Embark on your exciting journey into the world of stock investing! In this beginner-friendly guide, we’ll demystify the art of picking the best stocks for the long term. From understanding the basics of stocks to assessing company fundamentals, let us equip ourselves with the tools to make informed decisions. Get ready to unlock the potential of long-term investing to achieve your dreams! Here is my current list of best stocks.
Welcome to the world of stock investing, where the potential for long-term growth and wealth awaits! As a beginner, you might feel overwhelmed by the vast array of stocks available in the market. It’s true, like finding a needle in a haystack, identifying the best stocks among the sea of options can be challenging.
But fear not! In this comprehensive guide, I’ll do my best to equip you with the tools and knowledge. After reading this article you sift through the noise and uncover those rare gems.
Get ready to learn the art of picking the best stocks. It will help us navigate through the abundance of mediocre stocks to discover the hidden treasures, the best stocks.
List of 5 Best Shares in India
| SL | Name | Industry | Price | Market Cap | Revenue | Net Profit | ROE (%) | GMR Score |
| 1 | APARINDS:[532259] | Diversified | 5,474.55 | 20,983.58 | 14,389.62 | 637.74 | 31.87 | 99.14 |
| 2 | CREDITACC:[541770] | Misc. Fin.services | 1,289.40 | 20,496.17 | 3,550.76 | 826.03 | 19.56 | 99.07 |
| 3 | ISEC:[541179] | Brokerage Services | 620.15 | 20,059.99 | 3,425.48 | 1,117.63 | 39.08 | 99.00 |
| 4 | FINEORG:[541557] | Organic Chemicals | 4,806.15 | 14,686.13 | 3,087.14 | 619.79 | 36.36 | 98.93 |
| 5 | REDINGTON:[532805] | Trading | 154.75 | 12,096.59 | 79,518.71 | 1,439.39 | 19.75 | 98.86 |
Topics
#1. The Concept of Stock Investing
Stock investing is like owning a piece of the best companies in the world. Imagine being a co-owner of your favorite brands, tech, and pharma companies. By investing in stocks, we become a shareholder, sharing the success and growth of these enterprises.
The real magic of stock investing lies in the power of long-term commitment. While the stock market might seem like a rollercoaster in the short run, over time, it has proven to be a wealth-building machine. Long-term investing allows us to take benefit of the incredible power of compounding. This way, our incremental gains snowball into substantial returns.
In stock investing, patience is our greatest ally. How? Despite market fluctuations, quality companies have historically shown an upward trajectory. Moreover, if we can keep our portfolio diversified, even the risk of loss gets minimized.
#2. What are stocks?
A stock represents ownership of the shareholder in a company. When you buy a stock, you become a shareholder. Meaning, you hold a tiny fraction of that company. Imagine a chessboard (company) divided into 24 squares (shares). Each square represents a share of the company. In real life, instead of 24 squares, a company gets divided into several crore number shares. For example, TCS has 365.9 crore number shares in the market.
So what happens when we hold a share in a company? As a shareholder, one now has a claim on a portion of the company’s assets and earnings.
When the company succeeds and expands, our shares become more valuable. Imagine being a part-owner of a retail store. As the store attracts more customers, opens new branches, and earns profits, the value of your ownership (stocks) increases.
Think of stocks as seeds that you sow today to reap the rewards in the future. As the seed grows into a tree and into a flourishing forest (company), you get your returns in the form of fruits (wealth). This is the beauty of long-term investing; you let your seeds take root and watch them transform into a lush forest over time.
#3. Why Should You Invest in Stocks for the Long Term?
When it comes to building sizeable wealth, few strategies stick with stock investing. This strategic approach to the market opens a world of financial opportunities for the investor. It empowers the investor to navigate the ups and downs with grace and confidence. Let’s explore the compelling advantages of practicing long-term investing:
- The Magic of Compounding: As quality companies generate profits, a major part of those profits get reinvested. The reinvested money generates even more profits which again gets reinvesting. This process snowballs into more significant earnings over time. It’s like a small stream that steadily transforms into a mighty river. This is how our wealth exponentially grows due to quality stocks held for longer time horizons.
- Market Volatility Management: With its daily fluctuations and unpredictable twists, the stock market can confuse investors. Long-term focus allows people to ignore the current volatility. Rather than getting swept away by short-term turbulence, people can stay focused on a purpose to hold quality stocks for the long term (7-10 years).
- Focusing On Growth: Successful businesses evolve and expand over time. As they thrive, the value of their stocks also expands. All investors who hold on to such stocks for all these years, benefit as their shares grow in value.
Real-Life Heros as Long-Term Investors
- Warren Buffett: Warren Buffett’s success as a long-term investor is legendary. By patiently holding onto high-quality stocks for decades, Buffett has built a colossal fortune and achieved incredible returns. Read about Warren Buffett’s rules of stock investing.
- Peter Lynch: Peter Lynch is celebrated for his exceptional long-term investing mindset. Lynch famously said, “The real key to making money in stocks is not to get scared out of them.” Read about the concept of multi-bagger stocks from Lynch’s perspective.
Long-term stock investing empowers us to harness the power of time and patience. By embracing the advantages of compounding we can set ourselves on a path to building lasting wealth.
#4. How To Research Stocks
The stock investors should also be keen investigators. Having the ability to identify potential companies for long-term success is the key. How people like me and you can do it? We’ll list down a few checks and balances here:
- Step #1. Check Market Position: A company that holds a dominant position within its industry becomes an automatic pick. Next are companies that are nimble disruptors challenging the status quo. Such companies have higher revenues, market share, and pricing power. Identify the industry leaders or one that has the potential to become a leader.
- Step#2. Understand The Business: Before investing in a company, it’s essential to understand what they do as a business. The way forward is to analyze their products and services. We should seek companies that offer innovative solutions to the market’s demands. This way they will get a competitive edge over their peers. Imagine investing in Nestle when they first launched formula food for infants. These are the kinds of companies that have the potential to shine in the long run.
- Step #3. Analyze Financial Health: Once specific companies are identified, the next step is to analyze their financial health. Dive into their financial statements to understand how they manage their money and generate profits. Three key financial statements to assess are the income statement, balance sheet, and cash flow statement. Let’s know more about how to do it.
Analyzing Financial Statements
To get a more holistic analysis of a company’s financial position, about three to five-year financial reports will work. Analyzing multiple-year reports enables trend analysis. To get a deeper understanding of a company’s business fundamentals trend analysis cannot be avoided.
Analyzing the Income Statements
The income statement provides a snapshot of a company’s income and expenses in a specific financial year (FY).
Pay special attention to income growth trends. Examine if the income and expense flows are yielding consistent operating profits.
The next activity is to analyze the profit margins. One must assess whether the margin is improving or remaining stable over time.
Consistent and growing profits indicate a healthy and sustainable business. If the income and profit margin is improving, it is a strong indicator of the company’s economic moat and pricing power.
Decoding the Balance Sheet
The balance sheet gives insight into how the company is balancing its assets, liabilities, and equity at a specific point in time.
The objective of a balance sheet analysis is to check if the company has a strong asset base, manageable debt levels, healthy shareholder equity, and liquidity position.
- Asset Base Analysis: A strong asset base means possessing substantial valuable resources, such as property, equipment, cash, and investments. These resources build a solid foundation that enhances the company’s ability to yield income and profits. Use the asset turnover ratio (net sales / fixed assets) to analyze the asset base. A growing trend is what an analyst would like to see here.
- Debt Analysis: The analysis of manageable debt levels can be done using the debt-to-equity ratio (D/E) and interest coverage ratio (ICR = Interest / PBIT). As a general rule, DE ratio below 0.3 looks good. ICR above 3 is again a good multiple. A falling DE and rising ICR ratio over time is an excellent value indicator.
- Healthy Shareholder Equity: To establish shareholder’s equity health, the ratio that can be used for analysis is [Return on Equity = Net Profit / Shareholder’s Equity]. ROE indicates how efficiently the company generates profits from the equity invested by shareholders. A higher ROE suggests effective utilization of equity capital and a potential indicator of a strong equity base. ROE trend check will establish if the return-generating capability is maintained or improving. Improving ROE over time is what is an excellent shareholder value indicator.
- Liquidity Position: No matter how profitable is a company, if it is not sufficiently liquid, it will not survive. To identify a company’s liquidity position use of current ratio, quick ratio, and cash ratio. To know more about these ratios, check this link.
Understanding the Cash Flow Statement
The cash flow statement reveals how much cash a company generates and uses in its operations, investments, and financing activities. Analyze the operating cash flow to ensure that the company generates enough cash to sustain its operations and invest in growth.
The best metric to evaluate a company’s cash flow report are the following:
- Operating Cash Flow (OCF): It represents the amount of cash generated or used by a company’s core operating activities. A positive OCF indicates that the company’s core operations are generating more cash than they are consuming. It is a sign of healthy operational efficiency. It reflects the company’s ability to cover day-to-day expenses, invest in growth, and service its debts. Read here about cash flow analysis.
- Free Cash Flow (FCF): It measures the cash available to the company after accounting for all capital expenditures (Capex). It indicates the potential for the company to invest in growth opportunities, pay dividends, reduce debt, or repurchase shares. Positive free cash flow is a favorable indicator of financial strength.
Researching companies is a crucial step in your stock investing journey. By understanding their products, market position, and financial health, you can identify hidden gems with the potential for long-term growth.
Analyzing financial statements might seem daunting, but with the right approach, you can unlock valuable insights into a company’s financial strength and performance.
Analysis of What is The Right Price of a Stock
As an investor, understanding the concept of price valuation is a pivotal step toward making informed decisions. An investor should be able to tell whether a company’s stock is a worthy addition to the portfolio. Let’s explore this subject further:
Why Value a Company?
Valuing a company is akin to determining the fair price of a masterpiece in an art gallery. When we are buying a stock, it must balance between what value it is offering to us compared to the price we are paying. As an investor, we must never overpay for a stock. Valuing a company is a way to figure out the qualities of a company and then extrapolate all those qualities in a way that it can be compared to its stock price.
Basic Valuation Methods:
- Price-to-Earnings (P/E) Ratio: The P/E ratio is like a magnifying glass that offers insights into how the market values a company’s earnings. It compares the stock’s price to its earnings per share (EPS). A lower P/E ratio might indicate an undervalued stock, while a higher ratio might imply that the market has high growth expectations for the company.
- Discounted Cash Flow Model (DCF): Imagine valuing a fruit tree based on the future fruits it will bear. DCF method calculates the present value of future free cash flows (FCFs) a company is expected to generate. By discounting future FCFs back to present value, you can estimate the stock’s intrinsic value.
Just these two valuation methods can empower us to make more informed decisions about whether a company’s stock is worth buying at its current price. However, it’s essential to note that valuation is not a crystal-clear science. Multiple factors, which are beyond the company’s control, including market sentiment and economic conditions can influence stock prices. That is why, no matter how confident one is about his/her ability to value a business, applying the right margin of safety is a must.
Conclusion
In our endeavor to identify the best stocks, the step of thorough stock analysis is a must. Just as you drive your car using google maps on an unknown route, investors must chart their course with careful scrutiny and deliberation. The journey of selecting the best stocks is not just about luck; it’s a meticulous process that demands patience, knowledge, and a keen eye for detail.
A strong company may boast about its robust financial foundation. But their mettle is in the competitive edge that shields it from market turbulence. The magic lies in its products and brand image that resonate with consumers. A strong company will often outshine its competitors. This prowess is bestowed on it by its visionary leaders that steer it toward greatness. When such companies are available at attractive valuations, they become ideal investments.
However, the journey doesn’t conclude with buying the right stocks. Holding onto our investments for a substantial time horizon is the secret ingredient for long-term success. Let time becomes our ally, allowing our investments to weather market fluctuations, and harness the power of compounding. It will eventually blossom into a wealth-generating machine.
The process of selecting, nurturing, and holding onto the best stocks encapsulates the essence of prudent wealth-building.
FAQs
Look for companies with a strong balance sheet and a history of profitability. The company must be from industries that are growing or have the potential to grow in the future. Make sure the company has a strong management team with a proven track record. Never overpay to buy stocks.
Don’t buy a stock just because it’s going up in price. Do your research and make sure the stock is a good long-term investment. Never ignore diversifying your portfolio. Spread your money across different stocks and industries to reduce your risk. Investing in stocks with a narrow time horizon is a big mistake. Always invest with at least 5-7 years of perspective.
First, read about the basics of stock investing on reputed blogs or books. I’ve learned a lot by reading the blogs of Professor Aswath Damodaran. He teaches finance at the Stern School of Business at NYU.
108 Responses
Excellent reviews
Excellent analysis based on very good understanding of corporate values and contribution of good corporate governance for sustained growth of industries. Very educative and detailed explanations have been given of the industrial growth and the opportunities under various situations.
Thanks For this Informative information I Gain lot of knowledge from this
My Bank FD of 10L is maturing this month. What’s the best way to invest this money. I am beginner in Stock Market.
go for SBI technology Fund (MF)
search good stock and invest . dont follow any others
Read the book intelligent investor and Peter linch Books
Hey I bought shares of United Drilling at. 244 after your suggestion …. Its 354 now!! Should i sell or hold?? Plz suggest target price
Thanks in advance…. You rock!
wow
Dear sir
Really this good information to public.
But I don’t know how to purchase small quantity share for earning long term. I was loosen lot ,so encourage us.
Go with the professional advisor rather than investing by self or broker call.
and give all the returns as fee to the advisor and enjoy with nominal return
kya khub kaha nishant bhai ne
Invest in the ratio of 14% – 28% – 56% – Buy only when there is a minimum correction of 3% in high premium stocks and 5-10% correction in top class mid and small cap stocks
You will make 20% yoy
Hi Mani, always great to read your blogs. You shortlist a lot of paper industry companies but none of them seem to have a great forward looking price, is degrowth or stagnant nature of industry driving it?
I am pleasingly baffled to see that 8/10 of the stocks have shot up since you posted this on 1st August 2020. I didn’t go through the process as I wanted to ensure if its analysis actually works. Apologies for saying it, but I am almost convinced that it does! Will spend this weekend understanding the article. Thanks a lot Mani!
Regards,
Ganesh
Well researched and well explained. Thank you so much for this valuable information.
You are such a wonderful person thanks for the info so useful May God bless you always.
All these details of yours will help someone to become financially stable very nice
Dear sir,
I am new to the investment in the market and i would like to invest with a long term goal can you please advise.
Hello Sir,
Such an informative blog. I even followed you on Youtube and Now I am hooked in value investing.
A question regarding this blog post is How did you identified these stocks from a long list of stocks available?
thanks,
Atul
When i calculate the intrinsic value for Hindustan Zinc, it is way lower than the Market Price. Can you help me know what was your IV for Hind Zinc please?
Hello Sir,
I have been reading your blogs for a long time, thank you so much for sharing valuable information. Personally I like Dabur India, Infosys, Divi’s Labs, Pidilite Ind, Marico, TCS these stocks you have mentioned in the list, thank you very much
Where can i get the breakup for the cash flows of the company? Like the cash flow from investing & financing activities? I could only get the totals without the breakup. Could you please help.
Respective companies Annual Reports, which are uploaded on the companies’ website usually under investor Relations head.
Hi sir, first of I want to thank you for creating such a useful content source to achieve financial freedom. I really enjoyed reading your blog.
this is really helpful.
sir, I am holding IRCTC shares @1150. What do you suggest to do with it I should hold or sell.
will it fall further?
leave it for while. after 1.5 year, u will remember me. it will boom. dont sell it. this is its monopoly business buitself.
hi sir
please suggest stocks to buy on monday
Hi Mani,
Hope you and your family are safe.
What is ideal amount of stocks to hold for these companies?
It’s indeed a great information, Thanks for sharing such a detailed data to us. I was facing little challenge going through all the parameters in the company’s report, as a couple of parameters are named differently in an annual report than what you have mentioned here. I would love to buy your product but before that I would like to go over on my own to see how it works. Is there any email where I can reach you out for questions? Please email me your contacts to reach you out.
Hi Mani,
Thanks for sharing valuable expedition.
Am new to share market. I started investing in Adani Greens, RVNL, REC and Ashok Leyland. Shall I continue ?
Moreover what are the stocks which can grow after this pandemic Covid 19 effect?
Hello
I want to buy some share but I am new I don’t know about can you please help me with that like which share I can buy right now.
hi,
Can I know your feedback about the stock “Honeywell Automation Ltd.”
BSE: 517174 | NSE: HONAUT | SERIES: EQ | ISIN: INE671A01010 | SECTOR: TELECOMMUNICATIONS – EQUIPMENT
Advance Thanks…
Hi Mani,
I’ve your V 2.1.5.02 analysis worksheet. Does it have DCF as your version log says this update is done and released as 2.1.5.04.
Also, nowadays Moneycontrol website has been updated and it is not displaying total number of shares in shareholding pattern. Is there any other source where we can get exact number of total shares.
Have a great day ahead.
Hi.
You can go simplywall st.website & you will get every major share holder details.
Lovely article. It gives great insight into Intrinsic value of a stock.
I calculated IV using the following method:
> I tried calculating Avg. g using the annual report of Britannia Industries from 2015-19.
> FCFE of each year varies drastically and leading to g to bounce from -ve to 300% change.
It gives a varied picture of Intrinsic value of that company. What is the range within which IV of a company can vary? Are there any examples of sky high IV?
Thanks in advance. I would love to learn more.
No DMART in the list? Surprising 😮
Hi
Thank you for sharing such a useful information.
Which share I invest price below 50 for long term and highly return
yes bank ,Tata motets
Mr.Mani,
i have planned to put in stocks with an amount Rs.50,000 .if u dont mind can u tell which are the stocks to buy .will wait for 8 years .using this as investment
Hi Mani,
I too have same question.
Looking to invest 50k to 1L in market for first time.
Please suggest…the possible sectors & stocks.
Just go for large cap MF units or niftybees if you dont know much about stocks…
Hi
If we buy undervalued stocks suggested by you then when shall we sell it? At what price?
Set your target first (say 10%). Sell when it is achieved.
Please post elec vehicle related quality stock
thanks sir now i can understand what things are consider while selecting stocks .
Hi Mani,
I have been following your articles for more than a year. Recently I purchased STOCK ANALYSIS WORKSHEET V2.1.4 (PLUS). First congratulations on good work.
I have couple of questions for you though as listed below:
1. This article list L&T Finance as undervalued at 80.6 however when I entered data as advised in the video, I am getting intrinsic value as 53 and showing it as overvalued. Can you please advise?
2. I have been holding Lupin shares for last 20 years. Purchased price is quite low. When I used the spreadsheet to get intrinsic value of Lupin it is showing approx. 919. Can you please confirm this price is correct and do you advise to keep it?
Hi, the numbers shown in this article are based on a screener. These numbers are not as reliable. But they at least screen out the non-important stocks. I generally use my “Stock Analysis Worksheet” to do a more deeper analysis of my shortlisted stocks.
Thank you.
Can you please help me with question regarding Lupin? Thanks
Sir
I have purchased unionbank shares 6725@58.90 ,shall I hold these stock for 5 years, kindly give me advice
Thank you
Great post Mani, really appreciate the work you are doing for investors like us
Thanks
Thanks Mani-ji for the enlightenment.
Thanks
Basis the above my FCFE for Graphite India is coming out to be 1308 CR (using Annual report of FY18-19). However, in your post on best stocks (https://getmoneyrich.com/stocks-list/best-stocks/), you show Graphite India’s FCF as 2194.71. Not sure if it is because my inputs to different variables is incorrect. Would be super helpful if you can take a company’s example (for a specific FY) and show this.
Also in new debt formula you mention “Note the numbers for ‘purchase and sale of capital assets’. Note the numbers mentioned against ‘Proceeds from borrowing’.”. Shouldn’t it just be proceeds from borrowing as purchase and sale of capital assets would be under investment activities
Hi, the numbers shown in my table of stocks are based on a screener. These numbers are not as reliable. But they at least give a hint that which stocks are worth further analysis. I generally use my “Stock Analysis Worksheet” to do a more deeper analysis of my shortlisted stocks.
https://getmoneyrich.com/product/stock-analysis-worksheet/
I am trying to calculate the FCF myself and compare it to your figures mentioned here: https://getmoneyrich.com/stocks-list/best-stocks/ but there is a huge difference. Can you let me know this FCF is calculated using which financial year figures?
I am novice on this, can you please explain how is expected return arrived at & also the data table in that section. Thanks
It’s estimated based on past returns, growth trends and present price levels
Hi Mani,
Your formula for undervalued says “IF IV Mcap” right?
Yes, the formula is IV < Mcap. Thanks for asking.
What made you remove HEG and Sterlite Tech from this list?
This time a new screening criteria has been used.
Hi Mani,
Really nice article. it’s great that you are sharing your watch list for others.
I would also like to suggest one website ( you might be already knowing about it ) to pick up stocks for analysis. Website: screener. in/screens/ .
On these screens one can write down query and get list of stocks based on our preferred criteria. Then they can use your stock analysis tool to get intrinsic value.
Let me know your views on it. Thanks
Hi to All, iam new to this feild .. if anyone can suggest few names to study and select shares to invest.. it will be helpfull ..
there is nothing like help but more like pay and payee, if you have something to share then they will might share something to you. but it rarely the correct path.
Look before you go and do it!
—————————–
nothing is free just like this blog!
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Could you elaborate on “Cash flow from financing Activity” esp. what all to consider under Proceeds from borrowings ‘E’ and repayment of borrowing ‘F’?
I was calculating FCFE for Ashok Leyland and their “STATEMENT OF CASH FLOWS” has below
Cash flow from financing activities
Proceeds from issue of equity shares (including securities premium) 455.35
Proceeds from non-current borrowings –
Repayments of non-current borrowings (105,502.74)
Payments relating to swap contracts on non-current borowings (11,633.48)
Proceeds from current borrowings 924,000.00
Repayments of current borrowings (933,863.78)
Should i calculate like below:
E Proceeds from borrowing (New Debt) From Report 924000
F Repayment of borrowing (Debt Repaid) From Report -933863
Thanks in advance! This article made me start looking into the sheets.
Good work Ankit. Your assumptions are right related to “cash flow from financing activity”. Thanks for asking and putting your thoughts here.
Hello sir,
I was looking for some information on Best stocks to buy in India, this morning and came across your website.
Great content! I especially liked how your website describes the topic in an easily understandable language which inspired me to write more up to date content on How to pick the best stocks for consistent returns and Top 10 best stocks to buy in India for the long term.
Actually, I have published on the said topic with more insights and infographic which is quite beneficial for your audience.
Let me know if you want to check it out.
Either way, keep up the good work.
Thanks,
Jharna Majee.
It’s a good and Informative article
Very good article. What is the importance of book value of a stock
Hi, thanks for posting your comment. You can know more about book value here…
https://www.getmoneyrich.com/book-value-of-shares/
Sir, i checked the financial data for britania, but could not find the figures you mentioned above. have you used random numbers? when i did the calculation, the IV/share is less than Re 1. can you take a real example and explain the calculations. for our benefit, can you use financial figures from ndtv or economic times.
thank you.
I will suggest you to use moneycontrol. Generally numbers in financial reports will be similar whether we follow NDTV, economic times, etc. Thanks.
This is a very good article, which gives a brilliant explanation on how to identify and select the best stock for investing. It also tells us how to identify the best stocks for beginners, as stock picking must be done with extreme care because picking up any random share without proper research will be a bad investment decision. This article also tells us that business whose future free cash flow is certain is a good business and market value of the stock must be less than its intrinsic value. Here the information provided is precise, resourceful and has its unique way of analyzing data and presenting it in a simple manner.
With ref. to your post dt. 19th Sep. 2018 on Free Cash Flow Analysis of Indian Stock, AdanI ports is Undervalued. But your post dt. 24th Sep. 2018 on Best stocks to buy in India for Long term 2018, you have mentioned to avoid Adani Ports. Please clarify.
–Good observation…
The list provided in this blog post is result of a general “screener”. It is less detailed. But it helps me to quickly highlight few potential stocks from all.
The analysis provided in “Free Cash Flow Analysis of Indian Stock…” is more detailed. It is based on 2 years data. Hence the reliability of that analysis is more.
The point is, estimation of intrinsic value will differ from person to person. The variation will come based on:
– Knowledge, skill of the analyst.
– Data used for analysis.
– Procedures used for analysis.
Out of NIFTY 50 only 8 shares qualify your test. Now looking tersely, it can be said that though the intrinsic value is high these shares do not command good price.My be due to the bad methods in manufacturing, marketing, political reasons, lack of financial manipulation, risk taking etc.That means one should not buy those shares before the companies improve. When and how will that happen? They may not even reach the IV in long time like Karnatak Bank. There appears contradiction. Do you see the light?
Market pice can be higher than IV. Its fair.
But why IV is less than price? It is not always “due to the bad methods in manufacturing, marketing, political reasons, lack of financial manipulation, risk taking etc“….
Stocks of great companies trade at overvalued price levels. But there will be moments in time when there will be price correction. The strategy should be, first know the true value of a good company. When this is established, wait for the market price to become favourable (it will be, one day soon).
Your method seemed to be working in good old days before the IPO of Reliance Power and also when the shares of multinational were issued at nominal premium and when STT was not there.
Who approves the shares prices of IPO and on what basis? Could that be rigged up? Why people invest without knowing anything.
One of my Sr. broker who is no more, used to say that share bazar is a gambling den. That is an over statement but if everything is predictable, then you can never earn in share bazar because here they do not produce any goods or services and also they can not tax like Govt.
Having said that, your method is quite interesting because it enables to find the element of speculation quantum in present share prices.
Is there a software program sold by you which I can buy and on the top of that I apply my intuition?
Congrets fr nice style and kind regards
Share Market looks like a casino, but its not. At least for me, “shares” are not very different from the “business” it represents. This way of looking at stock market, helps in making more meaning out of stock investing.
Thanks for a lovely comment.
while calculating IV per share, i noticed that the nifty 50 stocks you gave also divide no . of shares by face value. Without this every stock seems overvalued… Mani please comment
Sorry, I did not get your point…
I tried to follow your steps to calculate FCFE. However, I am getting minor difference in the FCFE of nifty-50 stocks that you have mentioned. For ex, following are the values I took from Bajaj auto’s annual report 2017-18 (everything is in Rs. Cr). PAT = 4068.1, Depreciation & Amortization = 314.8, Purchase of capital assets = 182.63, Sale of capital assets = 13.13.
Current asset, 2018 = 9,235.63 and current asset 2017 = 9,391.37 hence change in current asset = -155.74. Similarly, current liability 2018 = 4,111.29, current liability 2017 = 3,212.58 hence change in current liabiliity = 898.71.
Proceeds from borrowing (new debt, I am assuming this is long term debt only that we should take) = 0
Repayment of borrowing (again repayment of long term debt) = 0
FCFE I calculated = 5267.85. FCFE you have mentioned in the table above = 5154.26
I believe either I am going wrong in taking the captial asset sale/purchase or new debt vs repayment. Would be super helpful if you could help me with the same.
The value mentioned in the blog are results out of a general “stock screener”. It has been used to bring forward potential stocks. A detailed analysis will surely give a different values than generated by the screener. Thanks for posting your comment. Good work.
Hi, Thank you for such a detailed post on this topic which I was really looking for. I will use the steps for some of the stocks and I will share my views as well. BTW, normally, people will say that there will be exception when we do such analysis – for example, banks will be having more money which needs to be seen from right perspective (not as a free cash). Is there any such consideration while we use your above steps to analyze the stocks. Please clarify. Looking forward for your other posts to learn more. Thank you.
I will suggest you to read this blog post:
https://www.getmoneyrich.com/how-to-do-analysis-of-banking-stocks/
Hi Mani Sir,
I am a big fan of your stocks analysis sheet and thanks to you for that.
I want to know that while putting the Balance sheet values in the sheet from moneycontrol, should I be picking the consolidated or standalone values (from moneycontrol). Please advise.
Thanks
Its better to use standalone data. It gives better idea about the core strength of the “parent business”.
Thanks for your comment.
The article was simple and lucid.I need one clarification.
You have stated ‘A company relying too much on debt for its cash flow management will have lower FCFE”.But if a company borrows new debt its FCFE will rise.
Seems contradictory…
Kindly elaborate.
Your observation is right. I have rephrased my sentence. Thanks for pointing out the contradiction.
Hello
I want to buy some share but I am new I don’t know about can you please help me with that like which share I can buy right now.
Very helpful blog. I have one que.
In blog page, list of share is different from “more stocks”s list. Shares at number 8,9, 10 in more stocks full list are shown at number 1,2,3 in main blog page. Can you please tell which list number is more reliable. I am so much confused everytime i see lists in blog page and more stocks full list page.
Please treat this as serial numbers, not ranks. You will find it easier to comprehend.
nice post
Very good article about how to choose a stock before purchasing the same. I have not come across such a detailed article before except an article on site of StockAxis.
Very helpful.
Nice that you liked the detailing. Thanks for taking time to post your views on the article.
very good information about how to select the best stocks, how to make a portfolio. thanks
Thanks Chinmay Tandon
vakrange???
Why NHP C ?
sir coffee day hain mera pass 500 share 120 par tto kya karna chahye
I have purchased Karnataka bank shares 100 at Rs 155, as its Market price is lower than true value which is Rs 197. But from past three years Karnataka bank shares have not reached its true value Rs 197. Now what should I do?.
It was a great experince reading this
Thanxx
This is the first time that I have read something very useful about stock investing. I am holding Man industries, Visesh infoteck, Havisha hosp & infra in my portfolio. Please give me some advice on this stock.
Thanking you
T.C.Raveendran
This is a very good article to analysis market, & how to make own list . It’s really good to work. I m very impressed because to cover all fundamental reasons to choose our best stock.
whats condition on jun ended market
good article