The Sensex has hit a new record high of 40,816 points and is likely to see strong momentum going ahead. The markets no doubt are in a sweet spot. Globally interest rates are low, inflation is low, US-China trade tariff war seems to be settling and crude continues to drop. There is also enormous liquidity that is likely to find its way every time the markets fall.
What to buy with the markets at a new record?
Though the markets at a new record, it is not too difficult to find value. The Sensex has rallied on the back of a few stocks like Reliance Industries, HDFC Bank, HUL etc., while the broader markets are languishing. There is absolutely no doubt that the broader markets do offer tremendous value.
Take a look at some of the midcap stocks. Some of them are very near 52-week lows and do offer a great potential to rally.
Here are 2 midcap stocks that could be good long term bets.
1. Jagran Prakashan
Take the case of Jagran Prakashan. The stock at Rs 49.70 is trading close to 52-week lows. It is trading at a price to earnings multiple of just under 7 times one year forward earnings. The company publishes Dainik Jagran, which is the No 1 circulated newspaper in the country, has a good radio business and its digital business is close to break even.
If the company maintains the same dividend as last year, the dividend yield on the stock itself is close to 7 per cent. Jagran Prakashan has distributed nearly Rs 1,000 crores to shareholders by way of dividends and buyback.
Yes, the results have been flat in the last few quarters, because of the slowdown in the economy, which has impacted advertisement revenues. However, we believe that once the economy recovers, this stock would not be available at the current price of Rs 49.80. The company is a very old player in the publishing business.
2. Karnataka Bank
This is another midcap stock that is a great bet at the current levels. The shares of the bank like Jagran Prakashan are trading at near 52-week lows. Its results for the quarter ended Sept 30, 2019 were not very bad at all to warrant such a price on the stock.
The bank reported a net profit of Rs. 105.91 crore in September 2019 down 5.32 per cent from Rs. 111.86 crore in September 2018. Karnataka Bank reported an Earning per Share (EPS) of Rs 3.52 for the period. If you annualize the same, there is no reason why the bank cannot do an EPS of Rs 12 at the very least for 2019-20. This means the stock is trading at a price to earnings multiple of just 6 times one year forward earnings. The share are also trading at just 0.50 times price to book, which is very cheap for a private sector bank.
A good midcap stock for investment, if you have a time frame of 2-3 years.
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