The markets are clearly overheated and there are very few spaces you can buy into, without a major downside risk. One of the spaces that you still can invest is some of the best PSU or government owned companies. Some of these have assured business prospects, while others offer superb dividend yields. Here are a few of these.
Oil and Natural Gas Corporation (ONGC) is an excellent long term PSU stock to buy. The company has seen its stock falling from levels of Rs 211 to the current price of Rs 164. ONGC recently declared quarterly numbers for June 30, 2017, which were not the best.
Net profits at the company dropped by 10.5 percent to Rs 3,889 crore against Rs 4,340 crore in the previous quarter. However, there are reasons to be optimistic on the company's performance going forward and the one reason is gas prices. It is likely that gas production in the second half would be up by 10 per cent, coupled with an increase in gas prices. This should provide dual benefits for the company, even assuming that crude oil prices do not provide much of a relief. Brokerage firm CLSA believes that ONGC is one of the cheapest available oil exploration and production companies globally.
HPCL hangover may soon go
ONGC would be buying the government's stake in HPCL, which some estimates place at Rs 30,000 crores. This for some reason has remained a huge hangover on the stock. However, many analysts believe that it would be positive for both HPCL and ONGC as there would be greater synergies. The worries remain on the likely sources of generation of money for ONGC.
Fundamentals of ONGC and dividend yield remain strong
Fundamentally ONGC remains a solid stock to own. The company reported an EPS of close to Rs 3.3 for the first quarter. Even if it does an EPS of Rs 15 this year, the stock is trading at a p/e of just 11 times one year forward earnings. The best part of buying into the stock of the company is the solid dividend yield. The company is available at a dividend yield of 5 per cent. It is also important to remember that any uptick in crude prices could send the stock higher. In fact, crude prices have remained low for too long and any upward movement maybe a good opportunity to buy into the stock.
Coal India is another stock that you should not be too worried off, if the Sensex collapses from levels of Rs 32,000. This is because the stock provides such fantastic dividend yield it would be difficult to see the share price fall too much. Already the shares of Coal India have dropped from levels of Rs 349 to Rs 253. If it maintains the same dividend as last year, you could get a dividend yield of a whopping 10 per cent. However, that is unlikely to happen and we are estimating a dividend more like Rs 18 per share. Even then the dividend yield would work at a decent 7.2 per cent plus, which is better than bank deposits in the country. If Coal prices do go higher, expect another splendid performance from the company. A virtually low risk PSU stock to buy at the current levels.
This is another government owned stock that you can buy at current levels. The company has some heavy mining assets and is engaged in the iron ore mining business. This again is a good PSU, which is cash rich and pays a solid dividend. The only drawback at the moment for buying the stock is that the share price has moved higher from levels of Rs 110 to Rs 125.
However, the dividend yield on the stock is a good 6 to 7 per cent, which is why we do not expect the stock to fall even if the market collapses from here. Demand for iron ore continues to remain steady and the nature of business is high margin as well. We see support for the stock even in a falling market.
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