5 Stocks To Buy Trading At Discount To Historical Averages

Markets have been all over the place in the last fortnight or so, ever since war broke out in Ukraine. Here are a few stocks that are trading at a discount to historical averages that you could buy.

Stocks at low p/e compared to historical averages

Name	Current p/e	Historical p/e	Discount
ONGC	3.1	8.9	-65%
JSW Steel	7.5	11.9	-37%
ITC	15.5	25.2	-38%
Tata Steel	6.6	12.6	-48%
Coal India	5.3	11.9	-56

Source: Motilal Oswal, Bulls and Bears Report

Why the stocks are trading at such high discounts?

To begin with most of the stocks that are trading at a significant discount are mining and metal stocks. One must understand that these set of stocks have seen a phenomenal increase in prices of their products, which is driving profitability higher. According to reports a few days back, domestic steel makers have hiked the prices of hot-rolled coil (HRC) and TMT bars by up to Rs 5,000 per tonne as supply is being impacted amid ongoing Russia-Ukraine conflict.

After the price revision, a tonne of HRC will cost around Rs 66,000, while the buyers will get TMT bars for about Rs 65,000 per tonne. Increase in prices of steel products would continue to benefit steel companies, though one must admit that coking coal prices have also moved higher.

Are these stocks worth buying now?

Some of the stocks like Coal India can be bought for their strong dividend yields. In fact, even though price has gone up the stock can still give a dividend yield of close to 10%. As for the others, the geo political tensions would keep prices higher for longer. Really, the steel industry is a cyclical industry and right now it seems it is on the top of the cycle, as economic growth around the world has been fantastic. It is unlikely that we would see stock prices of some of these companies declining dramatically in the days to come. ITC is a good stock to buy as it is a diversified play and offers a dividend yield of around 5%.

Market volatility leaves investors worried

At the moment recommending any stock is also fraught with risks, given the volatile nature of the Indian markets.

"In the near term, weakness in market is likely to continue as the Russia-Ukraine conflict has resulted in a global risk-off. Foreign Portfolio Investors continue to remain net sellers in India as the global risk-off sentiment and the geopolitical situation have added to concerns of inflation, higher bond yields, and global rate hikes.

 

From India's viewpoint, a sharp spike in crude oil prices (Brent above USD100/barrel) poses key risks on the external balance front and can play spoilsport with the assumptions made in the FY23 Union Budget. For now, the sanctions imposed on Russia have excluded the Oil trade. While it is difficult to predict the end of Ukraine conflict, higher crude oil prices, if sustained for an elevated duration, can result in higher inflation, current account deficit, bond yields, and interest rates in India and thus impact macro-economic stability," Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.