Stocks to watch out for in the Current Scenario - Economic Times

Ashish Kapur, CEO, Invest Shoppe India Ltd Stock markets are currently in a very bad shape. On the positive side, weak markets have brought many stocks down to extremely attractive valuations. We, therefore, believe that the present markets offer extremely attractive valuations for long-term investors. Following are some stocks which you may consider for buying for the long run. However, before you proceed, here's a word of caution. Although the valuations of these stocks are attractive, yet we need to keep in mind that these are bear markets. Hence all these stocks are not going to start moving up immediately. It is advisable to buy them in a staggered way. Buy small quantities on every weak day in the markets. Also make sure that the funds which you are investing are spare funds which you may not need for a long period of time. Sterlite Industries At the current price of Hindustan Zinc, the 64.9% stake of Sterlite Industries in Hindustan Zinc is valued at around Rs 9,000 crore.Cash on book around Rs 9,900 crore after deducting debt. Current market capitalisation of Rs 15,400 crore is less than the sum of its stake value in Hindustan Zinc and cash on book. Current market capitalisation is just 1.7 times of its FY08 operating cash flows. The values that are expected to be realised from the energy business, zinc and aluminium expansion plans will certainly add much more value. Last but certainly not the least, their existing business of aluminium and copper is not being valued at all by the market. Deeply undervalued stock of a very well established and diversified non ferrous metals player. Ambuja Cement Strong balance sheet and low financial leverage with debt to equity ratio of 0.10. Attractive dividend yield of around 5% in the current calendar year. Stock can get further fillip as Holcim is likely to further increase its stake in the company. Higher key return ratios like ROCE compared to peers. Cement company with the best operating parameters. Currently trading at 1.8 times of its Book value. LIC Housing Finance Targeting gross NPA of 1.5% for FY09 and disbursement growth of 40% Currently trading at 0.8 times of its book value. Attractively valued at 2.8x and 2.2x of FY09E and FY10E EPS. Dividend yield of around 5% makes it quite attractive bet providing consistent performance. Chennai Petroleum Good track record of paying hefty dividends for past few years. Pure refining player with no marketing losses unlike IOC, BPCL and HPCL. Attractive dividend yield – around 14% on FY08 annualized dividend of 170%. Currently trading at half of its book value. Capacity expansion by 1 mn tpa of Manali refinery to provide further boost to the business. Available at just 1.5x FY10E EPS. Tata Chemicals A diversified global presence with lots of global acquisition made in past. Soda ash business likely to remain robust on the back of relatively firm global prices of soda ash. Given its healthy cash flows and strong balance sheet, the company may also be able to refinance loans at lower rates over the next couple of years. Currently trading at 3 times its trailing twelve months EPS of Rs 50. Attractive dividend yield of 5% and good track record of distributing dividends. One of the major beneficiaries of government allocation of Rs 32,000 crore to fertilizer sector. Indian Hotels Diversified portfolio of rooms spread across India and abroad. At current market price of Rs 46, the stock trades at 6.5x and 5.0x of its FY09E and FY10E earnings, respectively. Attractive valuations keeping in mind its future expansion of properties and stability in ARRs and occupancy rates in the cities like Delhi & Mumbai. Certain major events like the Commonwealth Games planned in Delhi in 2010 would require addition to the inventory of rooms which would again help the company having good exposure in the capital. The current market capitalization of less than Rs 3,500 crore is at a steep discount to the 86 hotel properties it owns and operates across India and abroad. In addition to this, it is developing various new hotel properties in different locations in India, South Africa, Dubai and Morocco. (These recommendations are those of the author. Readers are advised to view the pros and cons of their decision before going in for any stock pick)