The earnings season for the second quarter has begun on a tepid not. Both Infosys and TCS, disappointed and the results from other sectors, including the PSU banks are unlikely to be great. One has to now start looking for pockets where there is growth and value. Investors are now buying into stocks only if they see growth. Here are a few stocks where there is value and investors could buy ahead of the Diwali season. If you hold them for a few years, they have tremendous potential to generate returns.
Housing stocks are ones that are seeing a good rally in the last few months. In fact, DHFL and LIC Housing have both rallied and their price to earnings multiples are no longer attractive. We believe that GIC Housing is one stock where there is still some value. There are a number of reasons to buy a housing finance company. According to reports, this is one of the fastest growing industry with growth rates touching near 18 per cent. With the housing sector grossly under penetrated, you should not miss buying a housing finance company stock. There exists tremendous potential for growth in these companies.
Why GIC Housing Is A Good Pick?
The first is that the company has been growing its loan book very well, thanks to solid demand. The second is that the valuations of GIC is not very expensive. Consider this: the price to book is around 2 times estimated book value of 2016-17 and around 13 times the p/e of 2016-17 EPS. This is not expensive if you consider a company that is growing very rapidly and also because of the fact that the valuations are much cheaper when compared to other peers in the housing finance sector. The stock is currently trading at Rs 337 and did have a small rally this week.
This is a stock that is well diversified and is showing a healthy growth rate. The company manufactures a host of products including Dyes, Pigments, Agrochemicals, Pharmaceuticals & rubber chemicals. Interestingly, Aarti is also amongst the largest producers of Benzene based basic and intermediate chemicals in India. The company has as many as 16 manufacturing plants in the country with most located in Gujarat and Maharashtra. The company has grown organically over the last few decades and its strategy of regular expansions has paid-off. In the process it has also generated wealth for shareholders.
Rationale for investing in the stock
The company's products have been receiving overwhelming response, which is why there has been a capex programme at the company that have been implemented. This would bear rich dividends for the company once the capex programme has been completed. The company reported an EPS of Rs 10 for the quarter ending June 30, 2016. With the expansion bearing fruits, the company can report an EPS of at least Rs 50 in FY 2017-18. If we assign a p/e of 20, the stock can easily touch Rs 1,000. The stock is currently trading at a price of Rs 725. Check stock quote here
Union Bank of India
This is one government owned bank, that has not rallied too much. While most analysts are recommending to buy, private sector banks, the question is: Do you still find private sector bank cheap? The answer is no. Private sector banks are horribly expensive and so what if they are showing low NPAs and good growth. Government owned banks still have value for a number of reasons. It is not possible that the non performing asset worries would continue perpetually. At some stage we are going to see improvement and that is when these banks would soar. The government's capital infusion and the RBI's stringent measures on NPAs, would some day bear fruits. Union Bank of India can be a good bet at Rs 140, given that it is a relatively large player in the government banking space. Check stock quote of Union Bank here
You could not have missed out seeing the Tempo Traveller on the roads. The company is a very niche player in this segment and the tempo traveller is well known. Over the last 2-years, this is one stock that has seen a phenomenal rally and the stock continues to impress.
Not only that Force Motors also manufactures engines for the likes of Mercedes and BMW. One of the manufacturing facilities of the company recently went on stream. The share is expected to do well, because we believe the valuations are reasonable at the current levels.
Why Force Motors is a good bet?
Force Motors is likely to report an EPS of Rs 250 for FY 2016-17. If we apply a p/e of 20 times, the stock should trade at Rs 5,000. However, the stock is trading at just Rs 4,340. We believe there is a good upside potential in the stock, also because it has a very small equity. The shares it must be noted are traded only on the BSE.
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