The Sensex is trading near peak levels in the early part of 2018. It is difficult to find attractive valuations in a rising market. However, we have picked a couple of stocks that are exisiting bluechip stocks that can be bought for long term investment.
The shares of Yes Bank have fallen from levels of Rs 382 to the current levels of Rs 340. This is a decent reaction of more than 10 per cent in the shares of the bank from peak levels.
The one big reason for the fall in the share price has been the fact that the RBI assessment of Yes Bank's gross bad loans was Rs 6,355.20 crore more than what the lender had reported.
This led to a sharp fall in the share price after it was reported in the quarterly numbers for the period ending Sept 30, 2017.
Actually speaking the numbers of the bank per se were very impressive for the quarter ending Sept 30, 2017.
Yes Bank: Impressive numbers
The net interest income of the bank grew at a staggering 33.5 per cent for the quarter ending Sept 30, 2017 (year-on-year). The net profits at the bank were up 25 per cent (year on year) at Rs 1,027 crores.
The bank has seen tremendous growth in the last 4 years. The current and savings accounts have grown at a compounded annual growth rate of 40% per cent in the last 5 years. The market share has more than doubled as well in the last 5 years.
The gross non performing assets of the bank at 1.82 per cent, for the period ending Sept 30, 2017, is much better than most peers in the banking sector.
On the valuations front the stock is not very expensive. The bank should do an EPS of Rs 18 this year 2017-18 and Rs 22 by 2019-20. Even if you apply a simple p/e of 20 times, the stock should trade around the Rs 400 mark in the next two years.
The price to book at just under 3 times is also not very expensive considering the strong metrics and much higher price to book value accorded to similar banks like IndusInd Bank and Kotak Mahindra bank.
If you get the stock around Rs 290 levels, the ability to make money from the shares of Yes Bank in the next two years is bright. Yes Bank is a good bluechip stock to own for the long term. The bank has recently been included as a part of the Sensex which is a big positive.
This is another stock that has crashed from levels of Rs 1,800 to Rs 805 and is now back to levels of Rs 900. The recent fall in the stock came after the US FDA issued warning letters to the company for its Goa and Pithampur plant.
What this means is that new launches from the plant to be exported to the USA would be delayed, until the issues for the plant with the US FDA are resolved. The resolution for the same could happen only in the next 12 to 18 months.
According to the management though, most of the products to be launched in the near future are not from the Pithampur and Goa plants. The management was also confident of re inviting the US FDA for inspection in the next six months or so.
New competition for existing products and pricing pressures in the US are the biggest worries for Lupin at the moment. However, we believe that this is factored into the price and the stock has almost halved in value from levels of Rs 1800 to Rs 900.
We believe that 2018-19 is going to be another dismal year for the company. Improvement in performance is likely only in the next couple of years. Hence, if you are looking to buy the shares, it makes sense only from a 2-3 year time frame. The shares are currently available at just 14 times trailing EPS.
The stock is attractive and can be bought from a long term perspective.
Best small cap stocks to buy
While we have suggested a few bluechip stocks from the largercap space, in the link below link we have suggested some small cap stocks that could interest you. Please click on the link to read further
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