The markets are at their 52-week high and at record levels. You really need to research hard to now make money from stocks. The one stock that looks good to deliver and make money in 2020, is the largecap-stock ONGC. Here are some of the reasons to be buying the ONGC stock.
Why to buy the ONGC stock?
1) Low on valuations
The ONGC stock is trading at a price to earnings multiple of just around 5-times, one year forward earnings. One does not recall in recent memory, when ONGC has traded at such low valuations.
Now compare this to global peers like Santos (p/e multiple 13 times), China National Offshore (p/e of 9 times), Inpex (p/e of 12 times), Canadian Natural Resources (13.3) times and so on and so forth.
Most of the government owned companies across the globe are trading at nearly two times the p/e multiples of ONGC. This leaves immense potential for an upside on the stock.
2) Dividend yield of near 6 per cent
As we write, there are reports that Oil and Gas companies would be pushed to pay higher dividend this year by the government, given the fiscal constraints. ONGC, tends to declare a dividend in Feb and March every year.
Now, based on the last year's dividend the yield on the stock works to 5.6 per cent. If it enhances the dividends even further, there is a bright chance that the dividend yield on the stock would be close to 6 per cent. Since dividends are tax free in the hands of investors, upto a sum of Rs 10 lakhs, it makes sense to invest in the ONGC stock for its dividends.
3) ONGC Stock Trades at near 52-week lows
Shares in ONGC are trading at Rs 124 of thereabouts, which is very close to its 52-week low price of Rs 116. The 30-day moving average on the stock is Rs 130, while the 150 day moving average is Rs 137, while the 200 day moving average is Rs 140. This means the stock is way below its short term moving averages. Having said that, it is significantly lower than its long-term averages as well.
4) Why production and profitability will increase?
Recently, Oil and Natural Gas Corporation won a number of new blocks for exploration, which amounted to 7. There are also reports that there is a possibility of gas prices being completely deregulated. If this were to happen, a company like ONGC is likely to benefit immensely.
Apart from this, production that has stagnated could get a boost from increasing gas production, which could also boost margins. Several analysts have a buy recommending on this stock.
5) Crude prices to benefit the company
While there are worries that ONGC would have to share the burden of subsidies, the last few months have seen subsidy prices of both LPG and Kerosene rise. This reduces the fear factor raised by a rise in crude prices.
Conclusion: All in all, ONGC is a good bet on account of very cheap valuations, lower than historic prices, dividend yields and a possibility of a boost to its profits. For those investors, who are looking at regular dividends, the stock of ONGC could be a good bet. All in all, it is highly possible that this stock could rock in the coming days, given the steady nature of business and also good cash generation.
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About the author:
Sunil Fernandes, the author of this articles has 25-year experience in business and finance. He has covered stock markets, mutual funds and is an expert in equity research and stock analysis. He has worked with frontline newspapers like Hindustan Times, deccan Herald. Apart from this he has also worked with business and investment magazines like Dalal Street Journal and Oman Economic Review.