Market downturns are devastating for most stock market and mutual fund investors who see the value of their portfolios decline. However, savvy investors look at market environments like these as an opportunity to purchase high-quality stocks at considerable discounts. The broader pullback due to fears of higher commodity prices, FII selling and a recession in US have led many investors to offload their equity holdings in good companies with strong balance sheets. The decline in equity valuations might be justified for many sectors like IT, which were quite overpriced and thus overvalued. However, some high-quality companies have been oversold amid the recent volatility, making them undervalued stocks for value-seeking investors to buy and hold. Value investing is all about identifying companies with substantial growth potential, but trading for less than what they could be worth. A company trading for a significant discount does not necessarily become an undervalued stock. The underlying business needs to be reliable and possess the potential to deliver strong returns when the market settles. There are quite a number of stocks that could arguably be excellent assets for value-seeking investors to consider in their search for undervalued stocks. But value investing does not necessarily mean considering the current stock price and sales turnover. Rather, you should consider the future earnings potential of the company and consider if it looks well-positioned to deliver on the potential upside. A value stock traditionally has a lower price when compared to stock prices of companies in the same industry. This indicates that the company may be undervalued, as investors are not expressing as much interest in such companies. The most commonly used way to check for value is with the price-to-earnings multiple, or P/E. A low P/E multiple is a good indication that the stock is undervalued. Indian consumer sector companies are considered as defensive stocks and fancied by many fund managers and analysts. These could be good asset purchases poised to boast substantial growth in the coming years. Investing in these shares at current levels could set you up for substantial long-term wealth growth. A recovery to previous all-time highs and potentially market-beating growth in the coming years appears possible. It could be an ideal time to invest in Castrol India Ltd at the current market price of Rs 107 on the bourses. The stock has come down from its earlier high level of Rs 150 and marks a dividend yield opportunity of over 5% at the current market price. The company is diversifying into setting up joint ventures with large companies for EV charging stations in the near future. Though a slow moving share in the stock market, but it can be bought by portfolio investors for a 30% price appreciation in the next one year time frame.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.