VALUE STOCKS

Value Stocks are those whose Price is trading below their Value. The Value is determined by Value Investing Method Intrinsic Value Calculation. The Value Investor buys & holds the stock anticipating in future the price will reflect the value & provide him with profits.

VALUE STOCKS INDIA

These are the Value Stocks available in India trading below their Intrinsic Value of 50% more Discount as of 2020! You can get the Entire Stock List in Screener here.

By choosing Value Stocks you are Buying a BMW at the Price of a Maruthi! Futurecaps has created Multiple Millionaires over the Past 10 Years through Value Investing methods of Warren Buffett.

SCREENER PARAMETERS

Following are the Core Screener Parameters for the above Value Stocks India.

• Ensure Price to Intrinsic Value is having 50% discount at least. The Intrinsic Value is calculated based on the Past EPS Growth method as explained below. This will ensure that the Investor is picking an Undervalued stock.
• Ensure NPM (Net Profit Margin) is greater than 12%. This is to validate that the company is making profit at the base minimum level.
• Ensure ROE is greater than 12 too. It will act as an Insurance for the Investor

VALUE STOCKS PARAMETERS

Following are the Additional Parameters to Consider while Picking a Value Stock:

• INTRINSIC VALUE is the most important component to consider while picking a Value Stock. Intrinsic Value is a Fundamental Analysis Component & identified by Finding the Past 3 Year EPS Average, Calculating the 10 Year Future Price, Discounting back to Current Year & Compare with Current Price to make the Investment Decision. You can find more on Intrinsic Value here. Undervalued & Overvalued stocks are determined based on Intrinsic Value.
• GROWTH RATE The Investor should ensure EPS Growth Rate of the company. This is an evidence that the company is Insured to provide expected or higher returns in the future.
• LOW DEBT While waiting for multiple years for the Value Realization, a common accident the Investor makes is Skipping the Debt factor. For a high debt company, the chances of going bankrupt are high & the recession situations will accelerate the troubles. So it is important for the Value Investor to enter only Low-debt Or Zero-debt companies.
• MANAGEMENT INTEGRITY is an equally important factor. A fraud management can turn the company upside-down like Satyam & Yes Bank in the past. Make sure the Management is Prudent & Integrity holder.
• SECTOR GROWTH Since the Value Investing involves holding the stock for multiple years, it is also important to ensure the sector growth. Never invest in a de-growth sectors like motor cars which is getting bypassed with electric cars.
• CAPITALIZATION If you are looking for Multibagger Returns then Smallcap & Midcap Capitalization would add value. Example: IOL Chemicals, Caplin Point which gave 100-200% returns are from Smallcap Sector. Largecap sector have very less chance to provide Multibagger returns. Example: Icici Bank, HDFC Bank, Reliance Industries, SBI are all largecap stocks which rarely give 100% returns.
• TIME FACTOR The Investor has to give Ample Time for the Value Stock to truly reflect on its value. This can take in the order of years.

INTRINSIC VALUE FORMULA

If you wanted to be a VALUE STOCKS INVESTOR in stock market, You MUST learn the INTRINSIC VALUE FORMULA. This formula was created by Benjamin Grahim who is the Mentor of Warren Buffett.

Futurecaps has optimized the formula for Indian Stock Market. You can watch the Video below on How to Calculate the Intrinsic Value.

Book Summary: Interpretations of Financial Statements

This is my Personal Best Book Recommendation.Here is the Diamond Summary of the Book.

The book is written by Mary Buffet who is the Daughter-in-law of Warren Buffet. In my opinion this book is better than the book named Warren Buffet Way because it allows easily implementable patterns.Warren Buffett is still in 2020 the Top Investor in the World & thus his Principles are definitely to be learnt well & applied in your investing life. The book focuses on the Importance of Financial Statements, Ratios & Deriving valid conclusions based on the Interpreted Financial Ratios as below.

• Durable Competitive Advantage or Economic Moat is the Key of Successful Multibaggers which Warren Buffett choose. The Durable Competitive Advantage is something which gives the Company an upper hand than the competitors. For example for the company Microsoft the Windows product is Irreplaceable by the User due to the Skill & User friendliness it has developed & is called Durable Competitive Advantage because it causes Repeated business of Upgrading. Economic Moat is Synonymous with Durable Competitive Advantage.
• Operating Profit Margin is an Important Financial Ratio which Warren Buffett looks for & Ensure it is at least greater than 40%. He believes if the Operating Profit Margin is greater than 40% then the company is enjoying Huge Economic Moat.
• Net Profit Margin is Next Important Financial Ratio which Warren Buffett uses. He prefers to have Net Profit Margin greater than 20% to called as a Good Profit Making company!
• Sales Growth Warren Buffett prefers companies should have Sales Growth above 20% every year. By applying Power of Compounding the company can reach 300 Times in 20 Years time period after adding all the Capital Growth and PE Resizing due to Blue Chip Realization & Mutual Funds Investing.
• Customer Bargaining Power The author Mary Buffett mentions that Warren Buffett prefers to stay away from Businesses which give the Customer a lot of Bargaining Power as it can Impact the Profitability of the company. For example take Airlines sectors, the repeated business is not possible as Customer switches the Airlines based on Price Offer Discounts. As per Buffett these businesses will have Low Operating Profits compared to other businesses sectors.
• Hold Forever The default holding period of Warren Buffett is basically forever. He is holding Coca-Cola for last 50 years and enjoying the Capital Growth & Dividend Income. Buffett says if you don’t feel comfortable owning a stock for 10 years, then you should not own it for 10 minutes!
• Repeated Buying Another notable point of Warren Buffett is that he will be buying more on the Stock whenever it has a Price Crash in the Market. As per Warren Buffett you have to Eat more Potatoes when Potatoes are selling at discount & this will contradict with many newbie investors coming from Day Trading or Short-Term Investing mentality.
• R&D Expense If a company is spending too much on Research & Development, then it means the Industry is very Competitive in nature. Warren Buffett prefers to stay away from such companies & sectors as he believes down the line the company is heading for bankruptcy. For example, High R&D was the reason Warren Buffett stayed away from Intel Corporation the Tech Computer CPU Giant the same reason.
• Interest Expense If the company is having High Interest Expense it means the company is in Capital Intensive sector & Warren Buffett prefers to stay away from those business. Please note that Banking & NBFC companies have High Debt thereby increasing their Interest Expenses.
• Interest Coverage Ratio This ratio ensures that the company is loading enough Cash from the Net Profit to pay back the Interests it owes for. Minimum 2 is the value Warren Buffett is okay with the company. Interest Coverage Ratio 2 means the company can afford to pay back 2 times of the Interest from the Net Profit generated.
• Cash in Hand Warren Buffett wants to see More Cash in the Cash Flow Statement so that He thinks More Cash is a Visible Sign that the Company is having growing Reserves.
• Reserves & Surplus should be Increasing every year & Warren Buffett ensures that the Reserves are Not growing through Bond Selling or Debt Increase by the company which are Crooked ways. Otherwise the Company is termed Credible.
• Inventory Warren Buffett likes to have companies with Growing Inventory aligned with Growing Sales. This ensures that the Sales figures are credible.
• Capital Expenditure Buffett prefers to have companies with less expenses Capital Expenditure. If the Capital Expenditure is below 25% of the Net Profit then it is a Good Durable Competitive Advantage company.
• Current Ratio Warren Buffett prefers to see companies with Current Ratio above 2. Current Ratio formula is the Current Assets divided by Current Liabilities. Current Assets are the Sales generated from Customers & Current Liabilities include the Expenses like rent, fueling, salary, supplier payment etc.
• Dividend Warren Buffett prefers to have Less Dividend paying companies as he believes the Company can Re-invest the Dividends in Growth of company which will Increase the Value tremendously in the future years.
• Share Buybacks If the company is buying back its own shares then Warren Buffett loves the company as the EPS is growing too. For example, Microsoft is such a good stock in US which buys back its own shares.
• ROE Return on Equity is Important Ratio which Warren Buffett wanted to see. He prefers to have Minimum 12% for ROE ratio as according to him A Good Company will use its Money Wisely & Offer higher Returns to the Equity capital. His favorite stock Coca-Cola was earning ROE of above 30% every year for the past 30 years.
• Intrinsic Value devised by his Guru Benjamin Grahim is the Main Formula used by Warren Buffett to find the Value of the company. This formula with examples are well defined in the bottom. 

Book Summary: Value Investing from Graham to Buffett and Beyond

Following are the Core Snippets from the Book which Consists of 2 Parts mainly.

Value Stocks are Identified through Fundamental Values analysis.

Value Stocks are Bought after Margin of Safety calculation

Value Stocks Portfolio Allocation is made based on Diversification Interest of the Investor

Value Stocks Selling is performed based on Fundamental Valuation change.

Valuation of a Stock

Valuation of a Stock is performed after analyzing the following:

• Cash and equivalents of the company
• Accounts Receivables which the customers owe to the company
• Inventories are goods and materials that a business holds for the ultimate goal of resale.
• Plant which are used for manufacturing purpose & negated depreciation in the past
• Property like office buildings, real estate etc.
• Equipment including machines, computers etc.
• Goodwill and intangible assets include the Reproduction Cost for Competitor to replace this business

RECOMMENDED READS

Value Investing India

R&D

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