Which are the most undervalued stocks in India?
As per Equitymaster's Stock Screener, here are the list of the most undervalued stocks in India right now...
- #1 BPCL
- #2 IOC
- #3 POWER FINANCE CORPORATION
- #4 ONGC
- #5 BANK OF BARODA
These companies have been ranked as per their PE (Price to Earnings) ratio and PB (Price to Book Value) ratio. The lower the ratios, the more undervalued the stock is.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
How do you know if a stock is undervalued?
One of the quickest ways to gauge whether a stock is undervalued is to compare its valuation ratios to the rest of its industry or its historical average. If it is trading below these numbers, it is likely to be undervalued.
Some of the most commonly used valuation ratios are the Price to Earnings ratio, Price to Book Value ratio and Price to Sales ratio.
How do you find undervalued stocks?
The first step to identifying undervalued stocks is to use a stock screener. A stock screener is a set of tools that allow investors to quickly sort through a large number of companies according to a few pre-defined criteria.
Some of the filters you can use to find undervalued stocks are the Price to Earnings ratio and the Price to Book Value ratio. The lower the number, the more undervalued the stock.
You can use Equitymaster's powerful Indian stock screener tool to find the top undervalued stocks in India.
Are undervalued stocks a good buy?
Undervalued stocks can be great options for investors looking for hidden bargains. In theory, if a stock is truly undervalued, its stock price will increase.
However, not all undervalued stocks are great buys. Investors must be cautious of value traps. Value traps are investments that are trading at such low levels and present as buying opportunities for investors but are actually misleading.
Do undervalued stocks always go up?
Not all companies with low valuations will experience an increase in market value. While determining the value of a company, ask yourself why the stock is trading at a low valuation and whether those concerns are valid.
Are there any famous investors that believe in investing in undervalued stocks?
Legendary investors Benjamin Graham and Warren Buffett, have based their entire investing philosophy on buying undervalued stocks i.e stocks that have a margin of safety.
However, they consider other parameters as well besides valuation such as high return on equity and high profit margins. They also focus on companies that provide a unique product or service that gives them a competitive advantage.
Here's a list of Indian stocks that could qualify per Warren Buffett's criteria...
Another famous investor who is an advocate for buying undervalued stocks is hedge fund manager and Columbia University professor Joel Greenblatt. His investing strategy involves buying undervalued stocks based on two parameters - high earnings yield and return on capital (RoC).
The earnings yield tells us whether the company is available at an attractive price. The RoC tells us how well the company has used its capital.
Here's a list of Indian stocks that could qualify per Joel Greenblatt's criteria...