The S&P BSE Sensex hit a record high last week while the Nifty50 had a touch-and-go moment with 12,000 and is just 200 points away from its record high of 12,103.
The biggest problem which investors face at this point especially when one wants to put in fresh money is: Which stocks to buy?
Well, one thing for sure is that no one can time the markets but what we can do is try and look for stocks that are available at valuations which are reasonable when compared to their 10-year PE average.
A Price-to-Earnings ratio or PE value the company is a ratio of current market price to its earnings per share. It is also referred to as a multiple. This measure of valuing the company is used by investors to filter out stocks for investment.
The golden rule of investment is to pour money in stocks that are trading at attractive levels compared to their intrinsic value, thus allowing investors to create wealth over a period of time.
But, does it make sense to invest in stocks which are trading at a discount or better to stay with winners? Experts are of the view that not all stocks which are trading at a discount to 10-year PE average can be termed as a value buy, while some stocks that are trading at premium valuations will continue to get buying interest.
Companies trading at a significant discount to their historical averages include names like Tata Steel (-63 percent), Zee (-55 percent), Bharti Infratel (-55 percent), ONGC (-52 percent), Coal India (-46 percent) and NTPC (-40 percent).
Most of the companies are facing a slowdown in their respective industry and recovery would take some more time, hence not all companies could be termed a value buy, suggest experts. But, some money may shift to undervalued stocks while stocks trading at premium valuations will continue to attract buying interest.
“Some money may shift from expensive stocks to value stocks but some of the expensive stocks may continue their momentum where earning growth is still strong,” Amit Gupta, Co-Founders and CEO TradingBells told Moneycontrol.
“Companies that are trading a significant discount may do well, but this won’t be the case for all companies because the money will chase only those companies where earning growth is visible,” he said.
There are more than 50 percent of the companies in the Nifty50 which are trading at a premium to their historical averages. These include names like Titan (+60 percent), Maruti Suzuki (+55 percent), Britannia (+53 percent), Asian Paints (+52 percent), HUL (+51 percent) and Nestle (+47 percent), according to data from Motilal Oswal.
“We believe investors prefer investing in stocks that would restrict erosion of capital in a bear/volatile market and are relatively safe players,” Ajit Mishra, VP – Research, Religare Broking, told Moneycontrol.
“Companies such as Titan, Maruti, Britannia, Asian Paints, HUL and Nestle are consistent performers as well as the market leader in their respective industries, which helps them in trading at a premium valuation,” he said.
Mishra further added that these stocks would continue to trade at a premium valuation given strong promoter track record, strong corporate governance, and stable long term growth prospects. So, we believe investors should stick to such stocks and average these stocks on dips.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.