{"id":6112,"date":"2020-02-29T17:53:28","date_gmt":"2020-02-29T12:23:28","guid":{"rendered":"http:\/\/capitalante.com\/?p=6112"},"modified":"2020-06-14T11:22:44","modified_gmt":"2020-06-14T05:52:44","slug":"undervalued-stocks","status":"publish","type":"post","link":"https:\/\/capitalante.com\/undervalued-stocks\/","title":{"rendered":"Top 10 Undervalued Stocks to Buy"},"content":{"rendered":"<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">In order to get multibagger returns one individual needs to follow one simple rule, \u201cFind only fundamentally strong stocks which are undervalued and stay invested in them for the long term.\u201d<\/span><\/p>\n<h2><span style=\"color: #0000ff;\"><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt;\">Why long term?<\/span><\/strong><\/span><\/h2>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Historically, the equity asset class has delivered better returns in comparison to other asset classes. Let\u2019s make it clear with the help of the following example. Ace investor Warren Buffet picks those fundamentally strong stocks which have delivered a CAGR of 29%. Apart from the return, the most crucial factor is that he started an investment when he was 11 years old.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Just look at the following graph.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2018\/11\/1.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-3807 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2018\/11\/1.png\" alt=\"Return on equity of undervalued stocks\" width=\"740\" height=\"399\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2018\/11\/1.png 740w, https:\/\/capitalante.com\/wp-content\/uploads\/2018\/11\/1-300x162.png 300w\" sizes=\"(max-width: 740px) 100vw, 740px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">If you make a lump sum investment of Rs. 1 lakh at once and allow the money to compound at the rate of 15%, then you will get-<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">4 lakh after 10 years,<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">16 lakh after 20 years,<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">66 lakh after 30 years.<\/span><\/li>\n<\/ul>\n<h2><span style=\"color: #0000ff;\"><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt;\">Why fundamentally strong stocks?<\/span><\/strong><\/span><\/h2>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">It is because stocks with strong fundamentals represent those companies which have these features,<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Consistent sales growth at a rate of 10%.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Consistent profit growth at a rate of 15%.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">A debt-free company. If not so, the ratio must be low to 0.10 or 0.25.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Strong business model.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Sustainable competitive advantage in comparison to peer companies.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Good dividend yield.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Sustainable EPS growth.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Now after analysis of the above-mentioned points, retail investors are confused about how to pick undervalued stocks.<\/span><\/p>\n<h2><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\">What are undervalued stocks?<\/span><\/strong><\/h2>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Undervalued stocks are those stocks that trade at prices which are presumed to be below the intrinsic or enterprise value. An undervalued stock can be picked after analysis of the company\u2019s financial status, fundamentals, valuation ratios, etc.<\/span><\/p>\n<h2><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\">How to know if the stock is undervalued<\/span><\/strong><\/h2>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">The easiest way to pick undervalued stocks is to invest during the falling market.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">The next thing is how to know whether the market is falling or rising.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Keep notice if the indices such as Nifty 50, Sensex, Nifty Auto, S &amp; P BSE FMCG, etc. inches towards lower levels.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">To get a better idea you need to check the Price-to-Earnings Ratio and Price-to-Book ratio of any index.<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Read also:<span style=\"color: #ff0000;\"> <a style=\"color: #ff0000;\" href=\"https:\/\/en.wikipedia.org\/wiki\/Undervalued_stock\" target=\"_blank\" rel=\"noopener noreferrer\">Undervalued stock &#8211; Wikipedia<\/a><\/span><\/span><\/li>\n<\/ul>\n<h2><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\">How to find undervalued stocks?<\/span><\/strong><\/h2>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Apart from that Ace Investor, Benjamin Graham describes how to pick undervalued stocks in his famous book \u201cThe Intelligent Investor\u201d. Here are the parameters you should keep in mind while picking undervalued stocks,<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Pick a stock that has got at least a B+ rating from Standard &amp; Poor.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Stocks with a lower price-to-earnings ratio in comparison to peer companies.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Any stock with lower Price-to-Book Ratio i.e. less than 1.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Stocks with a Current ratio of 1.5 or higher.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Debt to Equity Ratio is Zero or less than 0.25.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Healthy Dividend payout and stable Earnings-per-Share.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">The cash flow of the company.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Current Inflation.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Enterprise Value.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Investment Rating<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">There are many rating agencies which are in operation like Crisil, Morgan-Stanley, and Standard &amp; Poor, etc. You have to follow the rating given by these rating agencies. Generally, a B+ rating is an ideal investment grade in which you are free to invest your hard-earned money. The rating B+ indicates that the company is stable and likely to grow in the near future.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Price-to-earnings Ratio<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Let\u2019s assume, a company has a net income of $ 10,000 per year. It Pays for $ 5,000\/- in a preferred dividend to investors. It has 50 shares outstanding.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1.png\"><img loading=\"lazy\" class=\"aligncenter size-full wp-image-6115\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1.png\" alt=\"Earning Per Share\" width=\"1500\" height=\"500\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1.png 1500w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1-300x100.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1-768x256.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1-1024x341.png 1024w\" sizes=\"(max-width: 1500px) 100vw, 1500px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Now, if the stock currently trades at $ 1000, then<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/P_E-ratio.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6116 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/P_E-ratio.png\" alt=\"Price to earning Ratio\" width=\"1500\" height=\"500\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/P_E-ratio.png 1500w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/P_E-ratio-300x100.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/P_E-ratio-768x256.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/P_E-ratio-1024x341.png 1024w\" sizes=\"(max-width: 1500px) 100vw, 1500px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">You need to choose such stocks that have P\/E less than 9. But P\/E varies from sector to sector. Lower P\/E ratio of sectors does not mean that this sector is undervalued and is going to boom and deliver a multi-bagger return in the near future compared to that sector which has a higher P\/E ratio. These sectors have higher valuation just because the market is bullish on these sectors and their future potential like Automobile, FMCG, Petroleum, etc. They are the core sectors of the Indian economy and have the potential to deliver a robust performance in the upcoming years.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Price-to-book ratio<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">You will find the book value of the stock in the balance sheet of the company.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Price-to-Book-Ratio-i.e.-P_B-Ratio.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6117 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Price-to-Book-Ratio-i.e.-P_B-Ratio.png\" alt=\"Price-to-Book Ratio\" width=\"1200\" height=\"300\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Price-to-Book-Ratio-i.e.-P_B-Ratio.png 1200w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Price-to-Book-Ratio-i.e.-P_B-Ratio-300x75.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Price-to-Book-Ratio-i.e.-P_B-Ratio-768x192.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Price-to-Book-Ratio-i.e.-P_B-Ratio-1024x256.png 1024w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Let\u2019s assume, the stock currently trades at $ 100 and the book value per share is $ 10 then,<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">P\/B Ratio =\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 [$100\/$ 10] = 10.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">You need to pick such stocks that have a P\/B ratio of less than one.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Current Ratio<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">The ratio is the snapshot of the asset and liabilities of any company. You will find the assets and liabilities a company has in its balance sheet. Find such quality stocks that have a current ratio of more than 1.5.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Current-Ratio.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6118 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Current-Ratio.png\" alt=\"Current Ratio\" width=\"1200\" height=\"300\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Current-Ratio.png 1200w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Current-Ratio-300x75.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Current-Ratio-768x192.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Current-Ratio-1024x256.png 1024w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Let\u2019s assume, the current assets of any company is $ 1200 and current liabilities is $ 400 then,<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Current Ratio =\u00a0 [$1200\/$ 400] = 3.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Debt to Equity Ratio<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">An individual needs to analyze the total outstanding debt the company has to repay either in the long term or in the short term and the asset the company owes.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Debt-to-Equity-Ratio.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6119 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Debt-to-Equity-Ratio.png\" alt=\"Debt to Equity Ratio\" width=\"1500\" height=\"500\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Debt-to-Equity-Ratio.png 1500w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Debt-to-Equity-Ratio-300x100.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Debt-to-Equity-Ratio-768x256.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Debt-to-Equity-Ratio-1024x341.png 1024w\" sizes=\"(max-width: 1500px) 100vw, 1500px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Preferably one individual should invest in those stocks which are either debt-free or have very marginal debt not more than 0.25.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Healthy dividend payout and stable Earnings-per-share<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Let\u2019s assume, a company has a net income of $ 10,000 per year. It Pays $5,000 in a preferred dividend to investors. It has 50 shares outstanding.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6115 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1.png\" alt=\"Earning Per Share\" width=\"1500\" height=\"500\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1.png 1500w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1-300x100.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1-768x256.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Earning-Per-Share-1-1024x341.png 1024w\" sizes=\"(max-width: 1500px) 100vw, 1500px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">It is a good idea to invest your money in those stocks that regularly pay a dividend and deliver a Healthy dividend payout. The stocks which have delivered healthy dividend-paying must have following features<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Consistent dividend payout over the past 5 years.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">The high dividend yield for the last 5 years.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Growth in dividend per share from time to time.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>The cash flow of the company<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">To understand a company\u2019s true economic condition one should check the free cash flow of the concerned company. Free cash flow actually reveals the profit the company makes. It implies a broader range in the company\u2019s functioning in the overall business.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Whenever you check the free cash flow of a company, you should analyze from which source the company is gaining its capital for its day-to-day business. Usually, there are two sources, the first one is earning from running operation i.e., business and the second one is receiving debt from the market i.e., debt financing. If the company runs its operation from the profit earned by running operation you should stay invested with the company. But if the company runs its business by debt financing, naturally the debt will increase from time to time. So, stay clear of these types of companies or stocks.<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Free-Cash-Flow.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6004 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Free-Cash-Flow.png\" alt=\"Free Cash Flow - undervalued stocks\" width=\"800\" height=\"2000\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Free-Cash-Flow.png 800w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Free-Cash-Flow-120x300.png 120w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Free-Cash-Flow-768x1920.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/04\/Free-Cash-Flow-410x1024.png 410w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Free Cash flow is one of the most reliable and widely used metrics among value investors, as it provides an accurate position of the company\u2019s financial condition. In simple words, free cash flow is an account of how much cash a company is left with after paying for all expenses.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Companies that manage to generate consistently large cash flows without incurring much capital expenditure are always valued higher by investors. Negative free cash flows are a sign of the deteriorating health of a company.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Current Inflation<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">In countries like India, you should watch out inflation because the P\/E ratio is adversely affected by current inflation. Owing to inflation, retail consumers spend less and the expenses rise. This will decrease the earnings per share. When EPS falls, it, in turn, increases the P\/E ratio making stocks overvalued. In addition, for a growing economy like India too low inflation rate also adversely affects the stocks. So, as an intelligent investor, you should analyze the following points,<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Reserves growth must be more than the current inflation rate.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Asset growth must be more than the current inflation rate.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Sales growth must be more than the current inflation rate.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Cash flow growth must be more than the current inflation rate.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Enterprise Value<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">You need to analyze whether the enterprise value of any stock is less than its market capitalization. Usually when the stock\u2019s enterprise value is less than the market capitalization, then it is considered that the stock is undervalued.<\/span><\/p>\n<h3><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\">How to calculate the enterprise value of any undervalued stocks?<\/span><\/strong><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Enterprise Value = Market Capitalization + [Debt \u2013 Cash]<\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/What-is-Nifty-and-Sensex-1.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-5673 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/What-is-Nifty-and-Sensex-1.png\" alt=\"calculation of Market capitalization to pick undervalued stocks\" width=\"800\" height=\"2000\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/What-is-Nifty-and-Sensex-1.png 800w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/What-is-Nifty-and-Sensex-1-120x300.png 120w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/What-is-Nifty-and-Sensex-1-768x1920.png 768w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/What-is-Nifty-and-Sensex-1-410x1024.png 410w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Suppose a company has a huge cash reserve. Its cash reserve is so enormous that the company may clear all the debt from the cash reserve only. But this is the rarest of rear cases. So, you need to pick those stocks which match the nearest one.<\/span><\/p>\n<blockquote><p><span style=\"font-size: 14pt; color: #000000;\"><em style=\"color: #000000;\"><strong>Note<\/strong>: This is the few lessons from the book which I discovered from Christopher Browne\u2019s<\/em><em><span style=\"color: #000000;\"> brilliant book <\/span><a href=\"https:\/\/www.amazon.com\/gp\/product\/0470055898\/ref=as_li_tl?ie=UTF8&amp;tag=capitalante-20&amp;camp=1789&amp;creative=9325&amp;linkCode=as2&amp;creativeASIN=0470055898&amp;linkId=ea3d0b9f7cc34e8e4f84e1ac85ccd02f\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"color: #ff0000;\">&#8216;The Little Book of Value Investing&#8217;<\/span><\/a><\/em><\/span><\/p><\/blockquote>\n<h2 style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Top 10 Undervalued stocks to buy in India<\/strong><\/span><\/h2>\n<table>\n<tbody>\n<tr>\n<td style=\"text-align: center;\"><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Stock<\/span><\/strong><\/td>\n<td style=\"text-align: center;\"><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Compounded Sales Growth<\/span><\/strong><\/td>\n<td style=\"text-align: center;\"><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Compounded Profit Growth<\/span><\/strong><\/td>\n<td style=\"text-align: center;\"><strong><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Price to Earnings Ratio<\/span><\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Power Grid Corporation Of India<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">18.19%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">28.09%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">9.51<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">HEG<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">94.44%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">586.73%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">1.64<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">J Kumar Infraprojects<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">25.54%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">21.42%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">6.64<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Deep Industries<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">15.30%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">12.32%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">4.35<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">LIC Housing Finance<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">11.67%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">13.43%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">7.91<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Indiabulls Housing Finance<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">22.67%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">20.39%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">2.66<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Graphite India<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">72.45%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">246.02%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">3.48<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Balrampur Chini<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">15.85%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">33.76%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">5.59<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Dilip Buildcon<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">31.62%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">50.96%<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">8.81<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Finally, you need to consider any specific sector which is cyclical in nature. This kind of sector tends to deliver better returns when the economy is booming. Spot any company after analysis of price fluctuations during the market correction or after a disappointing quarter or year. Then stay invested for the long term to yield better returns.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>How Capitalante can help you<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Are you confused about how to prepare an effective financial plan to achieve financial freedom? If yes, learn<span style=\"color: #ff0000;\">\u00a0<a style=\"color: #ff0000;\" href=\"http:\/\/capitalante.com\/financial-planning-services\/\" target=\"_blank\" rel=\"noopener noreferrer\">how to prepare effective financial planning<\/a>.<\/span><\/span><\/p>\n<p><a href=\"http:\/\/capitalante.com\/financial-planning-ebook\/\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" class=\"aligncenter wp-image-6837 size-full\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2020\/03\/Financial-Planning-eBook.png\" alt=\"Financial Planning eBook\" width=\"728\" height=\"90\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2020\/03\/Financial-Planning-eBook.png 728w, https:\/\/capitalante.com\/wp-content\/uploads\/2020\/03\/Financial-Planning-eBook-300x37.png 300w\" sizes=\"(max-width: 728px) 100vw, 728px\" \/><\/a><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #ff0000;\"><span style=\"color: #000000;\">Read also:<\/span> <a class=\"blog-item-title-link\" style=\"color: #ff0000;\" title=\"Cyclical Stocks Vs Defensive Stocks [With Infographics]\" href=\"http:\/\/capitalante.com\/cyclical-stocks\/\" target=\"_blank\" rel=\"bookmark noopener noreferrer\">Cyclical Stocks Vs Defensive Stocks [With Infographics]<\/a><\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #ff0000;\"><span style=\"color: #000000;\">Read also: <\/span><\/span><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"http:\/\/capitalante.com\/best-stocks-to-buy-in-india-for-long-term\/\" target=\"_blank\" rel=\"noopener noreferrer\">Top 10 Best stocks to buy in India for long term<\/a><\/span><\/li>\n<\/ul>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\">I hope, this article will help you to find undervalued stocks that can deliver better returns in the near future. If you have any questions feel free to comment so that we have a discussion. If you have found this post helpful feel free to share it with your loved ones.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In order to get multibagger returns one individual needs to follow one simple rule, \u201cFind only fundamentally strong stocks which are undervalued and stay invested in them for the long term.\u201d Why long term? Historically, the equity asset class has &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Top 10 Undervalued Stocks to Buy\" class=\"read-more button\" href=\"https:\/\/capitalante.com\/undervalued-stocks\/#more-6112\">Continue Reading<span class=\"screen-reader-text\">Top 10 Undervalued Stocks to Buy<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":6121,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[16],"tags":[],"_links":{"self":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/posts\/6112"}],"collection":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/comments?post=6112"}],"version-history":[{"count":0,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/posts\/6112\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/media\/6121"}],"wp:attachment":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/media?parent=6112"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/categories?post=6112"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/tags?post=6112"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}