Vivek Ranjan MisraHead - Fundamental Research
Based on our report published in March 2018, we recommend the following 10 best shares to buy for long-term. For full report click here
|Company Name||Current Market Price||Target Price|
|Adani Ports & Special Economic Zone Ltd||362||474|
|Aurobindo Pharma Ltd||552||826|
|Bharti Airtel Ltd||413||573|
|Hindalco Industries Ltd||206||310|
|Indiabulls Housing Finance Ltd||1200||1561|
|Indian Oil Corp Ltd||169||247|
|State Bank of India SBIN||235||360|
|Tata Motors Ltd||331||479|
|Tata Steel Ltd||567||835|
India holds the second largest population in the world. Despite this, only a fraction of its population participates in the stock market, of which very few are active investors. There is a prevalent stigma in the Indian society which associates investment in the stock market to betting. However, it holds no truth, as investment in stock market is more of calculated decisions of investment.
On entering the stock market, most investors are unsure about selecting stocks and go by word of mouth or biases towards renowned company names. Furthermore, agitated by minor market fluctuations, some prematurely exit investments without considering the long-term benefits and long-term goals to be achieved. Such practices often lead to low or no returns, further supporting the aforementioned stigma.
For best long-term investments, an investor is required to perform a basic research on the stock, evaluate certain indicators, focus on the overall investment strategies, consider the long-term goals and be patient.
Here's a quick look at the long-term returns generated by different tools:
While several sources curate supreme quality research report; as an investor, one should always go through the basic fundamentals of a stock. Various factors need to be inspected to decide which best stock for long-term investment. These factors give insight into the company's financial health and the stock price as compared to its actual value.
Following are some key indicators which need to be scrutinized to derive the true value of the stock, before investing in it:
The regularity of a company's dividend and its steady increase reflects the certainty of the company's earning. It also replicates the financial stability, indicating the current and retained earnings. Though different people and institutions hold a different opinion on this, reviewing the company's record for 5-20 years can give a fair picture of its dividend regularity.
P/E Ratio stands for price-earnings ratio which is a litmus test for checking if a stock is overvalued or undervalued. The P/E ratio is derived by using the following formula:
Current Market Price of Stock/Earnings Per Share
Higher P/E ratio usually reflects the willingness of investors to pay more. Nonetheless, higher P/E ratio also hints that the stock is overpriced and a pullback is likely in the near future. On the other hand, a lower P/E ratio implies the stock has an attractive value, as the market has pushed it below its actual value. However, it is advisable to compare the P/E ratio of the company with its overall industry to verify if it is cheap or overpriced.
An inspection of a company's past earning and future projection can support actuating if it's a good long-term stock to buy. A record of steady earnings over a period of years, accompanied with a strong projected earning signal at a good long-term buy. Please note, reduced future earning guidance is considered as a sign of weakness and might not fit to be the best long-term investment option.
Even if a company has good earnings and dividend record with a compatible P/E ratio, it might not be a good long-term buy owing to its debt ratio. Occasionally a stock with lower P/E ratio can go further down. To avoid such stock, one should always consider the company's debt ratio and current ratio. The debt ratio signifies the number of assets financed with debt. This needs to be considered especially during the economic downturns; as during such times, a high level of debt can cause financial problems in a company. However, one can check if the company is capable of meeting the debt obligations with the current ratio. The current ratio mainly gives an idea about the company's ability to pay its liabilities with its assets. The current ratio is calculated using the following formula:
Higher current ratio implies more liquidity. For instance, if a company's current ratio is 5, it implies that the company can pay five times its liabilities.
Though the volatility keeps fluctuating, the long-term returns of investments are consistently reliable. This can be verified using historic data of any indices. Following table represents the total returns of Sensex over last decade.
|10 year CAGR||5 year return CAGR||1 year return|
Furthermore, the benefits of long-term investments is not just limited to good returns, it also covers inflation and secures the value of returns. This is well reflected in the following chart, which signifies the growth of the total returns of Sensex as compared to the inflation.
Investing for long-term requires more than just funds, it requires the investor to pick the right research recommendation, do a fundamental check-up, invest and stay patient to give time to its investments to grow.
Bloomberg, MOAMC Internal Analysis. Data as on 31st October, 2013.
Sensex historic data: March 1999 - March 2018