Here is a list of ten safe stocks which are ripe for a buy now
What are safe stocks?
A stock can be said to be safe when it is immune from the vagaries of fundamental changes and also from volatile price corrections.
Safe stocks are typically stocks with a strong earnings profile. The earnings of the companies are predictable. They operate in industries where there is a sustainable demand for their products.
The competition is low for the products and this makes the company churn out regular earnings.
How to identify safe stocks?
Safe stocks exhibit several criteria which makes it possible to identify them as appropriate investment candidates.
One sign of a safe stock is that it is cash-rich.
It has a sustainable business model and requires little cash for future.
Such stocks are also good dividend payers.
The stocks are also required to be evaluated on time-proven fundamental ratios like PE Multiples, relative valuations and stocks which are available to at discount as compared to their sectoral valuations.
Generally speaking, a stock that is available at discount in terms of PE multiple and EPS as compared to their sector can be described as a safe stock.
Safe stocks can also be identified using the top-down approach and by using tools like relative analysis.
In this approach, the Index is compared to a sector and then to a stock to determine whether its valuations are reasonable and it qualifies as a safe stock.
Safe stocks can also be identified using technical indicators.
The technical indicators can help pinpoint outperforming stocks when there is a churn going on in sectors.
Some technical tools tha can be pressed into service include performance comparison and relative analysis.
List of top 10 safe stocks
Here is a list of top ten stocks which can be described as being safe owing to their strong fundamentals and reasonable valuations.
Investors should buy these stocks whenever there is a dip owing to volatility.
(1) Hindustan Unilever Ltd
Hindustan Unilever is the FMCG giant with a worldwide presence and strong track record in terms of appreciation of price and business.
It has outperformed in the same period beating the benchmark as well as other heavyweights.
Hindustan Unilever has given regular dividends along with its defensive nature make it a safe haven for long-term investors who seek to park money for capital appreciation.
ITC is one of the most favored stocks when we talk about safe havens or on the flipside crash proof.
It is defensive stock which continues to pay the dividend and has a very strong performance record.
ITC is amongst top holding of mutual funds and has dividends on regular intervals.
The ITC stock tends to perform well in longer term thus smoothening out the short-term volatility.
(3) Siyaram Silk Mills
Siyaram Silk Mills has strong brands which cater to premium as well as popular mass segments of the market. Further, Siyaram has entered the ladies’ salwar kameez and ethnic wear segment.
Going forward, Siyaram would be able to leverage its brand equity and continue to post strong performance. The company has a nationwide network of about 1,600 dealers and business partners.
It has a retail network of 160 stores and plans to add another 300-350 stores going forward. Further, Siyaram’s brands are sold across 300,000 multi brand outlets in the country.
Going forward, Siyaram is expected to report a net sales CAGR of 12 percent to Rs1,981 crore and adjusted net profit CAGR of 16 percent to Rs126cr over FY2017-19E on back of market leadership in blended fabrics, strong brand building, wide distribution channel, strong presence in tier II and tier III cities and emphasis on latest designs and affordable pricing points.
Siyaram presently trades at inexpensive valuations.
DHFL is backed by healthy capital adequacy and increasing demand for home loans.
The loan book is expected to report 23 percent loan growth over the next two- three years.
DHFL sold 50 percent stake held by it in DFHFL Pramerica Life Insurance Co Ltd which added Rs1,969 crore to its net worth and increases its CAR by 400 bps, to 19.3% which should fuel growth for next 2-3 years.
It also has strong net interest margin (NIM) on the back of lower cost of funds and lower credit cost.
This will ensure healthy return ratios for DHFL.
The impressive aspect is that despite strong growth, DHFL has maintained stable asset quality.
DHFL’s loan growth is expected to remain 23 percent over the next two years and earnings growth is likely to be more than 28 percent.
The valuations are reasonable because the stock currently trades at 1.9x FY2019E ABV.
(5) Maruti Suzuki Ltd
Maruti Suzuki will benefit from the GST implementation.
The auto sector has seen a pickup in the volumes in FY17 as there were several positive factors like a normal monsoon and lower interest rates.
Maruti Suzuki continues to hold 52 percent market share in the passenger vehicles. The launch of exciting models has helped the company to ride on the premiumization wave that is happening in the country.
In the last two years, Maruti Suzuki has seen improvement in the business mix with the pie of the utility vehicles growing from ~4% to current 15%.
The 2-3 months of the waiting period of new models, the launch of Swift Hatchback in January-2018 and headroom for more capacity utilization at Gujarat plant is the near term earning triggers.
Due to the favourable business mix, Maruti Suzuki has also been seeing improvement in the margins.
Maruti Suzuki has already moved from ~11-12% EBITDA margin range in FY14 to current ~17% margin range in 3QFY18.
Together with higher operating leverage at Gujarat plant, increasing Nexa outlets, and improving business mix, Maruti Suzuki has further room to improve its margins.
(6) TV Today Network
TV Today Network enjoys a strong viewership ranking in the Hindi and English news channel categories.
The company’s Hindi news channel – Aaj Tak has maintained its market leadership position occupying the No.1 rank for several consecutive years in terms of viewership.
TV Today Network’s English news channel – India Today too has been continuously gaining viewership; it has now captured the No. 2 ranking from No. 4 earlier.
Its other channels like Dilli Aaj Tak and Tez are also popular among viewers.
TV Today Network is a play of higher operating leverage that would be visible as advertisement revenues gain traction.
Going ahead, EBITDA margins would improve.
TV Today Network is expected to report net revenue CAGR of 17 percent over FY2017-19E to Rs779 crore and net profit CAGR of 22 percent over the same period to a Rs139 crore.
(7) KEI Industries Ltd
KEI’s current order book stands at Rs2,780 crore (segmental break-up: Rs1,990cr in EPC, Rs560 crore in Cable and Rs230 crore in EHV).
The order book grew by 28 percent in the last 3 years due to strong order inflows from State Electricity Boards, Power grid, etc.
KEI’s consistent effort to increase its retail business from 30-32% of revenue in FY17 to 40-45% of revenue in the next 2-3 years on the back of strengthening distribution network (currently 926 which is expect to increase Rs1,500 by FY19) and higher ad spend (increased from Rs2 crore in FY13 to Rs7.5 crore in FY17 and expected to spend).
KEI’s export (FY17 – 8-10% of revenue) is expected to reach a level of 14- 15 percent in the next two years with higher order execution from current OB and participation in various international tenders.
Strong 26 percent growth CAGR over FY2017-19 in exports is expected.
KEI is likely to report net revenue CAGR of 13 percent to Rs3,392 crore and net profit CAGR of 19 percent to Rs140 crore over FY2017-19E.
(8) HDFC Bank
HDFC Bank is one of the best private sector banks with its giant market presence and dominant hold in the sector.
It has been a consistent outperformer for the past few years with robust results every year which makes it a top pick.
It gives an exposure to the overall banking sector which is complementary to an economy which is unfolding to a growth of GDP above 7 percent consistently.
HDFC Bank is also amongst the top holdings of Mutual funds and has a very high weight.
It maintains a far better NIMs compared to its peer group while has very low NPA makes it attractive for a long-term growth story.
State Bank of India (SBI) is a giant in the banking sector which has spent its last few years in M&A’s of more than 5 PSU banks.
At the same time, it has benefited from various govt schemes which improved its customer base across India.
SBI is on its way to becoming a megabank while the recent recapitalization has also improved the future prospects of PSU banks.
SBI stands top of the list that may be highly benefited and perform very well in the coming years. The stock is likely to perform as the economy picks up the pace.
(10) Ashok Leyland Ltd
Ashok Leyland is unfolding the growth story in terms of business and same is being replicated in terms of price behavior.
Any correction in Ashok Leyland since 2014 has been seen as an opportunity for long-term investors to buy.
Ashok Leyland is a dominant player in HCV and LCV and expects a growth of over 15 percent in FY 18-19 while demand picks up in global markets along with domestic is set to improve the overall top line and bottom line of the company.
With the new line of products, it may continue to improve the business line and see a jump in volumes as well.
PSUs which are safe stocks
PSUs are normally regarded as safe stocks owing to their strong promoter holding and dominant presence in the market.
Bharat Electronics Limited (BEL), NBCC, REC, PFC and Power Grid are high-quality PSUs with strong fundamentals and dividend payout record.
The other stocks which qualify for investment as safe stocks include Abbott India, TCS and ZEE Entertainment.