Sep 18 2008
Undervalued industries- A Safe winning bet
Turmoil conditions affecting the equity markets has left everyone running for cover. The once sworn upon blue chip companies have lost their sheen and are now hovering near their all time low levels which has also eroded the value of investments. I classify an investor as a smart investor who knows the right time to select the right investment option. Even times as these when the markets are at their all time low there is opportunity lurking in every nook and corner to make some quick profit. The list of once existing trusty and ever profit bearing companies is now burned to its ashes. So where should one invest now?
The answer lies in the under performing industries which in recent times have started realizing their potential and value. With these industries the bottoms up approach is used to carry out the scrutiny and filtration process to decide the ones worth investing in. The foremost step after obtaining the list of selected probable’s would be to uncover and understand their relative strengths in their core fields. Various modes can be utilized to carry out this valuation like comparing the stock price with the companies earning or studying the relation between the price to its book value. In my personal opinion calculating the value to price ratio would be the best to enable a comprehensive overall picture of the health of the company. This ratio would help us to evaluate the company’s earnings, long term growth rates, interest rates and the overall risk involved with the company.
These parameters hold high importance as they give us the complete view of the company’s core fundamentals. Once this process lets us segregate industries of our interest the next step according to me would be to evaluate the quality of its management. Since at the end of the day the company is managed by decisions made by its management it is their competence which takes on utter importance. The market has plenty of such options which fit these mentioned categories. The market might look saturated by overvalued sectors but personally I agree that it is only certain sectors of real estate investment which are highly overvalued while the others provide ample investing opportunities. The only necessity is to look out for them.