During Wednesday’s trading session, the benchmark index posted its fifth straight gain, gaining over 61 points and inching closer to resistance by 2:42 pm IST. Although the near-term trend looks positive, a decisive formation of higher highs and higher lows is not yet visible on the daily time frame, suggesting that the market is still in a wide range.
For investors looking to benefit from this depressed market by hunting for undervalued stocks, a systematic approach can be very effective. Here’s an easy way to start building a strong portfolio with InvestingPro+’s advanced screener.
The Proposition: Whether you’re identifying undervalued gems or avoiding overvalued stocks, InvestingPro+ gives users the tools they need to harness the full potential of their investments. Click here to take advantage of your limited time 69% discount today!
Step 1: Fair Value Verification
Start by using the InvestingPro+ screener to filter stocks based on Fair Value > 20% criteria. This filter will generate a list of stocks trading below their average intrinsic value, which is a good starting point for identifying potential investment opportunities. However, it is important to narrow down this list to ensure quality over quantity.
For example, from the data above for Chambal Fertilizers (NS:), we can see that the stock is undervalued and has the potential to return around 14.1%. This is the simplest, yet most effective way to evaluate what potential a stock may have before making an investment decision.
Step 2: Assess your financial health
Next, evaluate the financial condition of these companies. Look for stocks with a Financial Health Score of 3 or higher. This score, provided by InvestingPro+, is based on an analysis of more than 100 parameters across five broad categories and is scored on a 5-point scale. A score of 3 indicates that a company’s fundamentals are above average, making it a safer investment.
In this case, a score of 4 is more than enough to qualify the stock as a portfolio stock. If it were below 3, we would not consider it for any investment, regardless of the difference in valuation.
Step 3: Check for alarms with ProTips
Once you’ve identified stocks that meet fair value and financial strength criteria, use InvestingPro+ ProTips to check for warning signs. One of the key aspects to consider is the company’s profitability over the last 12 months. Profitability is critical, especially for smaller companies, as it differentiates a financially sound business from a riskier one. Additionally, ProTips can indicate whether a company has more cash than debt, which is always a positive sign for investors.
The rule of thumb is that the larger the valuation gap, the better the time to get into a stock. Investors with some knowledge of technical analysis can further refine their strategy by studying stock charts to better select entry points. However, the focus should be on selecting high quality, undervalued stocks using the above criteria.
InvestingPro+ is an invaluable tool for investors looking to gain deeper insight into their stock selections. Trusted by thousands of investors in India and around the world, InvestingPro+ provides comprehensive data and analysis to help you make informed investment decisions. By following this structured approach, investors can find undervalued gems and build a strong portfolio ready to take advantage of a potential market recovery.
For a limited time, you can subscribe to InvestingPro+ at a discounted price of INR 526 per month for two years. To improve your investment journey, Click here to get 69% off today!