Markets are now trading at valuations that are pretty fair. There are many stocks that have now risen to levels that are pretty high. We have identified select stocks that are under Rs 100 and have the potential to rally from here.
South Indian Bank
If you are looking to bet on a smaller sized bank, it would be a good idea to put your money on South Indian Bank. The stock at Rs 28, has the potential to rally. At a time when most banks are seeing a lot of stressed assets, the situation is not too bad for South Indian Bank. The bank reported gross non performing assets of 2.45 per cent for the quarter ending March 31 2017, which was down from levels of 3.98 in the previous quarter. This is not as bad as it seems. In fact, the non performing assets were lower, when compared to the previous quarter which is certainly good news. The bank has a small equity capital of Rs 135 crores.
Valuations of South Indian Bank
The bank reported an EPS of Rs 2.61 for the full year ending March 31, 2017. It is highly possible if the economic situation improves in the next few quarters, the bank can report an EPS of Rs 3.5 for the full year 2018-19. This means the stocks is available at a price to earnings ratio of just about 8 times. The stock is highly undervalued at the current levels. The stock also gives a good dividend yield of around 2 per cent. The shares are a good buy at the current levels. Check stock quote here
Until recently, the stock of Welspun India was consistently trading above Rs 100, however, after reports that Target Corporation had severed ties with the company for substituting cheaper cotton variety instead of Egyptian cotton in bedsheets, the stock dropped sharply from levels of Rs 107, the stock is now below Rs 100, which makes it an attractive buy. The company is one of the largest manufacturers of terry towels and is Ranked 1st among Home Textile Suppliers in the US. It supplies to every top manufacturers from Walmart to J C Penney. Welspun India's market share in the US towels market is 21% (calendar year 2016), which makes it the number 1 player in that country.
Fundamentally the stock is pretty reasonably valued at the current levels. We believe that despite the loss of order from Target Corporation it can still report an EPS of Rs 6 for 2017-18. Now there are a number of reasons to recommend the stock. The first is that the company's net/debt equity ratio has been showing a sustained decline. It has fallen from 2.4 in FY 2014 to 1.3 in FY 2017. The company is looking at floorings to drive growth. The areas of concentration would be tile carpets segment and wall to wall carpets. The planned
capex of Rs 6bn ((likely to be installed and functional by
FY19 end), which should drive growth.
Hence, at the current market price of Rs 84,Welspun India is not a bad bet. Check stock quote of Welspun here
This is another bank like South Indian Bank that may not really be a bad bet, if one is ready to have some patience. The stock is likely to post a decent set of results in the coming quarters. Federal Bank is available at a price to earnings multiple of just 16 times one year forward earnings. The best part is that the bank has been able to reduce its gross non performing assets in the last few quarters. It managed to reduce it from 2.77 in the quarter ending December 31, 2016 to 2.33 for the period ending March 31, 2017. The stock is decently valued and could gain in the coming quarters.
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. The author and his family do not own any shares in the above mentioned stocks.