Markets have gone nowhere in the last few weeks, as investors continue to look at quality stocks. However, there are certain section of investors who look at stocks and do not buy the same, if the price is really high. We have therefore selected a few stocks, that are priced near Rs 50 or under Rs 50 and can be good buys, if you have more of a long term perspective in mind. Here are a few stocks that can give decent returns over the more long-term.
Understanding the risk element
It is important to remember that there is an element of risk, in buying stocks that are valued at such low levels of Rs 50 and below. However, sometimes that can be of face value that is not of Rs 10. For example, in the first stock we have mentioned the face value of Welspun India is just Re 1. So, it is also important to look at the face value before investing in the stock.
This is a world class textile manufacturer
Make no mistake, Welspun India is very big. In fact, the company is the third largest home textiles company globally. The company supplies its products like terry towels and bedsheets, to some of the top global companies in the world, including the likes of Walmart, J C Penney, Macy's etc.
In fact, the company was ranked as the no 1 in "Top 15 Home Textile Supplier Giants to USA" by Home Textiles & Today Magazine. The company is heavily into exports and exports 97 per cent of its products. Welspun India has a presence in almost 50 countries around the world.
Shares have crashed
Shares in Welspun India have crashed from levels of Rs 104 to the current market price of Rs 55. The stock is currently trading at Rs 55. The crash in the stock, was largely after Target Corporation of the US severed ties with the company for supplying bedsheets that did not have Egyptian cotton. Target Corporation felt that Welspun India had used cheaper variants of cotton. That led to a crash in the stock price and you are now getting it at half the price. Now, apart from Target, no other big chain has really severed its tie with the company.
According to rough estimates, the company could lose around 10 per cent of its total business, due to Target severing its ties. Welspun India has now appointed Ernst & Young to look into alleged lapses in its products supply after the Target Corp episode.
The company has appointed Ernst & Young LLP to review its full supply chain systems and processes,"
We believe that Welspun India has taken corrective measures, to check the lapse that happened with Target. The appointment of an external auditor was a step in the right direction. However, we do believe that the company is very strong fundamentally and the current valuations for a world-class manufacturer are not bad. For the quarter ending June 30, 2016 the company reported an EPS of Rs 1.81. Even if it reports an EPS of Rs 7 for the FY 2016-17, the company is trading at just 8 times, one year forward p/e. We have also factored in the loss of business that the company would face due to Target Corporation severing ties with the company. The stock is not a bad bet at the current levels of near 50, if one were to have a long-term perspective in mind.
It is always a surprise when one recommends a government owned bank. However, we believe that Syndicate Bank has the potential to generate returns over the more long and medium term. There are a number of reasons that we believe we might see positive momentum in some of the government owned banks. The first is that these set of banks have come a long way in terms of cleaning-up the NPA mess, though it still is a little bit messy. At some stage in the next few years, we believe that economic recovery will gather momentum and with it an improvement in the NPAs. The bank has had a better performance when compared to most other PSU banks.
For the quarter ending June 30, 2016, Syndicate Bank reported a net profit of Rs 77 crores, as against a loss in the previous quarter. The bank's capital adequacy ratio at 11.48 per cent, was also not bad. Yes, gross non performing assets did rise from 6.70 per cent to 7.53 per cent, but, we believe that going ahead this might improve. However, we do think it might take another 3-4 quarters, before we some really significant recovery in the NPAs.
Share price movement
This is when you are unlikely to get the stock at the current market price of Rs 77. If you are a long term investor, the stock is a good stock under Rs 100 to buy. Syndicate Bank had hit a 52-week high of just Rs 83 recently.
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