5 Undervalued Stocks - Best Stocks to Buy ? in All Time High Stock Market | Detailed Stock Analysis

Summary

In this video, the speaker discusses undervalued finance and banking stocks, highlighting opportunities in sectors like private banks, small finance banks, housing finance companies, brokerages, and healthcare. They analyze five stocks, including Sur Small Finance Bank and AAS Financiers, considering their financials, growth potential, and challenges. The speaker emphasizes the importance of research and understanding stock valuation, recommending 'Stock Investing Mastermind' for further learning. The video serves as a guide for investors to make informed decisions, with a focus on long-term potential.

Takeaways

• 📈 The stock market offers ongoing opportunities despite many stocks reaching all-time highs, with certain sectors like private banks, small finance banks, housing finance companies, IT sector stocks, and healthcare remaining undervalued.
• 🏦 Sur Small Finance Bank is identified as an undervalued stock with a market cap of 2,000 CR, a PE of 8.5, and a Price to Book ratio of 1.13, showing good growth in advances and loan disbursements.
• 📊 Sur Small Finance Bank's management has provided growth guidance of 30-35% in advances, indicating a positive future outlook despite challenges in asset quality and concentration of branches.
• 🏡 Avas Financiers, a housing finance company, is highlighted for its potential due to the expected growth in India's housing sector and benefits from interest rate cuts by RBI.
• 📊 Avas Financiers has shown a loan book growth of 22% year-on-year and a net profit growth of 15% year-on-year, with a maintained gross NPA around 1%.
• 📉 Despite the overall market being at an all-time high, banking stocks like Access Bank are undervalued, with the industry facing challenges in deposit growth and high interest rates.
• 💹 The potential for private banks to outperform in the medium to long term is suggested, as they are considered safer bets with potential for significant returns.
• 📚 The speaker recommends 'Stock Investing Mastermind' by Zebra as a resource for learning about stock market investments, from basic to advanced levels.
• 🚩 The speaker emphasizes the importance of doing one's own research before investing, as understanding the reasons for buying a stock is crucial for timely selling.
• 💡 The video script serves as a reference for research rather than a direct recommendation, urging viewers to consider the analysis and make informed decisions.

Q & A

What is the current status of Nifty and the stock market in general according to the transcript?

Nifty is at an all-time high, and many good stocks have already given three-digit run-ups, with most popular stocks being overvalued.

Which sectors are suggested as undervalued and potentially good opportunities for investment?

The sectors suggested as undervalued and potentially good opportunities for investment include private banks, small finance banks, housing finance companies, brokerages, and healthcare.

What are the pros and cons of investing in Sur Small Finance Bank as discussed in the transcript?

Pros include a low PE ratio, good growth in advances and loan disbursement, and a management growth guidance of 30-35% in advances. Cons involve high concentration of branches in three top states, a decline in collection efficiency, and potential reduction in net interest margin due to an increase in secured loans.

What is the significance of CGTMSE for Sur Small Finance Bank's loans?

CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) is a government scheme that guarantees loans up to 75%, reducing the risk for lending institutions like Sur Small Finance Bank.

How does AAS Financiers' loan book growth compare to the industry average?

AAS Financiers' loan book grew by 22% year-on-year, and loan disbursement grew by 133% year-on-year, indicating strong growth compared to the industry average.

What is the current gross NPA ratio for AAS Financiers, and is it considered healthy?

The current gross NPA ratio for AAS Financiers is around 1%, which is considered healthy as it indicates a low level of non-performing assets.

Why have banking stocks, including Access Bank, not performed as well despite the market being at an all-time high?

Banking stocks, including Access Bank, have not performed as well due to challenges in deposits growth and high interest rates set by the RBI, which have increased the cost of borrowing and affected net interest margins.

What is the potential impact of US Federal Reserve rate cuts on private banks in India?

As the US Federal Reserve starts cutting rates, it's expected that Foreign Institutional Investor (FII) money will flow back into Indian markets, potentially benefiting private banks.

What is the current PE ratio of Access Bank, and how does it compare to its 5-year median and industry average?

Access Bank currently has a PE ratio of 13.9, which is lower than its 5-year median PE but slightly over the industry PE of 11.65.

What is the book 'Stock Investing Mastermind' and how can it help investors?

The book 'Stock Investing Mastermind' is a structured guide for learning stock market investments from basic to advanced levels. It provides an eight-step framework for researching stocks, analyzing financials, identifying multibagger stocks, and understanding valuation methods to maximize returns.

Outlines

00:00

📈 Current Market Opportunities: Undervalued Sectors

The Nifty index is at an all-time high, and many popular stocks have become overvalued. However, some sectors like private banks, small finance banks, housing finance companies, brokerages, IT, and healthcare are still undervalued. In this segment, the speaker highlights that opportunities remain, particularly in finance and banking stocks. They discuss the potential of Sury Small Finance Bank, citing its low PE ratio, strong growth in loans and deposits, and improvement in asset quality. However, there are concerns about its high exposure to unsecured loans and regional concentration, which might affect its performance in the long term.

05:02

📚 Importance of Research: Learn to Make Informed Investment Decisions

The speaker emphasizes the importance of doing your own research before investing in stocks. They suggest that without a clear understanding of why a stock is being bought, investors may hold onto losers or sell winners too soon. To help with research, the speaker recommends the book 'Stock Investing Mastermind' by Zebra. This book provides a comprehensive framework for analyzing stocks, covering key areas such as financial statements, stock valuation, and investment strategies. The goal is to empower investors to make better decisions with a structured, step-by-step approach.

10:03

🏠 Housing Finance Stocks: Avas Financiers Analysis

The speaker introduces Avas Financiers, a housing finance company that serves low and medium-income segments in semi-urban and rural areas. Avas has seen solid growth in its loan book and net profit. Despite a slight increase in borrowing costs and a reduction in net interest margin, the company has maintained a healthy spread and asset quality. While the housing finance sector faces challenges, the speaker sees potential in Avas, which has delivered consistent growth over the years. They conclude by noting a possible 30% upside based on technical patterns but refrain from making any recommendations.

🏦 The State of Banking Stocks: Axis Bank Performance

Despite the market being at an all-time high, banking stocks, including Axis Bank, have underperformed. The speaker explains that the banking industry is grappling with slow deposit growth and higher interest rates, which have affected net interest margins. Although Axis Bank has shown improvement in asset quality and maintained its strong position as the third-largest private bank in India, its Q1 results were not particularly impressive. However, the speaker remains optimistic about the long-term growth potential of large private banks, as they are critical for economic growth and could benefit from expected interest rate cuts by the US Federal Reserve.

Keywords

💡Undervalued Stocks

Undervalued stocks are shares that are trading at a price lower than their intrinsic value. In the video, the speaker emphasizes that even though popular stocks may seem overvalued, there are still opportunities in sectors like banking and finance where certain stocks, such as Sury Small Finance Bank, are undervalued. These stocks have lower price-to-earnings (PE) ratios compared to their historical or industry averages.

💡Small Finance Banks

Small Finance Banks (SFBs) are specialized banks that provide financial services to underserved and unbanked segments, particularly in rural and semi-urban areas. The video discusses Sury Small Finance Bank and Jana Small Finance Bank, highlighting their focus on microfinance and secured loans. The speaker points out how these banks have significant potential for growth due to their focus on underbanked populations.

💡Secured Loans

Secured loans are loans that are backed by collateral, which reduces the lender's risk in case of default. In the video, the speaker mentions that increasing the percentage of secured loans in a bank’s portfolio, as seen with Jana Small Finance Bank, can improve asset quality. Sury Small Finance Bank also aims to increase its secured loan book to 50%, helping mitigate the risks associated with unsecured microfinance loans.

💡Net Interest Margin (NIM)

Net Interest Margin is the difference between the interest income a bank generates from its lending activities and the interest it pays out to depositors, relative to its interest-earning assets. The video highlights the challenges that small finance banks face in maintaining high NIMs, particularly with rising borrowing costs. Sury Small Finance Bank, for example, saw a slight decline in its NIM due to increased borrowing costs and its focus on increasing secured loans.

💡Gross Non-Performing Assets (NPA)

Gross Non-Performing Assets refer to the total value of loans that are in default or close to being in default. The video discusses how Sury Small Finance Bank has been able to reduce its Gross NPA from 3% to 2.7%, signaling an improvement in asset quality. Lower NPAs are crucial for banks as they reflect healthier loan books and lower risk of losses.

💡CASA Deposits

CASA (Current Account Savings Account) deposits refer to the money that customers keep in their current and savings accounts. Banks favor CASA deposits because they have lower interest rates compared to fixed deposits, thus reducing the bank's cost of funds. The video mentions Sury Small Finance Bank's strong growth in CASA deposits, which grew by 68% year-on-year, contributing to its overall deposit growth.

💡Advances Growth

Advances growth refers to the increase in the amount of loans and credit issued by a bank over a certain period. In the video, Sury Small Finance Bank is highlighted for achieving 41.8% year-on-year growth in advances, a key indicator of its financial performance and business expansion. The speaker also discusses how the bank’s growth in loan disbursements reflects its strong market position.

💡Intrinsic Value

Intrinsic value is the perceived true value of a stock, based on its fundamentals such as earnings, dividends, and growth potential, rather than its current market price. In the video, the speaker points out that the intrinsic value of Sury Small Finance Bank’s stock is higher than its current market price, making it an undervalued stock with potential for future gains.

💡Credit Guarantee Fund for Micro Units (CGFMU)

The Credit Guarantee Fund for Micro Units is a government-backed scheme that provides guarantees to lenders for loans given to microfinance institutions, reducing the risk for banks. The video explains that 58% of Sury Small Finance Bank's loan portfolio consists of microfinance loans covered by CGFMU, ensuring that up to 75% of the loan amount is recoverable in case of default, which lowers the bank's risk.

💡Housing Finance Companies

Housing Finance Companies (HFCs) provide loans specifically for the purchase or construction of residential properties. The video analyzes Aavas Financiers, a housing finance company focused on low and medium-income segments in semi-urban and rural areas. The speaker discusses its 22% loan book growth and 15% net profit growth, positioning HFCs as key beneficiaries of expected interest rate cuts and a growing housing sector in India.

Highlights

Nifty is at an all-time high, but good investment opportunities still exist in undervalued sectors.

Sectors like private banks, small finance banks, housing finance companies, brokerages, and healthcare are undervalued and have potential.

Sur Small Finance Bank is identified as an undervalued stock with a market cap of 2,000 CR and a PE of 8.5.

Sur Small Finance Bank's advances grew 41.8% year-on-year and 4.5% quarter-on-quarter.

Management of Sur Small Finance Bank has given a growth guidance of 30-35% in advances.

Sur Small Finance Bank's credit mix includes 58% JGL and VIAS loans, covered under the CGTMSE scheme.

Sur Bank aims to improve its secured loan book to 45% initially and eventually to 50% to enhance asset quality.

Sur Bank's gross NPA has reduced from 3% to 2.7%, and net NPA is down to 0.4% from 1.6% last year.

Sur Bank has shown a 42.2% growth in total deposits year-on-year, driven by a 68% increase in CASA deposits.

Sur Bank's management plans to increase the total asset size to 25,000 crores for a Universal banking license in the future.

Sur Bank's net profit grew 47.2% year-on-year, with an ROA of 2.3% and ROE of 15.2%.

Sur Bank faces challenges with high branch concentration in three top states and a decline in collection efficiency.

Avas Financiers, a housing finance company, provides loans to low and medium-income segments in semi-urban and rural areas.

Avas Financiers' loan book grew 22% year-on-year, with a net profit growth of 15% year-on-year.

Avas Financiers has maintained a gross NPA around 1%, indicating good asset quality.

Access Bank has a PE level of 13.9, which is lower than its 5-year median PE but slightly over the industry average.

The banking industry is currently facing challenges with deposits growth and high interest rates set by the RBI.

Private banks are expected to benefit as the US Federal Reserve starts cutting interest rates, potentially leading to an influx of FII money.

Large cap private sector banks are considered safer bets with potential for significant returns in the medium to long term.

IDFC First Bank and SBI Cards are other stocks to watch, with detailed analysis available in previous videos.

Transcripts

friends Nifty is at all-time high and

many good stocks have already given

three-digit run up and most of the

popular stocks are overvalued now does

that mean all the good opportunities are

gone no opportunities are always there

there are still some sectors that are

yet to perform and are undervalued these

sectors include private Banks small

Finance Banks housing finance companies

brokerages it sector stocks and

Healthcare we should be focusing on

these sectors right now that's why today

I'll be talking about five undervalued

finance and banking stocks and discuss

their pros and cons but are these stocks

best stocks to invest in 2024 or they

are potential multibagger stocks that I

will leave on you to decide because

there is not going to be any

recommendation from my end use this

video only as a reference for your

research let's get started so the first

stock is Sur small Finance bank it's a

small cap stock with only 2,000 CR

market cap the current PE is 8.5 which

is lower than its 5year median PE and

lower than the industry average PE also

Price to Book is only 1.13 and the

intrinsic value of the stock is higher

than its current price so we can say

that this stock is undervalued Sury has

also posted great quarter one results

its advances grew 41.8% year on-ear and

4.5% quarter on quarter which is very

good the growth in disbursement of loan

is also very good 46.3% year- on-ear

further the management has given a

growth guidance of 30 30 to 35 persons

in advances now it's important to look

at the credit mix see jgl and Vias loan

they constitute 58% of sur's total loan

book and they are unsecured micr Finance

Loans both of these loans are covered

under CG fmu CG fmu is basically a

government scheme under which loans are

guaranteed by government of India up to

75% this means that the lending

institutions can recover 75% of the loan

amount from the government if the loan

defaults apart from this 58% jgl and

Vias loan 42% of sures loan book are

secured retail loans and as per the con

calls the management aims to improve the

secured loan book to 45% in the first

stage and eventually increase to 50%

this would help in improving asset

quality in fact in case of small Finance

Banks they especially deal with the

challenge of deteriorating asset quality

so in case of small Finance Bank stocks

it is actually a good idea to pick the

one which has higher exposure in secured

loans considering that you can watch out

another stock called jna small Finance

Bank as it has an exposure of 62% in

secured loans compared to 42% of Sur

coming back to Sur Bank it has also

shown Improvement in asset quality the

gross NPA has reduced from 3% last year

to only 2.7% and net NPA is reduced to

only 0.4% from last year's 1.6% now

banking industry in general is facing

the challenge of growth in deposits but

Sur is doing good here also we can see a

42.2% growth in total deposits year

on-ear and 4.6% growth quarter on

quarter and this growth is driven by

increase in Kasa deposits which grew 68%

year on-ear which is amazing but now

they have given a Kasa growth guidance

of 20% only and deposits growth guidance

of 40 to 45% which is good again also

currently they have a total asset of

about 9,000 crores which they aim to

increase to 25,000 crores to be able to

apply Universal banking license in

future rest we can see a good growth in

net profit 47.2% year on-ear Roa is 2.3%

and Roe 15.2% so we saw good earnings

growth Improvement in asset quality

great growth guidance low PE but now

let's look at the problems also so Sur

has total 701 banking outlets and we can

see that the concentration of these

branches is very high in three top

states the management also acknowledges

that they need to reduce exposure in

these three states to reduce risk due to

seasonal factors in Northern India and

Tamil Nadu their collection efficiency

also declined which they need to work on

their cost of borrowings and their cost

of funds have also increased increased

which has affected the net interest

margin also as we can see a slight

degrowth of five basis points year on

year now for controlling asset quality

management says that they are going to

increase their secured loan book but

this will affect the net interest margin

because the interest rates in case of

secured loans is comparatively lower

that's why in coming quarters we can see

the NIMS go down from 10% to about 8 to

88.5% also we have to keep this in mind

plus of course currently there 58%

person exposure to unsecured loans is

quite high so friends I share my

analysis and discuss the pros and cons

but to decide whether to buy the stock

or not you have to do your own research

because if you are not clear why you are

buying the stock then you will not be

able to sell the stock on time and end

up holding the losers for too long and

selling the winners too early so to

learn how to research all the aspects of

the stocks be it financials annual

report management industry Etc you can

read Stock Investing Mastermind by zebra

learn why I specifically like this book

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structured and step-by-step system for

Learning stock market investments from

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to know whether the stock is overvalued

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Investing Mastermind now use the code

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the book is given in description and

printed comment moving on to the next

talk it is a Housing Finance Company AAS

financiers see India's housing sector is

set for 10% CGR growth over the next 3

to 5 years plus the housing finance

companies can be benefited by interest

rate cuts by RBI so we need to watch out

the Housing Finance stocks see if you

get the latest baj Housing Finance IPO

then it is great because the numbers

I've seen are good and the parent

company is baj so we have a certain

reliability but in case we don't get the

IPO then it could be little tricky to

make a good entry at low valuation so we

should check out other good options as

well like AP value Housing Finance adhar

Housing Finance AAS financiers Etc but

today I'm going to to analyze avas

financiers avas provides housing loan to

people from low and medium income

segments in semi-urban and rural areas

AAS financiers loan book grew 22% year

on- year and Loan disbursement also grew

133% year on year the net profit grew

15% year on year in fact the net profit

has grown at a rate of 32% cagr in the

last 7 years which is very good if you

look at the loan dispersement breakup

then

66.8% loans dispersed in quarter 1 was

Home Loans followed by other mortgage

loans then msme loans which are again

secured by mortgage now we can see a

slight increase in cost of borrowings to

8.08% compared to June 2023 and the

spread that has reduced from

5.6% last June quarter to 5% but

considering the high competition in the

Housing Finance sector 5% is not bad and

the management is confident to maintain

its spread to about 5% which which is

good we can see a slight degrowth in net

interest margin to 7.31 per versus 8% of

last year's first quarter Roe is 13.14%

versus 12.49% of q1 f524 the credit cost

has increased by 51.2% year on-ear this

is mostly attributed for potential

future losses if we talk about asset

quality then they have been able to

maintain the gross NPA around 1% so it

is okay they have given an AUM growth

guidance of 20 to 25% % Plus in the

latest quarter the operating expenditure

to asset ratio is about

3.27% which they have given a long-term

guidance to reduce to 3% we saw advances

growth of 22% pad growth of 15% year on

year which is good but not very

impressive plus slight degrowth in net

interest margin Roa but last two 2 and a

half years has not been very good for

housing finance companies considering

that overall the business looks good let

me know your thoughts on it if if you

look at the technicals currently we can

even see a double bottom pattern forming

so considering only the technicals we

can see a potential of about 30% but

nothing is a recommendation moving on to

the next banking stock which is access

bank see in last one year this stock has

given only about 18% returns and

currently it has a PE level of 13.9

which is lower than its 5year median PE

but slightly over the industry PE of

11.65 but compared to its peers it looks

undervalued but if we talk about why

such low valuation or why many banking

stocks haven't been performing so well

when the market is at all-time high then

friends the whole banking industry is

struggling with deposits growth and over

that the rbi's interest rates are also

at all-time high due to which the cost

of borrowing of the banks has also

increased this is affecting their net

interest margin meaning the earnings of

the banks are getting impacted this has

been the reason behind the

non-performance of the banks but friends

in the end banks are the pillars of an

economy for an economy to grow the banks

have to grow plus since the beginning of

this year FIS have been pulling out

their money from the Indian market but

now US Federal Reserve is going to start

cutting rate from September itself So

eventually as the interest rates are cut

we can expect the fii money to come back

in Indian markets and private Banks

could be the biggest beneficiaries I

think that compared to PSU Banks private

Banks can still show us a good runup in

the medium to long term in fact right

now many big private sector banks are

deeply undervalued so right now in the

market large cap private sector Banks

could be safer bets which still have

potential to give about 15% CHR in the

next 2 to 3 years this is not a

recommendation just my opinion now among

the biggest private sector Banks ICI has

already hit its all-time high HDFC and

kotak are great and deeply undervalued

I've already discussed about these

stocks in my previous videos so the next

is access Bank let's analyze it the

year-on-year advances growth is 14% And

net profit grew only 4% year on year net

interest margins contracted five basis

points on year on-ear asset quality has

improved year on-ear basis basically

overall there's nothing very impressive

in the uh q1 result of access bank but

still it's the third largest private

bank in India its revenues are at

alltime high net profit at alltime high

we saw the asset quality improving yeah

we can say the q1 result wasn't impr

impressive or as good as expected but

overall it is looking okay currently it

is still down about 10% from its top and

it is respecting this strong support

trend line apart from this the fourth

stock is idfc First Bank it is still

trading near its 52 we low I have

already made a detailed video on it to

show if the reasons behind its draw down

are temporary or not so to see the full

analysis do watch the video from the eye

button and SBI cards also I had made a

video earlier this is another stock that

we need to watch out the updated

analysis of this talk I will post in my

paid member Community you may consider

joining it that is all for today friends

do remember nothing is a recommendation

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the end