Indian markets are seeing a spectacular rally, led by some solid buying from Foreign Portfolio Investors. The Sensex is now just 200 points away from 38,000 points, and a just 1000 points from an all time high. It maybe time to a little cautious and buy into good quality stocks. Here are a few stocks that we believe still are undervalued and have the potential to rally.
Not many individuals are willing to take a call on housing finance companies, following liquidity conditions after the IL&FS fiasco and allegations against Dewan Housing.
However, stocks like Indiabulls Housing have halved in share price, from levels of Rs 1,400 to Rs 701. At the current market price, the stock is available at a dividend yield of 6 per cent. Dividends are tax free upto a sum of Rs 10 lakhs.
The company has time and against clarified on its liquidity position, which continues to remain very strong. Also it has not faced any rating downgrades. In fact, the total cash and cash equivalents is a staggering Rs 21,000 crores.
Reasonable growth and valuations
The company anticipates a growth of 17 per cent to 19 per cent for FY 2019-20. IndiaBulls Housing plans to adopt a strategy of selling down pool of loans, while retaining spreads in the coming year. The total assets under management are expected to grow at 20 per cent in 2019-20.
The shares of IndiaBulls Housing is available at reasonable valuations. The shares are traded at a p/e of just 7 times one year forward earnings. With a reasonable growth rate expected, the forward p/e on a two year basis is very cheap.
Apart from this, almost 6 per cent would come back by way of dividends, which are paid 4 times every year. The stock is a good bet from a 3-4 year perspective.
Graphite India manufactures Graphite electrodes. Graphite India shares like Indiabulls Housing have also fallen substantially from levels of Rs 1,200 to the current levels of Rs 460. The reason for the sharp drop is the fall in graphite prices, with a steady rise in the key input of needle coke.
Despite this, the company has had a phenomenal set of results for the quarter ending Dec 31, 2018. The company reported a net profit of Rs 609 crores on a small equity capital of Rs 39 crores. This translated to an EPS of Rs 31 for the quarter ending Dec 31, 2018.
The divdend yield on the stock is almost 4 per cent.
Cheap on valuations
Graphite India is a deb free company, with cash and cash equivalents of almost Rs 1,300 crores.
Shares of Graphite India are not to expensive based on one year forward earnings. Even if needle coke prices rise a bit and graphite electrode prices fall, we expect the company to still notch healthy earnings.
By the end of FY 2020, the company could still report an EPS of Rs 120, which makes the stock cheap at the current valuations of Rs 460. In fact, the p/e is just four times. Buy the stock for good long term gains.
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