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
High Market Share
Out of all stocks that trade in Indian stock market, I love those stocks which has high market share in its sector. This is one of those easy screening criteria based on which we can screen average and down performing companies. The criteria that we can use to screen stocks in terms of market share is “Revenue”. But I also like to keep the parameter of “Market Capitalization” as my screener here. This way we can make sure that we do not miss out those stocks wich are liked by the market.
High Profit Margin
Once we have our list of stocks based on their market share, we must screen out those stocks which are not as profitable. For any investor the priority should be include highly profitable stocks in portfolio. The criteria that we can use to screen stocks in terms of high profitability is “Operating margin”. I know people would also like to see stocks with high PAT margin, but frankly speaking we must avoid focus on PAT margin. PAT is one fundamental which is most manipulated in majority companies income statement.
Low Debt & High Dividend Yield
Buying stocks of companies which dominate the market (in terms of sales) and also has high profitability is not enough. If company is able to manage high sales (market capture) by being dependent on debt, then it is not good. So one must always have a look into the debt levels of a company. High debt companies are high-risk stocks. The criteria that we can use to screen stocks to know about its debt level is “Debt to Equity Ratio”.
Investors love companies which pay high dividends. All value investors (like Warren Buffett) loves to site and earn high dividends. But not all companies pay dividends. Our focus should be to buy stocks which pay good dividends. In order to identify high dividend paying stocks, I like to see stock in terms of its “5 Year Average Dividend Yield”. This helps us to understand if the stock has been paying consistently high dividends or not.
A combination of low debt and high dividend payout can make a stock very likable.
After all the fundamental checks on the companies, it is essential to look into the price valuation of stocks as well. In order to identify best stocks, price check is essential. It is true that fundamentally strong stocks genrally trade at overvalued price levels. Hence it is a must to do price valuation checks before buying one.
The criteria that we can use to screen stocks to know its price valuatin are “P/E”, “Price/Sales” & “Price to book value”. Where ever possible I try to check bests stocks price valuation in terms of stocks free cash flow.
I have developed a product which helps my user to learn to identify best stocks in totality. Means, along with fundamental check it also analyzes stocks in terms of its price valuation. Users who are interested to learn the concept of stocks analyses can buy this stock analysis worksheet.
Best Stock to Buy in India for long term in 2017
(Updated as on April’2017)
|SL||Sector||Name||Market Cap (Rs.Billion)||Revenue (Rs.Billion)||Net Profit (Rs.Billion)||Net Profit margin (5YA)|
|1||Basic Materials||Hindustan Zinc||1,220.27||151.98||81.22||53.44|
|2||Basic Materials||Asian Paints||1,029.70||285.11||29.91||10.49|
|3||Basic Materials||National Aluminum Co.||147.87||117.58||14.10||11.99|
|4||Capital Goods||Bharti Infratel||602.79||100.38||15.78||15.72|
|5||Capital Goods||UltraTech Cement||1,093.85||276.42||28.83||10.43|
|6||Capital Goods||Grasim Industries||489.71||391.08||40.24||10.29|
|7||Consumer Cyclical||Bajaj Auto||811.80||237.59||36.04||15.17|
|8||Consumer Cyclical||Tata Motors||1,488.55||2,832.81||141.92||5.01|
|9||Consumer Cyclical||Apollo Tyres||106.23||234.09||15.03||6.42|
|16||Financial||Kotak Mahindra Bank||1,605.45||319.20||68.76||21.54|
|28||Transportation||Interglobe Aviation Ltd||380.05||178.23||14.94||8.38|
|29||Transportation||Great Eastern Shipping||62.87||32.48||6.42||19.76|
Debt Levels & Price Valuation
|SL||Sector||Name||Debt Equity (Average 5Y)||Dividend Yield (%)||P/E||PEG|
|1||Basic Materials||Hindustan Zinc||0.00||9.62||16.48||0.02|
|2||Basic Materials||Asian Paints||0.02||0.70||52.15||-0.02|
|3||Basic Materials||National Aluminum Co.||0.00||2.63||26.78||-9.05|
|4||Capital Goods||Bharti Infratel||0.00||0.92||20.98||0.95|
|5||Capital Goods||UltraTech Cement||0.30||0.24||40.39||-17.18|
|6||Capital Goods||Grasim Industries||0.10||0.43||15.80||-3.54|
|7||Consumer Cyclical||Bajaj Auto||0.01||1.96||19.32||4.85|
|8||Consumer Cyclical||Tata Motors||0.36||0.11||18.84||-0.64|
|9||Consumer Cyclical||Apollo Tyres||0.51||0.96||9.48||0.26|
|16||Financial||Kotak Mahindra Bank||1.72||0.06||34.95||-7.12|
|28||Transportation||Interglobe Aviation Ltd||5.11||1.43||21.30||0.32|
|29||Transportation||Great Eastern Shipping||0.58||3.24||7.88||0.23|
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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.