Investment Tips: Nine stocks you could still bet on in economic uncertainties
Equity markets across the globe are once again in a bear grip as uncertainties over global economic growth mount. In India, the benchmark indices have fallen by over 18% since January 2011. While it is still not clear whether the world will see another recession in a short span of two years, economists hint at a period of at least two-three quarters of stagnant economic activity.
Doubts over future growth are likely to impact the stock market performance of companies in the near term making it all the more difficult for investors to pick the right investment avenues. In addition, when companies face periods of slower demand their bottom lines suffer. This makes earnings-based valuation techniques such as price-earnings ratios less relevant, at least in the near term.
One needs to use other methods of evaluating the worth of a stock during times when sustained profit growth is unlikely. One technique is to find out companies, which have grown their reserves and surplus account significantly over a number of years. A significant reserves position ensures that companies will not only be in a position to cope with losses in the short term, but also be able to expand through acquisitions if needed.
This makes reserves and surplus-based valuations a little more appropriate during a turbulent economic scenario. To make life simpler for you as an investor, ET Intelligence Group decided to go back to the basics and search for stocks that not only boast of a solid financial performance, but also trade at relatively lower valuations.
Alternative Valuation Technique
During times of a sustained economic momentum, investors compare a stock's market capitalisation with the underlying company's annual earnings. This gives rise to the ubiquitous priceearnings multiple or simply the P/E ratio. But, when earnings are no more assured, the denominator of the ratio needs to be replaced to make the ratio relevant again. In such a scenario, earnings can be replaced by the accumulated earnings of the company, which are reported under the reserves and surplus account on the balance sheet.
credits: ET
Doubts over future growth are likely to impact the stock market performance of companies in the near term making it all the more difficult for investors to pick the right investment avenues. In addition, when companies face periods of slower demand their bottom lines suffer. This makes earnings-based valuation techniques such as price-earnings ratios less relevant, at least in the near term.
One needs to use other methods of evaluating the worth of a stock during times when sustained profit growth is unlikely. One technique is to find out companies, which have grown their reserves and surplus account significantly over a number of years. A significant reserves position ensures that companies will not only be in a position to cope with losses in the short term, but also be able to expand through acquisitions if needed.
This makes reserves and surplus-based valuations a little more appropriate during a turbulent economic scenario. To make life simpler for you as an investor, ET Intelligence Group decided to go back to the basics and search for stocks that not only boast of a solid financial performance, but also trade at relatively lower valuations.
Alternative Valuation Technique
During times of a sustained economic momentum, investors compare a stock's market capitalisation with the underlying company's annual earnings. This gives rise to the ubiquitous priceearnings multiple or simply the P/E ratio. But, when earnings are no more assured, the denominator of the ratio needs to be replaced to make the ratio relevant again. In such a scenario, earnings can be replaced by the accumulated earnings of the company, which are reported under the reserves and surplus account on the balance sheet.
credits: ET
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