Investing in the stock market can be rewarding and one of the most sought-after ways to grow your wealth. However, the key to successful stock investing lies in identifying opportunities that the market may have overlooked.
Undervalued stocks are those hidden gems that have the potential to offer significant returns over time. But what exactly are undervalued stocks and why do they seem so attractive? Today with Koshex, let’s seek knowledge about undervalued stocks and also check some of the best undervalued stocks you can consider buying in India.
What are Undervalued Stocks?
Undervalued stocks are those stocks whose current market price is lower than their real value or their intrinsic value. By real value, we mean the true worth of a stock determined by analyzing various factors like the company’s financial health, growth prospects, industry trends, and the overall economic environment. When a stock is undervalued, it is trading at a discount compared to what it should be worth based on these factors.
Why Should You Buy Undervalued Stocks?
Investing in undervalued stocks offers you several advantages including but not limited to the following:
- Potential for High Returns: When you buy undervalued stocks, you are essentially buying them at a discount. As the market recognises their true worth, their prices are likely to rise allowing you to yield significant returns.
- Lower Risk: Undervalued stocks often have a margin of safety reducing the downside risk. Even if the stock’s price doesn’t appreciate immediately, you have some protection from the initial undervaluation. These stocks are unlikely to slip downward.
- Income Potential: While the main reason behind buying undervalued stocks is to gain from capital appreciation, many undervalued stocks also pay dividends providing a source of passive income while you wait for the market to reevaluate the stock.
- Contrarian Investing: Investing in undervalued stocks often requires going against the market sentiment, which can lead to profitable opportunities that others may overlook. Thorough research becomes important here.
Best Undervalued Stocks To Buy in India
If you are also keen on including undervalued stocks in your portfolio, then here are some of the best-undervalued stocks to buy now as per smallcase in the Indian market as of 2023:
- Bajaj Finance Limited: Bajaj Finance is one of the best-undervalued growth stocks to include in your portfolio. It is a deposit-taking Non-Banking Financial Company. Its lending portfolio spans diverse sectors including SMEs, retail, and commercial customers. Its current share price is Rs. 7415 (approx.).
- Coal India Limited: Coal India Limited is a government-owned coal mining company that produces coal and a multitude of coal-related products. This includes semi-cooking coal, hard coal, coking coal, non-coking coal, etc. Currently, its share price is Rs. 280.10.
- Hindustan Aeronautics Limited: It is an Indian public sector aerospace and defense company that is currently headquartered in Bangalore. It is one of the largest aerospace companies in Asia and more than 40% of its revenue comes from international deals like manufacturing aircraft engines and other parts. Currently, the share price is Rs. 4101.80.
- Indian Railway Catering and Tourism Corporation Limited: Also, popularly known as IRCTC, it was incorporated in 1999 and works as an extended arm of the Indian Railways. It is engaged to upgrade, professionalize, and manage the hospitality and catering services provided by the Indian Railways. It also manages online ticketing and promotes domestic and international tourism, budget hotels, and special tour packages. Currently, the share price of IRCTC is Rs. 720.50.
- Tata Elxsi Limited: Tata Elxsi is one of the premium product design and engineering service providers worldwide and a leader in the media, automotive, communications, broadcast, transportation, and healthcare industries. Currently, its share price is Rs. 7405.95.
Investing in the best-undervalued stocks can be a rewarding strategy for long-term wealth creation. By identifying stocks trading below their real value, you have the potential to benefit from price appreciation and lower risk while also earning dividend income. However, it’s essential to conduct thorough research and consider your investment goals and risk tolerance before buying undervalued stocks. In case you can’t dedicate enough time to research such stocks and opportunities, there is an alternate investment strategy you can consider – investing in mutual funds.
Mutual funds save you significant time and effort that you otherwise have to put yourself in case of stock investing. Being managed by experienced and expert fund managers, mutual funds offer an attractive investment opportunity to investors who want to earn market-linked returns without investing much time. Koshex provides you with 5000+ different funds to invest in, suiting each investor’s needs and preferences. Check out Koshex now!
Frequently Asked Questions
Q: How can I determine if a stock is undervalued?
A: To determine whether a stock is undervalued, you need to analyze financial statements, industry trends, and economic factors. Popular methods include the discounted cash flow (DCF) analysis and the price-to-earnings (P/E) ratio compared to peers. You can also refer to the research reports of popular analysts and platforms to save you hours of research and make quick decisions.
Q: Are undervalued stocks risk-free?
A: No investment is entirely risk-free. While the best-undervalued growth stocks may offer some downside protection as they are already trading below their real value, they can still be affected by market volatility and economic factors.
Q: How long should I hold undervalued stocks?
A: The holding period for undervalued stocks can vary depending on your investment goals and the performance of the stock. Some investors hold them for several years to capture maximum appreciation. But you can exit anytime once your investment or profit goal is achieved.
Q: Can I invest in undervalued stocks through mutual funds or exchange-traded funds (ETFs)?
A: Yes, you can invest in undervalued stocks indirectly through mutual funds or ETFs that focus on value investing. These funds typically include a diversified portfolio of undervalued stocks selected by professional fund managers.