Which are the top value stocks in India right now?
As per Equitymaster's Stock Screener, here is a list of the top value 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. High PE stocks are considered to be overvalued stocks. And low PE stocks are said to be undervalued.
Generally, speaking, the top value stocks trade at a lower PE ratio as compared to their peers.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
What are value stocks?
Value stocks are companies that are undervalued relative to their earnings and long-term growth potential.
They can provide lower volatility and steadier growth over the long run. They can also provide the benefit of dividends, which are a significant plus during market declines.
Investing in value stocks was pioneered by Benjamin Graham and David Dodd at Columbia University in the 1920s.
What is value investing?
Value investing is an investment approach that allows one to profit from undervalued stocks. It is based on the idea that each stock has an intrinsic value, i.e. what it is truly worth.
Through fundamental analysis of a company, we can determine what this intrinsic value is.
If the intrinsic value is higher than the actual stock price of the company, then the stock offers an investment opportunity. It's like buying a Rs 100 note, for Rs 80.
Conversely, if the intrinsic value is lower than the current market price, then the stock is 'over valued' and should be avoided. Think a Rs 100 note selling for Rs 120.
Are there any famous investors that believe in investing in value 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...
Are value stocks a good buy during periods of high inflation?
Historical data shows that value stocks have performed very well, on average, during inflationary periods. Value stocks have a strong cash flows which makes them more attractive during such times unlike growth stocks.
However, investing by its very nature is rife with uncertainty and chance. The most rational thing an investor can do is buy fundamentally strong companies at a fair price.
Which is better - value stocks or growth stocks?
There is no clear winner as both focus on different investing strategies. It is up to investors to identify their investing goals and choose accordingly.
Growth stocks are more volatile than value stocks but have the potential to rise in price substantially. On the other hand, value stocks are low-risk, and offer regular dividends but can't fulfill short-term investing goals.