chemistry products and specialty chemistry products. The company's basic chemistry product range provides key ingredients to some of the world's largest manufacturers of glass, detergents, and other industrial products.

It has established world class research and development (R&D) capabilities with a dedicated band of research and scientific personnel working at its facilities in Pune and Bangalore in the emerging areas of material sciences, nutritional sciences, nanotechnology, biotechnology, and agriculture sciences.

Tata Chemicals is looking to take advantage of an upsurge in demand for soda ash in light of China's reopening and the emergence of innovative glass applications.

Despite facing economic challenges in various regions, the company has a full order book and is optimistic about a robust product market.

The demand is also expected to be aided by the China plus one strategy of companies and the government's Atmanirbhar Bharat Abhiyan to reduce the dependence on chemical imports and make India more self-reliant.

Further, the challenges in Europe amid the war between Ukraine and Russia have added to the opportunities for chemical companies. Lower coal prices will help offset the impact of the recent price cuts taken by the company on its earnings for 2023-24.

For more details about the company, check out the Tata Chemicals factsheet and quarterly results.

#4 GSFC

Promoted by the government of Gujarat, Gujarat State Fertilizer and Chemicals (GSFC) is in the manufacturing and trading of fertilizers and industrial chemicals.

It has a diversified product portfolio which it manufactures in four state-of-the-art manufacturing plants located in Gujarat. It also manufactures several other products that are otherwise imported from abroad.

GSFC also invested in a Canada-based company to add potassium to its portfolio and increase its market share in nitrogen phosphorous potassium (NPK) fertilizers.

Further, the company is working on several modular-size capex projects worth Rs 7.7 bn, including an ammonium sulphate plant, an HX crystal project, a solar power project, and revamping its urea plant at Vadodara to its production capacity.

All the projects will be funded through internal accruals and surplus liquidity which will help the company maintain its debt-free status.

It's also setting up a green hydrogen plant in its Vadodara plant to support the government's green initiatives.

New product launches and the company's new initiatives in green hydrogen space are expected to drive its revenue in the medium term.

The company's revenue has grown at a steady CAGR of 7.6% over the last four years, driven by improvement across all its business segments. The net profit has grown at an impressive CAGR of 26.6% on the back of its backward integration efforts.

As a result, its return on equity (ROE) has improved to 10.5% from 6.7% four years ago. The RoCE also grew to 12.9% from 9.8% over the same period.

To know more about Gujarat State Fertilizers and Chemicals, check out its factsheet and latest quarterly results.

#5 Polyplex Corporation

Polyplex Corporation is an Indian multinational company which manufactures polyester films for packaging, electrical, and other industrial applications.

The company is an industry leader with a stable market share of about 25% in Thailand and Turkey, as well as around 10% in India, the US, and Indonesia. The group's business is diversified in terms of manufacturing capacities. Its revenue contribution split across regions and product applications.

Going forward, Polyplex Corporation is expected to showcase improved financial performance due to stabilising input costs and the re-negotiating of old contracts. The company is also benefiting from a significant rise in demand, which is creating favorable market conditions.

Despite short-term uncertainties, it has many qualities of a high-quality company. The group has consistently generated strong operating cash flow over the past decade, thanks to its high-capacity utilisation and its presence in the less volatile BOPET segment.

Polyplex also stands out as a fundamentally strong company, delivering consistent double-digit return ratios. The company also has a track record of paying consistent dividends with a 5-year average payout ratio of 35%.

To know more, check out Polyplex Corp's financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...