What do you consider the most undervalued stocks available now?

Discussion on undervaluation

COMPANY ANALYSIS

Lillaney, RTI For Money

5/7/20233 min read

In this article I will try to explain about undervalued stocks through the following topics.

Table of Contents

  1. What do you consider the most undervalued stocks available now?

  2. What does most undervalued stocks mean?

  3. How do you choose undervalued stocks in India?

  4. Is a stock being undervalued good or bad?

  5. What does it mean when stock is undervalued by 10%?

  6. What are signs of an undervalued stock?

  7. What PE ratio is undervalued?

  8. Does undervalued mean buy or sell?

  9. Do undervalued stocks always go up?

  10. What are examples of undervalued?

  11. Is the Indian stock market overvalued or undervalued?

  12. How do stocks become undervalued?

Let's get started.

  1. What does most undervalued stocks mean?


To understand most undervalued stocks we should first understand what undervalued stocks mean. Stocks are valued on the basis of the assets they own, their earnings and their cash flows. Let's say we analyse a company and come to the conclusion that it is worth X. If it is available in the market for less than X we say that the company is being undervalued by the market. Different stocks can be undervalued by different amounts. For example lets say there are 2 companies which we value at X but one is available in the market at 0.75X and the other is available at 0.5X. Here we can say that the company available at 0.5X is more undervalued than the company available at 0.75X. In this way we can find the most undervalued stocks available in the market.

  1. What do you consider the most undervalued stocks available now?

Some of the stocks which are undervalued at the moment are given below:

  1. REC

  2. PFC

  3. Coal India

  4. ONGC

  5. Vedanta

  6. Canara Bank

  1. How do you choose undervalued stocks in India?

Undervalued stocks can be chosen by comparing the P/E, P/B and other such factors.

  1. Is a stock being undervalued good or bad?

If a stock is undervalued because the general market conditions or economy is bad or the sector/industry is in a downturn, then it can be considered as normal.


If the stock is undervalued and the general market conditions or economy are fine/good or the sector/industry is in an upturn, then it can be considered a bad sign and needs further analysis.

  1. What does it mean when stock is undervalued by 10%?


If the stock which you think is worth X is available at 0.9X then it is said that stock is undervalued by 10%.

  1. What are signs of an undervalued stock?


Stock prices are hitting new lows, P/E is low, P/B is low. These are some of the factors to identify an undervalued stock.

  1. What PE ratio is undervalued?


Generally single digit PE ratio stocks can be considered undervalued but other factors should also be considered as ROE, earnings growth, assets owned, cash flows, etc. to get a better picture of the company.

  1. Does undervalued mean buy or sell?

Not necessarily. There are various factors to be considered before making a buy or sell decision. For example, do we know the reason for the undervaluation? Are we sure that the undervaluation will be corrected? How much time will it take to correct? What is the probability? What’s the downside? Can we accept the downside?

  1. Do undervalued stocks always go up?

Not necessarily. If there are issues with the company the stock could fall down further. There have been instances in the past where a stock has fallen 50-90% from the highs.

  1. What are examples of undervalued?

Some of the stocks which are undervalued at the moment are given below:

  1. REC

  2. PFC

  3. Coal India

  4. ONGC

  5. Vedanta

  6. Canara Bank

  1. Is the Indian stock market overvalued or undervalued?


The Indian stock market is certainly not undervalued at the moment.

  1. How do stocks become undervalued?

Stocks can become undervalued due to various reasons some of which are given below:

  1. General market / Economy is in a slowdown or downturn which affects the different sectors/industries and hence the companies.

  2. Sometimes there are sector/industry specific issues which cause the stocks in the companies of the sector/industry to be affected.

  3. The companies themselves could be impacted due to issues with mismanagement, frauds, etc. which could be temporary or permanent leading to undervaluation.