Paul Samuelson once said "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas".
In essence what it means is that you should invest for the long term. If you are looking at a quick surge in stock prices, it is highly possible that it could come from beaten down names. Here are a few small cap stocks that can generate wealth in the long term:
Reliance Home Finance: Why the stock can be a good bet?
The stock can be a good bet, largely because of the huge potential the sector holds. The housing finance space has been growing at a rate of 20 per cent and is expected to be among the fastest growing sectors in the economy.
Reliance Home Finance plans to increase the loan book to at least Rs 50,000 crores in the coming years. The company's gross non performing assets were just about 0.80 times its advances, which is not bad at all.
The markets have reacted quite a bit and so has the stock of Reliance Home Finance. Most brokerage firms had expected the company's share price to list at around Rs 115. However, the stock which got listed at Rs 113 has fallen to Rs 99 since. This is one of the best small cap stocks to buy and hold for the long term.
Also read: Best largecap stocks to buy
Reliance Home Finance
Reliance Home Finance was carved out from Reliance Capital and got listed a few weeks ago. The stock which got listed at Rs 115, has now dropped to levels of Rs 97, a sharp fall. Reliance Capital owns a majority stake in the company of 51 per cent.
Reliance Home Finance is among the cheapest available home finance company stocks. For example, the price to book value of the company is just 2.5 times, as compared to 4 times for HDFC, 5 times for CanFin Homes, 3.1 times for Repco Home Finance 4.4 times for PNB Housing and 14.9 time for Gruh Finance.
The company has assets under management of nearly Rs 13,000 crores.
Bodal Chemicals is a company that is engaged in the manufacture of dyestufff. Numbers for the quarter ending June 30, 2017 were not too great, however, going ahead there is reason to be optimistic. The one reason for that is the huge capacity expansion that the company will undertake. For example, the dyestuff capacity would be expanded to 25,000 MTPA from the current 8,000 MTPA. The entire funding will take place through internal accruals. Trion Chemicals, a 42 per cent owned associate of the company will produce a compound which is a disinfectant algicide and bactericide for swimming pools. The company also started a plant for Linear Alkhyl Benzene Sulphonic Acid, the liquid dyestuff capacity is also likely to be increased.
Bodal to reap rich dividends
Bodal Chemicals is likely to reap rich dividends in the coming years on account of the expansion. Apart from this the company is planning to enter new markets and secure new customers. It also plans to maintain the debt to equity at the current levels of lower. For the first quarter ending June 30, 2017, the company reported an EPS that was lower than the previous quarter. However, from a two year perspective the stock looks cheap. For example, the company can report an EPS of Rs 14 by 2018-19, which should take the p/e to around 11 times at the current market price. A good small cap stock to hold from a two year perspective. Another good thing is that the promoters continue to maintain a very large shareholding of 64 per cent in the company. Bodal Chemicals shares is currently trading at Rs 161 on the National Stock Exchange. Check stock quote of Bodal here
Indo Count Industries
Indo Count is one of the top textile manufacturers in the country with significant presence in bedsheets, fashion bedding and utility bedding.
The company has offices around the globe and is now a reasonably large player in the products it owns. For the last few quarters the company's performance has been subdued largely on account of margin contraction due to pre-operative expenses with regards to expansion.
However, going ahead the company is expected to perform well on account of margin expansion and also capacity expansion.
The processing capacity will be higher by almost 11 per cent processing capacity from 68m meters to 90m meters. The company is also increasing the weaving capacity but that should take sometime to fructify.
Indo Count: Looks reasonably priced
Fundamentally the stock still leaves room for appreciation. For the FY 2016-17, IndoCount Industries reported an EPS of Rs 11.55. This discounts the current market price of Rs 99 by just 8 times. As the company continues to grow the EPS in the range of 10 to 15 per cent in the next few years, we see a higher target price for the stock.
The shares of the company have already fallen from high levels of Rs 208 to the current market price of Rs 99. This leaves scope for appreciation of the stock in the coming days. Buy the stock with a time frame of around 3 years at the very least. Check stock quote of Indo Count here
Force Motors manufacturers the famous "Tempo Traveller" range of buses. The company is also the sole supplier of power train components for Mercedes and BMW. Force Motors did not begin FY 2017-18 on a great note.
This was largely on account of the de-stocking undertaken by dealers due to implementation of the Goods and Services Tax. However, there are a few things that would work in favour of Force Motors in the coming quarters.
The first is that the luxury car segment of Mercedes and BMW would grow very well given the sharp cuts in prices, following the GST. Force Motors is also likely to do well with new variants in the LCV segment and the niche that it already has there.
The company has a very small equity capital and any small gains in profits can lead to a spike in the EPS. We believe that the company can report an EPS of Rs 240 least by 2018-19.
If you apply a p/e of around 20 times, the stock should trade at least at 4,800 to Rs 5000. At a price of Rs 3764, the stock still has some potential for an upside.
However, investors may need to be a little patient before investing. Among the best small cap stocks to buy, though it is listed only on the BSE.
Also read: Best midcap stocks to buy
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.