Indian stock market has thousands of stocks in its holding. These stocks are bought and sold each day by people. But is it good to pick any stock and start trading?
No, the focus should be on best stocks to buy in India for long term. To a novice, it can be overwhelming to identify best stocks. Majority people know only, TCS, Reliance Industries, Infosys etc. These are big names which are always in news. But in reality, there are more than 5,500 stocks listed in BSE. So the question arises, which are the best stocks among list of 5,500?
The list of best stocks to buy in India are not readily available even on internet. What is advisable is to MAKE ONES OWN LIST. Yes, this is the best way to play the stock market game. Have your ‘own’ list of best stocks. If one could copy others and make money, probably every stock trader would have been a millionaire by now. But we know that only rare breed of people makes money in stock market.
What makes these people so rare? What makes them succeed among the crowd of average performing investors?
Their ability to screen the best stocks from plethora of non-performing stocks makes them successful.
In this article we will see how to screen best stocks. This way, one can start screening stocks on their own.
In general, to screen best stocks, one must focus on ‘business fundamentals’ PLUS few minor ‘technical analysis’.
Even the best of stocks are very volatile. The volatility is mainly because of the price fluctuations that keeps happening everyday in the market. If idea is to prepare ones ‘own’ list of best stocks, one must prepare and review the list every 3 months. Stock fundamentals change with market price fluctuations. But how price can effect business fundamentals?
Best stocks are not only those stocks which has strong fundamentals. They must also be available at right price. Hence, when price falls, those stocks which were not attractive earlier becomes attractive. Similarly, when price rises, those socks which were preferable earlier becomes overvalued.
Moreover, companies business performance also keep changing from quarter to quarter. Performance of company will also reflect in their financial statements (fundamentals). Hence, every change in companies quarterly report and market price also reflects on ones ‘list of best stocks’.
Characteristics of Top Stocks :
* Market capitalization is high.
* Sales turnover is high compared to its competitors.
* High Sales growth rate over a period of last 5 years.
* Improving profit margin.
* Net Worth which is high and also improving.
* Fast cash flow.
* Reliable dividend payment history.
* Available at discounted price levels below its intrinsic value
How to screen best stocks to buy in India
Technical analysis of stocks are easy and also provide a good starting point for potential investors. Generally in our blogs we focus only on fundamental analysis of stocks. But when it comes to unearthing best stocks, checking its price movements will also be good.
Market Price: Start with keeping a note of market price of stocks. This market price will be used to check if price is correctly priced or not. Technical analysis deals with study of only price movements.
Volume: Volume is one of the important technical indicator. It is known that the market price is volatile as it keep fluctuating between highs & lows. Observing stocks ‘volumes’ helps investors to estimate any future trend reversal. When stock is showing volume increase, its price will also increase. When stock is showing volume decrease, its price will fall. Stocks which displays high volumes are considered good for trading and investing.
Average Price: How to know if stocks price trend is negative or positive? A very easy way is to check its price charts. But charts are not always so conclusive. If one can compare ’50 day average price’ and ‘200 day average price’ with current market price, trend will become clear. Higher current price compared to 50d & 200d average price means trend is positive. Lower current price compared to 50d & 200d average price means trend is negative.
Stocks which have high volume and has increase price trend are considered a good buy.
Stocks whose market capitalization is high indicates that it is valued high by the market. Stocks whose market capitalization is low indicates that it is valued lower by the market. Market valuation of a company is not as accurate. Market often overvalues or undervalued a company. But it can be a good starting point to get feel about valuation levels of a company.
P/E Ratio: A ratio of market price of stocks with its earning (Profit) gives a more realistic valuation estimate. Lower is the P/E ratio the better. Companies which generates huge profits per share (E) & reasonable market price (P) will have low P/E ratio. Companies which generates lower profits per share (E) but are overpriced (P) will have higher P/E ratio.
PEG Ratio: There are cases when P/E ratio of stock is high but still the stock is a good buy. These are those stocks which has high EPS growth rate. Ratio of P/E ratio with EPS growth rate gives PEG. A stock which has high EPS growth rate will have lower PEG and vice versa.
Combination of Market cap, P/E & PEG ratio gives a very genuine idea about price valuation of stocks.
Dividend Yield: There can be no better return on investment for investors than high dividend yield. When a stock is paying high dividends, it is like an assured income for the investors. Stock investing is more associated with risk. But dividend yield is more like an assured income. Investors must look for high dividend yielding stocks.
EPS Growth: There is not other financial parameter that effects stocks price more direct than EPS growth. A stock whose EPS is growing fast will see steep increase in its market price. This is one reason why, pro investors keep track of EPS growth very closely.
Debt Equity Ratio: No matter how strong are the fundamentals of the company, but its not considered good if its debt levels are too high. To judge if companies debt levels are high or low, investors look at debt/equity ratio. High debt/equity ratio means company is dependent on debt to manage its cash flow position.
Lumpsum Dividend: A company which is disbursing high lump-sum dividends to its shareholders must get the credit. It is not easy for companies to disburse high dividends to shareholders at cost of its cash-flow management. Only those companies who has assured cash-inflows (assured sales, high margins) can afford to do it.
A combination of low debt and high dividend payout can make a stock very likable.
Best Stock to Buy in India for long term in 2017
(Updated as on February’2017)
|SL||Company||Annual revenue (latest FY)||Annual EBITDA (latest FY)|
|5||H D F C||30,905.12||29,485.44|
|16||Power Grid Corpn||20,802.22||18,338.49|
|17||O N G C||78,565.19||28,934.22|
|SL||Company||Annual EBITDA Margin (latest FY) (in %)||Average annual PAT Margin (3 year) (in %)|
|5||H D F C||96.12||22.47|
|16||Power Grid Corpn||86.50||29.14|
|17||O N G C||37.87||22.71|
Return on Invested Capital
|SL||Company||RoE (latest FY) (in %)||RoCE (latest FY) (in %)|
|5||H D F C||21.79||11.36|
|16||Power Grid Corpn||14.90||8.47|
|17||O N G C||10.80||13.34|
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Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.