The purpose of this blog is to establish a way to identify the best stocks. Pro investors have their own tools, experience, and knowledge to pick the best stocks. But we retail investors are not so resourceful and experienced. This article will work as our guide. For quick answers, please check the FAQs.
Introduction
Being shares of exceptional companies does not mean that they are also the best stocks to buy. We must not confuse a good company and a good stock. In this article, we will know how to find the 10 best shares to buy today for the long term.
Companies like RIL, TCS, HDFC Bank, Infosys, etc are well-known brand names in corporate India. But are their shares too, good for investing?
There is a way to get the right answer. How? By doing a detailed fundamental analysis of the business. But in this article, you’ll read about a comparatively quicker method of analysis.
10 Best Shares For Long-Term Holding
(Updated: 06-May-2023)
| SL | Company | Price | M.Cap (Rs.Cr.) | ROE-3Y (%) | RoCE-3Y (%) | P/E | GMR Score |
| 1 | COROMANDEL:[506395] | 963.50 | 28328.22 | 25.39 | 33.60 | 13.79 | 72.16 |
| 2 | MUTHOOTFIN:[533398] | 1055.00 | 42409.96 | 22.03 | 28.55 | 11.67 | 70.78 |
| 3 | DCMSHRIRAM:[523367] | 814.00 | 12479.00 | 18.14 | 22.01 | 13.95 | 69.94 |
| 4 | BEPL:[500052] | 114.20 | 1894.64 | 36.27 | 47.87 | 9.68 | 68.61 |
| 5 | SUNTV:[532733] | 429.00 | 16906.23 | 21.36 | 28.16 | 9.73 | 68.21 |
| 6 | PFC:[532810] | 168.65 | 44564.45 | 15.97 | 11.06 | 3.09 | 67.35 |
| 7 | KMC Specia:[524520] | 60.81 | 991.72 | 25.62 | 27.61 | 41.83 | 67.28 |
| 8 | GNFC:[500670] | 597.35 | 9290.15 | 19.42 | 22.00 | 5.22 | 65.91 |
| 9 | GUJTHEMIS:[506879] | 756.50 | 1099.10 | 45.68 | 60.86 | 19.61 | 65.81 |
| 10 | SARDAEN:[504614] | 1112.00 | 3918.48 | 21.91 | 27.41 | 5.67 | 65.61 |
Which Stocks Are Considered Good?
What can make a stock good for investing? It will be a combination of the quality of a business and the ‘price valuation’ of its stocks.
Indeed, investors cannot buy shares of any company. Understanding a company is essential to judge its strengths. Why? Because the idea should be to always buy shares of only quality businesses.
But after we have identified a quality business, its stocks cannot be bought straight away. We must also check its price valuations.
So as an investor, our aim should be to buy stocks of a strong business at an undervalued price.
Price Valuation
There are methods to estimate the best buy price of shares. This buy price is justified by the business fundamentals of the underlying company. The difference between the market price and the justified price builds a buying opportunity for investors.
Considering the strengths and weakness of a business, a stock trading at (or below) its justified price tends to move up.
Pro investors are always looking for exceptional companies whose stocks are trading at a price below their justified price. A more niche name for the justified price is intrinsic value.
Being aware of the price valuation methods prevents people from falling into the value trap. Novice investors often fall for famous names. Two points to note:
- First, a known name does not always mean that the company is strong.
- Second, shares of famous/strong companies often trade at overvalued price levels.
By using price valuation methods, the value trap can be avoided. This is what my stock analysis Tool does. It estimates the intrinsic value of its stocks.
An Example of Overvaluation
Castrol is one of the blue-chip companies in India. The reason why the company has earned the tag is reflected in its financials. See these numbers:
Even the best of stocks will find it hard to match the profitability numbers of Castrol. In the last five years, the minimum reported ROE was 41.21%. Similarly, the minimum RoCE was 54.56%, and the minimum ROA was 24.35%. These are par excellent numbers.
But allow me to show you another metric of this company, its last 10-Yr price history.
In Yr-2009, the share price of Castrol was Rs.42. By Yr-2015 it rose to Rs.250 levels. But since then, the price is gradually tumbling down. As of 6-May’21, its price is at Rs.125 levels.
People who had bought the shares in Yr-2015 must be wondering what is the problem with this stock.
With the benefit of hindsight, price valuation ratios hint at overvaluation in Yr-2015. People who did the price valuation analysis in 2015, must have stayed away from the stock.
This is an apt example of an exceptional company, not able to yield positive long-term returns for its shareholders due to expensive valuations.
Checking the price valuation of stock before a purchase is a non-negotiable requirement.
How to Identify Exceptional Companies
There are two stages of doing this exercise.
It starts with observing a company. Before one can go ahead and start reading and analyzing the financial reports, this is a must.
What to observe? Seeing a company from a layman’s perspective to know about its products, top managers, competitors, etc can give insight.
Once a company looks good upon observation, further digging is required. What details to look for? Here are the five things to look at:
- Profit & Profitability: Nobody wants to invest in a loss-making company, hence profit is an important metric for investors to judge a company. But profitability is even more important. The financial ratio called ROIC (Return on Invested Capital) gives a more accurate representation of a company’s profitability. You can also read about the ROCE formula which is a similar profitability metric to ROIC.
- Future Growth: Guessing future growth numbers can be based on past trends. Looking at sales, profits, EPS, dividends, net worth, etc can give a reasonable idea. A profitable business that is also growing fast can be a good bet. Read more.
- Management: The quality of management who run the business contributes to its strengths. Ethics, qualification, and aptitude of the top managers play role in the long-term performance of its stocks.
- Competitive Advantage: Suppose I’m competing in a sector where companies deliver ‘operating systems for laptops and desktops. Here my competitors will be Microsoft (Windows) and Apple (macOS). What are my chances of success? Very low, right? As I’ll be put against the two giants of business, my competitive advantage (MOAT) will be like zero. Read more about MOAT.
- Price Valuation: The above four factors justify if the underlying business of the stocks is good or not. But it is also essential to look at the price valuation of its stock. In this article, we learn to value stocks through their enterprise value instead of price (jump here).
A profitable and growing company, run by great managers, having a wide MOAT are ingredients for an exceptional company.
But it is also true that a top score in these four parameters alone cannot make the stock the best buy. If the shares are expensive, they will never reap the desired returns.
Best Stocks: Use of Share Price Vs. Enterprise Value Per Share (EVPS)
Now we know about two things, the concept of price valuation and exceptional companies. Together, they make a stock great. In this section, we will take further, the concept of price valuation.
Suppose we’ve calculated the intrinsic value of Castrol as Rs.90 per share (just for example). Suppose, each share of Castrol India is trading at Rs.125 per share. This immediately tells us that Castrol’s share is overpriced.
What we are doing here is comparing the market price with intrinsic value to draw a conclusion about the valuation of Castrol’s share price.
But there is a better alternative than the market price, enterprise value per share (EVPS). Experts prefer EVPS over share price for comparison with the intrinsic value.
To get detailed info about enterprise value, please check the link. But we will briefly delve into it in this article as well.
We may not realize it but EVPS and market price are very similar numbers. How? For stocks, whose debt minus cash component is zero, their market cap and stock price will be the same.
Check this infographic to understand the relationship vividly.
We can visualize “enterprise value” as a “refined market cap”. It is a better metric than the ‘market cap’ to represent the market value of a company (know more here).
Hence if we have to compare the estimated intrinsic value, we must use EVPS instead of ‘current price’.
Example: Price Vs EVPS Vs Intrinsic Value
Castrol India has about 98.91 crore number shares in the market. Let’s assume the current price of its shares is Rs.125. Hence its market cap will be Rs.12,363 crores.
The company is debt-free (total debt = zero crores). The company has Rs.946 crores as “cash and cash equivalent’. Now, using these numbers we can calculate the enterprise value.
Enterprise Value = Market Cap + (Debt – Cash) = 12,363 + (0-946) = Rs.11,417 Crore.
Enterprise Value Per Share = 11,417 / 98.91 = Rs.115 Crore.
Now let’s see the comparison graphically. The company looks less overvalued by comparing the intrinsic value with EVPS.
What we can conclude here? To identify the best stocks to buy in India, we must use EVPS instead of stock price. Comparing the EVPS with the intrinsic value will give a better feel about the price valuation of the stock.
But we still have a bigger puzzle to solve. How to estimate the intrinsic value? Without knowing the intrinsic value, knowledge of EVPS will be worthless, right?
How to Estimate The Intrinsic Value?
Before we can understand the calculations behind intrinsic value, we must realize a few important concepts related to intrinsic value.
Concept #1: Stocks Are Not Just Tickers
How often do we end up buying shares without knowing much about the underlying company? It happens to most people. Buying stocks like this is like treating stocks as nothing more than a ticker. For such people, shares are just numbers that go up and down the whole day.
But consider this example. Each Share of MRF is priced at Rs.84,000, whereas Ashok Leyland’s share is only Rs.115. Why this price difference? On one side, people are ready to pay Rs.84,000 per share for MRF, but only Rs.115 for Ashok Leyland. What is causing the difference?
The reason lies in the business fundamentals of the two companies. Let’s correlate one such business fundamental and try to justify the price difference.
Both MRF and Ashok Leyland reported similar net profit numbers in the last five years. But still, MRF’s price is Rs.89,000 and Ashok Leyland’s is Rs.115. The difference is caused by EPS (Earning Per Share). Check the infographics shown above.
MRF’s EPS is about Rs.2964 whereas that of Ashok Leyland is Rs.3.84. So, a PE multiple of 30 takes their stocks price to Rs.89,000 and Rs.115 respectively.
What is the argument? Two things: (1) Price of MRF is at Rs.89,000 because its EPS is so high. (2) Depending on the potential of future growth rate and business fundamentals staying intact, a company can demand higher PE multiples. In our case, both Ashok Leyland and MRF trade at PE30 multiples.
Concept #2: Business Fundamentals Build Intrinsic Value
Like the example of EPS shown above, there are other business fundamentals that have a direct or indirect impact on the stock’s intrinsic value, hence its market price.
A deeper analysis is required to unearth the strengths and weaknesses of a company. Such an analysis is called fundamental analysis. In this article, we will not go into those details. If one wants to know more about it, check the provided link.
Here, we will take a quick route to understand which business parameters shape the intrinsic value of its stocks.
Generally speaking, every step of a business contributes in its own way to building the intrinsic value of its stocks. But in this article, we will limit our focus to the most important ones. Any company builds value for itself in two ways:
- Current & Past Fundamentals: The company’s current position can have a lot of say in its intrinsic value. The current size of net worth, debt, assets, net profit, dividend, and free cash flow are few important metrics. The past also has its say. The speed at which the company grew in the past years is a crucial factor.
- Future Prospects: A company that is perceived as a fast-growing business will have a high value even if its current and past numbers are not so strong. The three most important parameters that build value are future profits, free cash flow, and the rate of their growth.
The majority of companies build their value from contributions from the above two factors. But there are exceptions to this rule.
- Bluechip companies derive their value more from their current and past fundamentals. Their future growth rates are slow.
- Startups get value from their future growth potential. Considering that they are new companies, they have very thin past records.
#Concept #3: Intrinsic Value and Valuation Models
There are two ways to estimate the value of a business. The first way is through the use of financial ratios. In this analysis, people use ratios like P/E, P/B, PEG, etc to value a business. The ratio of a company is compared with other companies in the same sector. This is a rather simplified but superficial way of estimating the price valuation of stocks.
The second way is a more detailed approach. A company’s intrinsic value is calculated using valuation models like DCF, NCAVPS, Absolute PE, Residual Income Method, etc. Comparing the calculated intrinsic value with the ‘current market value’ (discussed above – enterprise value), gives a more certain conclusion.
My stock analysis worksheet can calculate both: financial ratios and the intrinsic value of its stocks.
Conclusion
Identification of exceptional companies is only the first step toward learning the names of the best stocks in the market. The second step is to do the price valuation analysis. Buying stocks of even great businesses at overvalued price levels will only lead to losses.
An exceptionally good business available at overvalued price levels cannot qualify as a good investment. But stocks of an average business available at a bargain price will be a better investment alternative.
Have a happy investing.
Next >> Economic Moat in Business
FAQs
Glaxo, Exide, and Coforge are among the best stocks. How? I’ve used my Big Screener to apply this filter: High ROE, High ROCE, and Low P/E stocks. In the list of filtered stocks the Overall Score, and Intrinsic Value will also be visible. It makes stock picking even more intuitive. Check this article on how to use the Stock Engine to do stock analysis.
Banking stocks are always considered future-safe stocks. In India, the top-managed banks worth considering are HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Axis Bank. Among smaller banks, IDFC First Bank is good. But one must be extra careful in picking banking stocks at the right valuations. They are traditionally low PE companies, but it does not mean they are undervalued.
In terms of market capitalization, the top 10 non-banking shares in India are Reliance, TCS, Infosys, HUL, HDFC, Bharti Airtel, Adani Enterprises, ITC, and Bajaj Finance. The top 5 banking shares are HDFC Bank, ICICI Bank, SBI, and Kotak Mahindra Bank. Check here to learn how to analyze bank stocks.
The stocks which are fundamentally strongest among all stocks in the Indian stock market are Tata Communications, Info Edge, Praj Ind, etc. Why are stocks like RIL, TCS, and Wipro not on this list? We’ve coded an algorithm that screens fundamentally strong stocks from others. This article talks about the algorithm of fundamentally strong stocks.
My Stock Engine’s algorithm says, among the best growth stocks, Mastek, Diamines & Chem, GMM Pfaudler, etc are worth considering. To get more data about these stocks, check the stock screener.
In the last few years, Adani group stocks like Adani Power have given phenomenal returns. Recently, Gautam Adani is also attempting to take over NDTV. This stock has grown from Rs.82 to Rs.400 levels in the last 1-year. Check here to get more fast-growing stocks.
All IT stocks traditionally have a high ROE and ROCE. But among these software companies, TCS, Tata Elxsi, and Mindtree have comparatively higher ROE and ROCE. You can use the Big Screener to apply industry filters to the view top stocks.
Suggested Reading:
107 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
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!
————————————
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