5 govt banking stocks that investors could buy

Updated: Thursday, July 25, 2013, 8:57 [IST]

Everybody is selling government owned banking stocks on fears that non performing assets are likely to worsen and profits likely to dip after the recent measures. These stocks have now fallen to 52-week lows and have seen maximum price destruction. But, most of these stocks are now trading at attractive valuations and a contrarian approach of buying could yield rich dividends in the future. Of course, you should have a time horizon of at least 2 years.

Available at 52-week low of Rs 163

Oriental Bank of Commerce hit a 52-week low of Rs 163.15 on July 24. The stock is now trading at a price to book value of just 0.38 times and a P/E of 3.61 times. If the bank maintains the same dividend like the current year, one is likely to get a yield of more then 5 per cent.

Attractive valuations

Canara Bank is one of the better managed PSU banks and the stock hit a 52-week low of Rs 295 on the National Stock Exchange. In the last one year it has touched a high of Rs 533, so one is getting the stock at at almost half the price. With a one year forward price to book of less then 0.5 times, the stock is an excellent pick.

Very high dividend yield

Dena Bank like peers, saw its share price dip to a 52-week low on July 24. At Rs 63.80, the stock is a screaming buy, considering the huge dividend of 45 per cent, which would give a tax free dividend yield of 7 per cent. Of course, we are assuming the bank maintains the same dividend next year.

Avilable at low price to book value

Union Bank of India (UBI) has seen its share price half from its 52 week high of Rs 288, to the current price of Rs 146. The stock hit a 52-week low of Rs 145.25 on the National Stock Exchange on July 24. Again, the stock is an excellent pick in terms of price to book and price to earnings ratios.