INSUBCONTINENT EXCLUSIVE:
Stocks trading below their intrinsic value are considered to be undervalued.Value investing, a concept that is a century old, still holds
This is because investments are made based on the true value of business.Warren Buffett, Charlie Munger, and Bill Ackman, all follow the
concept of value investing, in their own style.What exactly is value investing?Value investing is an investment approach where investors try
to identify companies trading either above or below their intrinsic value.Stocks trading above their intrinsic value are considered to be
Stocks trading below their intrinsic value are considered to be undervalued.Price to earnings (P/E) ratio and Price to book value (P/B)
ratio are the two ratios value investors use to determine whether stocks are undervalued or overvalued.As per value investors, undervalued
We have shortlisted using the Equitymaster Stock Screener.#1 Power Finance CorporationPower Finance Corporation (PFC) is the most
undervalued stock on our list
stands at 0.5.Compared to its peers, it's trading at a much lower P/E ratio
The average P/E of the finance sector is 45.The primary business of PFC is to extend financial assistance to the power sector in the country
It provides loans to power companies for power generation, transmission, distribution, etc.With a market share of 20%, the company is a
utilities, power departments, and equipment manufacturers, among others.In the last three years, its revenues and profits have grown at a
CAGR of 12.1% and 5.8% respectively
This was mainly driven by higher disbursement of loans and net interest income
IRFC, its closest competitor in the finance sector, is trading at a P/E of 5.6x.REC is one of the leading infrastructure finance companies
under the Ministry of Power
It finances generation, transmission, and distribution power projects along with its parent company Power Finance Corporation (PFC)
PFC holds close to 52.6% stake in the company.REC has an extensive network of 22 offices in the country
It provides financial assistance to state governments, state electricity boards, independent power producers, and rural electric
co-operatives.In the last three years, REC's revenues and profits have grown at a CAGR of 13% and 13.4% respectively
Its profits grew by 23.2% YoY and the net margin stood at 26.9%.The pandemic has presented both challenges and opportunities for the power
While the industrial demand was close to zero during the first three months of lockdown, the consumer demand grew substantially
thereafter.The government's reforms in the power sector also will increase transparency and accountability across the entire value chain
This will positively impact REC.Check out how the company's shares have performed since January 2021.#3 Steel Authority of IndiaSteel
Authority of India Limited (SAIL) is one of the largest steel manufacturers in India
trading below the average industry levels
The steel industry average P/E and P/B are 12.6 and 4.5, respectively.SAIL is a Maharatna company
It produces steel and iron at five integrated plants and three special steel plants across eastern and central India.It has an installed
capacity of 21.4 million tonne per annum (MTPA) and is planning to double its capacity to 50 MPTA by 2030.SAIL's revenues grew 11.8% YoY
in the financial year 2021 due to an increase in realisations of saleable steel
The net profit of the company also grew 91.1% YoY during the same period due to lower input costs and interest expenses.In the latest
quarterly results, the company's revenue grew 58% YoY
The net profit jumped 1,075.4% YoY
SAIL's modernisation and expansion plan, and deleveraging, led to operational efficiency
Its margins have improved substantially in the last few quarters.During the pandemic, the steel industry saw limited contraction of
The demand will be backed by digitisation, automation, and infrastructure initiatives.SAIL, being one of the largest steel manufacturers in
the country, will have a significant share in the growing demand.The shares of the company have given 51.6% return since January 2021.#4
Tata SteelTata Steel, part of the Tata Group, is fourth on our list.Shares of Tata Steel are trading at 4.4 times its earnings (P/E) and at
2 times its book value (P/B)
Its next closest competitor, JSW steel, has a P/E of 8.5 and P/B of 3.5.Tata Steel is one of the leading global steel companies
In Europe and South East Asia, it has an installed capacity of 12.4 MTPA and 2.2 MTPA, respectively.It has a diversified product portfolio
demand recovery is expected to be strong
Along with this, the government's strong push for infrastructure will also boost steel demand in the country.The shares of Tata Steel gave
close to 81% return from January 2021.#5 Indian Oil CorporationIndian Oil Corporation (IOC) is one of the most undervalued stocks in the
energy sector.The company's P/E ratio stands at 4.7, while the P/B ratio stands at 1
This is much lower than the industry average of 13.8 (P/E) and 2.7 (P/B).IOC is a Maharatna energy company with a presence in oil, gas,
over 15,000 km pipeline network for fuel distribution and transportation.IOC operates through 29,000 retail petrol pumps, and 7,000 bulk
grew 46.5% YoY due to higher international oil prices.Its profits only grew marginally over the last quarter
This was because the growth in revenues were offset by higher expenses.A strong linkage with the government, high operating margins, a
robust distribution network, and capex investments in the pipeline segment, all are major growth drivers for the company.With government
initiatives like Atmanirbhar Bharat, and a growing population, the energy demand of the country is expected to be high in the long term
return since January 2021.#6 Bharat Petroleum CorporationBharat Petroleum Corporation (BPCL), India's third largest refining company, is
on our list of top undervalued stocks.The company's shares are currently trading at a P/E of 4.7 which is much lesser than the industry
average P/E of 13.8.Its P/B ratio is 1.6 while the industry average is 2.7.BPCL is a PSU that was set up by merging Burmah Shell Oil Storage
aviation, lubricants, gas, and industrial products.With an installed refining capacity of 35.4 MTPA, it's India's second largest oil
It has a strong marketing network of 18,637 retail outlets and a 2,241 km product pipeline.BPCL owns a considerable stake in its well-known
higher volume growth and increase in fuel prices.However, its net profit only grew marginally.A well-established retail network, strong
operational efficiency, extensive branding initiatives, and continued support from the government are its key growth drivers.Check out how
the company's shares have performed since January 2021.Should you buy undervalued stocks?Valuations do play a major role while choosing
But that shouldn't be the sole criteria for investing.A business that is viable, sustainable, has good growth prospects, and is consistently
profitable, can be shortlisted as a prospective candidate.Strong fundamentals is another factor you should consider
A company with good fundamentals is considered as a high-quality business
Such businesses tend to give good returns in the long term in any market condition.All successful value investors concentrate on staying
invested for a long time rather than timing the market.If you plan to invest, then aim at investing for a long term to reap maximum
been edited by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
