Download Tax Saving Mutual Fund Application Forms
Invest In Tax Saving Mutual Funds Online
Leave a missed Call on
94 8300 8300
Identifying value in stocks
For the better part of 2013, investors were ignoring traditional valuation indicators and going for companies with a great revenue potential or where the market opportunity seemed huge. However, in the fourth quarter of 2013, stocks that were beaten down and slow- growing started making a splashing comeback.
Take Bharat Heavy Electricals Ltd ( BHEL), for instance. Since the beginning of 2103, the stock lost 55 per cent till August as investors sought out other growth opportunities.
While ITC and Hindustan Unilever were expanding their price- to- earnings ( PE) ratio, BHEL's PE began sliding and at one point, dipped below five times earnings in August 2013, when its stock hit a low of ₹ 100. That was a nine- year low for the engineering giant.
Value seekers soon began spotting an opportunity in BHEL and started buying the stock. Its PE has gradually expanded and investors who bought at that price are now sitting on gains of nearly 83 per cent, as this debt- free company is currently quoting ₹ 183.70. Why did investors suddenly spot an opportunity here? Engineering, construction, mining and metal companies were seriously out of favour last year. However, most are bouncing back as investors and fund managers seek more value from the market. A slowing economy and sluggish order books has seen most of these stocks tumble to a lower single- digit PE ratio.
Real value or relative value
At the same time, there are stocks quoting at a very high PE ratio. While some people see value in BHEL, others see it in Just Dial. The Just Dial stock, quoting at ₹ 1,603, is surging forward, even at a trailing PE of 103. That seems a sky- high price to pay by traditional valuation yardsticks. So, what are they seeing in the stock? Experts say valuation parameters depend on the type of sector and the outlook for growth. When people have higher expectations of growth, if that materialises, then some high PE stocks will appear at normal valuations after a few years. Valuation is relative and depends on the industry in which they operate. Experts also say one should not confuse a value stock with a growth one. Among the most crucial yardsticks used by investors such as Warren Buffett are discounting of future cash flows and assessing its price relative to earnings potential.
Value seekers argue that even if for some reason the earnings potential remains sluggish, one should not be paying too high a price for a stock. Even as the stock market has hit an all- time high, value stocks continue to remain among the ones sought. Experts still find value in this market. Despite the rising market, there is a lot of value still available in the broader market away from information technology, fast- moving consumer goods and pharmaceuticals.
Spotting deep value
Another question to ask — what is the cash flow a business is expected to generate? If that is significantly higher than the market's expectations, investors could justify paying a higher price for the stock. The only problem is if the flows don't materialise, the stock crash might be severe for high PE companies.
Going by the book and the traditional definition of value, it's all about buying stocks at a low PE and steady earnings growth. While a growth stock with be available at a higher PE, a value stock is usually available at lower PE. With steady earnings that can compound over time, value investing usually provides material gains over long periods of time, with relative safety and lower risk in the short term.
Usually, stocks at the value end of the spectrum have a lower PE and, therefore, the risks associated with these are lower. Investors also consider other things such as price- to book value and dividend yield when looking for value stock. For instance, if the dividend yield is high, say five to six per cent, the stocks usually fall in the value basket.
Price- to- book value can be misleading sometimes. For example, if a company has bought real estate years ago, its value is usually at low levels in its books." Experts also say investors should watch for dividend yields. A fairly consistent and high dividend paying company can be available at low prices. Another indicator to watch is debt. Experts say if a company has too much leverage, it effects its ability to grow. Cash generated goes into paying interest.
Some companies are going at very low prices because of heavy debt. Investors should watch the debt levels Falling share prices and valuations make it easier for investors to select value stocks. Fund managers like to buy these companies when they are abandoned and neglected by the markets. At present, the capital goods space and public- sector banks are among those in the value space.
One caveat: Experts say value investing requires patience. Sometimes, stocks could take a long time to be discovered by the markets but once discovered, can run up to fair value pretty quickly.
For further information contact Prajna Capitalon 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
Leave your comment with mail ID and we will answer them
OR
You can write back to us at
PrajnaCapital [at] Gmail [dot] Com
---------------------------------------------
Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs
Download Mutual Any Fund Application Forms
---------------------------------------------
Best Performing Mutual Funds
- Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Franklin India Bluechip
- ICICI Prudential Top 100 Fund
B. Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Birla Sun Life Front Line Equity Fund
- Franklin India Prima
C. Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Birla Sun Life Dividend Yield Plus
- SBI Emerging Businesses Fund
- HDFC Mid-Cap Opportunities Fund
- ICICI Prudential Discovery Fund
D. Small and MicroCap FundsInvest Online
- DSP BlackRock MicroCap Fund
2.Franklin India Smaller Companies
E. Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- ICICI Prudential Banking and Financial Services Fund
F. Tax Saver Mutual Funds Invest Online
1. ICICI Prudential Tax Plan
2. HDFC Taxsaver
- DSP BlackRock Tax Saver Fund
- Reliance Tax Saver (ELSS) Fund
G. Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
- Birla Sun Life Gold
H. International funds Invest Online
1. Birla Sun Life International Equity Plan A
2. DSP BlackRock US Flexible Equity
3. FT India Feeder Franklin US Opportunities
4. ICICI Prudential US Bluechip Equity
5. Motilal Oswal MOSt Shares NASDAQ-100 ETF
No comments:
Post a Comment