Value stocks India 2011
What we mean when we call a stock as Value Stock?
Any stock/ share when it is traded at market price below its intrinsic value is called as value stocks. In order to know the intrinsic value of a stock we should humbly be able to forecast some key business fundamentals of company like dividends likely to be paid in future, net earnings of companies, growth in cash reserves. These characteristics of company can be estimated by studying past performance like dividend yield, price to book value ratio, price earnings ratio etc as compared to their future order position.
It is also possible that though a company’s fundamentals are very strong on basis of analysis as discussed above but its market price of stock is trading below the intrinsic value. This happens because our stock market is never working efficiently. Sentiments and emotions often drive over business fundamentals. This phenomenon often bring stocks to undervalued levels making it good buys for investors.
How to track and tap value stocks
The best way to take advantage of value stocks is by following a principle of value investing. The investing ploy of tracking and buying value stocks which are undervalued as compared to its intrinsic value is called value investing. Value investors are those investors who believe and follow value investing principles. As a policy value investors always buy value stocks to gain max leverage of price. Value investing principles highlights that market reacts very dramatically and often drastically (because market is not efficient) to any good and bad news about a particular company or a sector. Even though the fundamentals of the company may be as strong as Microsoft but one bad news may make the market price of its stock plummet below its intrinsic value. This is opportunity that all value investors are waiting for (waiting for market to behave non efficiently) and they quickly grab these value stocks. These value stocks are always bought with a objective of buy and hold (long term) strategy.
The trick of value investing which makes value investing possible for normal investor is ‘calculation of intrinsic value’ of a stock. Intrinsic value of a stock is not only dependent on past performance of company but also heavily dependent of possible future growth. Estimating future growth is not as easy when investors are keeping themselves updated on the company’s latest news. So in order to track value stocks there are following steps I personally thing is correct:
- Make a list of top 10 large cap stocks of top 5 sector.
- Track all latest news about these companies for next six months. Within couple of weeks you will start to build a link between their present positions and actions taken to accelerate future growth.
- Also, parallel learn to read balance sheets, profit and loss accounts and cash flow statements for past five years of all of these companies. You can easily find them on internet. Search for it.
- Learn how to calculate the book value of stock.
- On basis of past performance and future growth prospects, estimate how this book value will grow in next five years.
- Evaluate the growth in earning potential of company. This will justify the high P/E ratio of a growing company.
- Buy the stock if the Price to book value of stocks is increasing at a healthy rate faster than inflation and average stock index growth.
Take care of not falling to Value Trap
Often stocks of companies with weak fundamentals falls to a very low market price levels. Investors should not mistake such stocks for value stocks. Investors shall always avoid such stocks. Before buying always do your research that why the price of a stock has fallen so dramatically. Often this price fall will be due to speculation but there are also conditions when companies has done some malpractices, or has lost a big order, or is in severe debt may contribute to price fall. Stay away from such companies. These are not value stocks.
The composition of the below listed top stocks has a basic objective of (1) preserving the capital (2) giving above average growth potential for its investors. The current levels of market price of below stocks looks very encouraging for making an entry. Ideally we would suggest that an investor should build a portfolio which consists of majority of the below stocks for good diversification.
Stocks to Buy
Top 20 Stocks in terms of its present valuation and absolute value of dividend payments to shareholders (dividend focused value investing is best stock market strategy)
| Name | Dividend Rs. Crore** | Net Profit Rs. Crore | Dividend % Of Profit | Market Price (Rs.) | Div Yield | |
| 1 | ONGC | 7,058.00 | 18,924.00 | 37.30% | 273.00 | 3.21% |
| 2 | TCS | 3,914.00 | 7,569.99 | 51.70% | 974.05 | 1.44% |
| 3 | ITC | 3,818.00 | 4,987.61 | 76.55% | 200.00 | 2.23% |
| 4 | IOC | 3,181.00 | 10,220.55 | 31.12% | 320.50 | 4.06% |
| 5 | NTPC | 3,149.00 | 8,728.20 | 36.08% | 174.95 | 2.17% |
| 6 | Hero Honda | 2,197.00 | 2,231.83 | 98.44% | 1,885.15 | 5.84% |
| 7 | RIL | 2,085.00 | 20,286.30 | 10.28% | 759.00 | 1.05% |
| 8 | SBI | 1,905.00 | 7,370.69 | 25.85% | 2,198.40 | 1.36% |
| 9 | Infosys Tech. | 1,434.00 | 6,443.00 | 22.26% | 2,392.65 | 2.51% |
| 10 | HUL | 1,418.00 | 2,305.97 | 61.49% | 310.35 | 2.09% |
| 11 | SAIL | 1,363.00 | 6,754.37 | 20.18% | 105.20 | 3.14% |
| 12 | ICICI Bank | 1,338.00 | 5,151.38 | 25.97% | 935.15 | 1.50% |
| 13 | BHEL | 1,156.00 | 4,310.64 | 26.82% | 1,767.70 | 1.32% |
| 14 | HDFC | 1,320.00 | 3,534.96 | 37.34% | 646.55 | 1.39% |
| 15 | GAIL | 951.00 | 3,561.13 | 26.71% | 433.90 | 1.27% |
| 16 | Wipro | 981.80 | 4,843.70 | 20.27% | 340.75 | 1.17% |
| 17 | Tata Motors | 1,274.23 | 1,811.82 | 70.33% | 801.75 | 2.49% |
| 18 | Oil India | 916.03 | ||||
| 19 | Larsen & Tubro | 882.84 | 3,957.89 | 22.31% | 1,622.20 | 0.89% |
| 20 | Tata Steel | 902.94 | 6,865.69 | 13.15% | 468.90 | 2.56% |
Stocks you can buy today for long term holding
| Name | Price | Dividend Yield |
| Andhra Bank | 122.05 | 4.51% |
| NRB Bearings | 44.95 | 4.45% |
| HCL Info | 68.8 | 12.34% |
| Ashok Leyland | 26.2 | 7.63% |
| Chennai Petro | 195.95 | 6.12% |
| GIC Housing Fin. | 88.8 | 6.19% |
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hi
i bought jp associates at 93.5 about 3 months back. i want to hold it for long term. i would like an expert advise suggesting if the sock is worth holding.
Unfortunately almost all stocks in above list fall in last one year.
Nice being going to your blog once again, it has been months for me. Nicely this content that i’ve been waited for so long. I need this piece of writing to comprehensive my assignment inside college, and it has exact same subject together with your article. Thanks, good share.