TOP PICKS FOR LONG TERM
Long term investing is a popular investment strategy that intelligent retail investors use to grow their money. Benjamin Graham, father of value investing, had defined intelligence in investing as someone who does not try to time the market but values the ‘time in the market’ by picking investment options that suit you best and not invest on hearsay.
1.Reliance Industries
Reliance Industries has been the first to achieve the feat of a new milestone in market capitalisation; first to reach Rs 10 lakh crore, Rs 11 lakh crore and Rs 12 lakh crore. RIL started as a textiles company in the 1950s and then diversified into multiple business channels. Currently, the company has oil and gas, refining and petrochemicals as its core businesses. Other businesses include retail, telecom, media and many other subsidiaries. RIL is one of the top 10 stocks to buy for long term.
2. HDFC Bank
HDFC Bank, one of the HDFC twins, was set up in 1994 and promoted by HDFC. Since its inception, Aditya Puri had been leading the bank as its managing director and became the longest-serving MD of a private bank. He was replaced by Sashidhar Jagdishan in 2020.More than 50% of the bank’s loan book comes from retail loans, which many analysts think is the reason behind its success. In the last eight quarters, since the first quarter of FY 20-21, the net NPA ratio of the bank has been less than 0.5% of its advances. In the July to September quarter, its net NPA ratio was 0.17% of its net advances. Its net profit has risen at a CAGR of 16.28% in the past five fiscal years.
The bank’s businesses are in retail banking, wholesale banking and treasury. This bank is also one of best stocks to buy for 2021 in india.
3. HINDUSTAN UNILEVER
HUL is one of the largest FMCG companies in India. Some of the brands under HUL are Glow & Lovely (erstwhile Fair & Lovely), Lifebuoy, Clinic Plus, Vim Bar, Bru Coffee and many others. The company was founded in 1933. In the past 10 years, the company has outperformed Sensex by giving more than 680% returns as on January 11, 2021, whereas Sensex has returned around 156.31% in the same period. Its net profit has grown at a CAGR of 10.28% in the last five financial years.
4. HDFC
HDFC, or, Housing Finance Development Corporation is the parent company to HDFC Bank. The housing finance company was set up in 1977, and since then the company claims to have financed over 7 million housing units. Its profit in the past five financial years has risen at a CAGR of 20.19%. Housing finance is the core business of the larger HDFC Group which houses other financial arms like HDFC Bank, Life and General Insurance Arms and more. HDFC can be one of the best Indian stocks for the next 10 years.
5. Kotak Mahindra Bank
Kotak Mahindra Bank started as Kotak Mahindra Finance Ltd., a non-banking finance company and it became the first NBFC in India to receive a banking license from RBI. After becoming a full-fledged bank in 2003, it has branched into four units; consumer banking, corporate banking, commercial banking and treasury. The net NPA ratio of this private lender has been constantly reducing: 1.26% of net advances at the end of March 2017 whereas 0.71% at the end of the previous financial year.
6. Bajaj Finance
Bajaj Finance’s stock has given phenomenal returns in the past ten years. As on January 11, the stock has given close to 7973% returns. Bajaj Finance has focussed on small-ticket loans that have helped it to evade debt rubble. Its loan book stood at Rs 1.29 lakh crore as on March 31, 2020. Bajaj Finance is a subsidiary of Bajaj Finserv Ltd., which is a financial services company. It is one of the top 10 stocks to buy for long term.
7. BHARTI AIRTEL
Airtel was established in July 1995 after Mittal secured a place in the spectrum auctions. Apart from its prepaid, postpaid and broadband services, airtel was the first company to set up a payments bank in India.
In recent times, Airtel also overtook Jio in terms of adding new subscribers on a monthly basis.
Reliance Jio added 2.2 million subscribers and Bharti Airtel added 3.7 million subscribers in October 2020. In September as well, Airtel added 2.3 million subscribers whereas Jio added 1.46 subscribers. However, Jio presently retains the highest market share in the industry, 35.28% while Airtel is at 28.68%.
8. Asian Paints
Asian Paints started as a small undertaking in a garage in the early 1950s. Now, almost seven decades later, not only has it strengthened its presence in our country but also has its footprints in 20 countries. The stock has returned more than 951% in the past 10 years, as on January 11. Few factors that have supported the company’s growth are: efficient cash management, repainting revenues that keeps it safe from real estate woes had it relied only on new painting. Smart advertising like ‘Har Ghar Kuch Kehta Hai’ which stays in the minds of customers and a real focus on smaller cities and retail segments has helped the company to up its game. Bajaj Finance is one of the top 10 stocks to buy for long term.
9. SBI
State bank of India is India’s largest lender. The bank has around 24,000 branches in India and around 190 overseas branches in 35 other countries. The bank’s loan book is around Rs 24 lakh crore. Its net NPA ratio has been falling almost sequentially since the quarter ended June 30, 2018, when its net NPA ratio was 5.95% of the gross advances as compared to a net NPA ratio of 1.59% in the second quarter of FY21. Afte the net NPAs peaked at 5.73% of net advances at the end of March 2018, the net NPAs have fallen for both the financial years after that, 3.01% at the end of March 2019 and 2.23% at the end of FY20.
HOW TO PICK STOCKS?
There are three things to look at:
1. Market capitalisation should be at least more than Rs 10,000 crores.
Simply put, the market cap is the market value of the company. It is the price at which you can buy all the outstanding shares of the company. It is calculated by multiplying the number of outstanding shares by the cost of each share trading in the market. Since the stock price is a dynamic number, the market cap also changes frequently. It tells the size of the company. More prominent companies with higher mcaps have already reached a particular stage and are less prone to volatility with lower risk levels. Hence for assured and less volatile returns, a high market cap is an excellent measure to single out companies.
2. Operating profit margin more than 15%
Operating profits is the profits that any company earns from its core business. For example, Asian Paints core business will be manufacturing and selling different kinds of paint. Any other businesses it has would be ancillary or subsidiaries. OPM or operating profit margin, it examines the operating profit of a company to its revenue.
OPM= operating profit/sales revenue
That is for every Re 1 of sales, how much profit is a company generating from its core businesses. It is a good indicator because most analysts derive real value from a company when it makes good businesses from its core businesses rather than from any ad hoc financing activities. It is indicative of a company’s long term sustainability, efficiency and health.
3. Profit growth for three years should be more than 10%
While operating profit takes only the core business into account, net profit takes all aspects of a company. It also accounts for costs such as taxes, interest expense for an outstanding debt and reflects the real earnings of the entire business. The net profit comes at the bottom of the profit statement after accounting for all costs and expenses, hence is known as the bottom line.
After getting a list of at least 80 stocks that fit into the above criteria, we sorted the companies according to market cap in descending order.
Things to keep in mind-How to conduct long term investing?
Pick a few financials, look at qualitative aspects like management quality, ethics and CSR activities, and assess them based on historical information and over three years or more.
Filter companies, according to their market cap and pick leaders from respective industries which have shown proven long-term sustainable performance.
Align your risk level with the risks of the company. Conduct a business and industry analysis to understand industry-specific factors and risks.
Invest in a company only if you understand the company and what it does.