The Sensex and the Nifty have moved in a range over the last few weeks. Even at these levels, the Sensex at a trailing p/e of 25 times, which is way above the historic average. It therefore makes sense to carefully evaluate your options before investing. Here are a few good stocks that could do well in the coming years and should be bought.
With the May general elections now over, it is time to focus on quality stocks with good earnings potential.
Karnataka Bank offers you a dividend yield of 3.5 per cent and is available at a price to book value of just 0.52. This is one of the cheapest private sector banking stocks.
The bank reported a record net profit of Rs 477 crores for 2018-19. Karnataka Bank has very ambitious credit and deposit targets going forward. What is most interesting is that the stock is trading at a p/e of just 7 times one year forward earnings. buy the stock from a long term perspective. This is a good low priced stock that is trading at near 52-week lows.
Those having a 2-3 year time frame, could reap rich dividends.
1. H.G. Infra Engineering
H.G. Infra Engineering is a stock that could benefit from robust infrastructure development.
The company is an excellent play on highways, water projects, bridges, roads etc. It caters to some very large contractors like L&T, IRB Infra, Tata Projects etc.
What is most interesting about the company is that its solid execution capabilities has enabled it emerge as an independent bidding player in very large road projects.
H.G. Infra Engineering is also likely to see its debt reduce significantly, with a debt to equity ratio of just 0.2 times by FY 2019, thanks to proceeds from the IPO.
The company's shares are trading at just Rs 241, compared to the IPO price of Rs 270. Over the last few years (2013-2017) the company has grown at a compounded rate of 37 per cent. There is reason to believe that it would grow rapidly, give its strong execution capabilities and the order flows from the NHAI.
The stock is trading at just 14 times its estimated EPS of Rs 19 for 2019-20. The promoters hold a very high stake of slightly more than 73 per cent in the company.
Th stock remains undervalued at the current levels and is a good pick.
2. IndiaBulls Housing Finance
In view of the problems at IL&FS group, housing finance stocks have come crashing down. The worries are over liquidity and regulations for NBFCs, including housing finance companies.
Shares in Indiabulls Housing Finance Company have come crashing down from levels of Rs 1,444 to the current levels of Rs 688.
Some of the worries for the sector, may not really be a bother for IndiaBulls Housing and let us see why.
IndiaBulls Housing Finance company is the only non-bank company in India to follow strict and conservative practise of repayments through a third-party trust managed by Axis Bank Trustee, wherein all scheduled repayments are transferred to the Trust 7 days in advance.
The company is confident of delivering a net profit growth of 17 per cent to 19 per cent for 2019-20.
The core strategy of its business is to sell down pools of loans while retaining a spread door to-door over the entire length of the loan.
While total assets under management is expected to grow 20%-25%, balance sheet growth is expected to be around 10%, this strategy will not only allow the company to grow its business without raising fresh equity capital, but will also help increase RoE.
Indiabulls Housing: Cheap on the valuations front
Indiabulls Housing Finance has solid liquidity and capital adequacy. It is expected to easily grow at 20 per cent, compounded annual growth rate over the next few years.
We believe that this company can do well in the coming years. IndiaBulls housing Finance can easily achieve an EPS of Rs 122 by 2020-2021.
If you apply a p/e of 8 times, the stock should trade at a price of Rs 1000, in the next 2-3 years. This would leave a potential of nearly doubling of investor wealth in that period.
The dividend yield on the stock itself works to around 6 per cent at the current levels. A good stock to buy at the market price of Rs 680.
Interestingly, Indiabulls Housing Finance is also seeking approval for a merger with Lakshmi Vilas Bank. 14 shares of IndiaBulls Housing Finance would be offered for 100 shares of LVB. If the deal go through and RBI approves the same, it could be a win-win situation for IndiaBulls Housing, according to brokerages. This is another good reason for buying this low priced stock.
3. Shalby Ltd
Shalby Ltd is a renowned hospital chain, that are considered as leaders in "knee replacement" surgery.
The company is almost a debt free company, with return on investments that are probably the best for a listed hospital chain.
The reason to buy the stock of Shalby are plenty. The promoters of the company own more than 79 per cent shares in the company. It also reported a decent net profit for the quarter ending Dec 30, 2018, despite slightly higher expenses on advertising and start-up operations in select new hospitals.
Going ahead with the commissioning of new hospitals the profits are expected to improve a great deal.
Shalby: Cheap on valuations
Shalby is one of the cheap low priced hospital stocks that individuals should buy. The company can report an EPS of Rs 8 for 2019-20. This means the stock is trading at just 14 times this earnings.
Hospital stocks are known to receive very high discounting of 30 to 40 times. There is no reason the shares should trade at such low valuations given the decent profitability and margins in the past.
One can buy the Shalby stock with a long term perspective in mind. Also, in case there is a sudden crash in the markets, healthcare stocks tend to protect capital as they are largely considered as defensive plays.
The shares off Shalby Ltd have barely moved higher along with the market. In fact, while the markets have gained significantly in the last few months, the shares of Shalby have languished. It is currently trading at Rs 98. It maybe just time to look at this stock.
4. Yes Bank
Yes Bank shares have crashed from 52-week high levels of Rs 400 seen in August 2018 to the current levels of Rs 92. The one big reason for the recent fall is the losses of Rs 1507 crores reported by the bank for the quarter ending March 31, 2019.
While the losses surprised investors and many were quick to downgrade the stock, we believe in the next one or two quarters, the worst would be behind. In fact, the cleaning-up at the bank would be a good time to buy into the stock.
While 2019-20, the performance of the bank would not be so encouraging, one can expect a positive momentum in 2020-21. From a 2-year holding period, the shares of Yes Bank are not a bad bet at all.
However, the immediate worries for the bank would be the exposure to ADAG group of companies and also Jet Airways.
The bank is looking at revamping its business by focusing on the retail side of the business. However, the next few quarters for the bank are indeed going to be tough and hence only investors who have a long-term perspective in mind, should invest. The one good thing is that the share price has now fallen to a new 52-week low, which makes the stock an interesting bet at the current levels.
This article is strictly for informational purposes only. It is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article. The author owns Shalby Ltd shares.
Taxation on stocks
It is important to remember that with effect from April 1, 2018, there would be a long-term capital gains tax that would be levied on stocks. Therefore, investors may not that there would be a 10 per cent tax that is applicable.