Sayantan Chakraborty
If you have a limited amount of money to invest in the Stock Market, buying ‘high priced’ stocks is not a wise decision. If you are directly investing in the Stock Market, diversification becomes essential. Buying high priced stocks limit the number of stocks you can invest. So in this article, we will be discussing in detail about 5 Stocks under Rs. 500. We will also glance through a few fundamentals of the companies.
Investing in a company just because its stock price is low, is not a good Stock Market Investment Strategy. The Fundamentals of the company also need to be strong. So we will also take a brief look at the Fundamentals of the companies. So that we know, we are investing in a ‘good company’ whose stock price is under 500 Rupees.
Important Fundamental Metrics To Look at When Investing in a Company
Though we have listed in detail, the things you need to consider when analyzing the fundamentals of a company in this article, still, we will recap it a bit here.
We have also shown you how we doubled our investment by just using Fundamental Analysis, WITH PROOF, in that article. That 5-minutes reading time will be worth it, we promise.
5 Things To Consider Before Investing in the Stock Market
- Valuation – You should always aim to invest in Undervalued Stocks. Basically, you want to pay less than what each share is worth.
You can use the Discounted Cashflow Method to figure out the Intrinsic Value of a stock. And invest when the Current Price of the Share is lower than the Intrinsic Value of the Share.
DCF or Discounted Cashflow is a valuation method used in figuring out the Intrinsic Value of a Share. - PEG Ratio – We all have heard about P/E Ratio and what it does. But here, we going to use an advanced version of the P/E Ratio, known as the PEG Ratio.
While P/E Ratio tells us how undervalued or overvalued a certain stock is, PEG Ratio tells us whether the valuation is justified, compared to the growth of the company.
PEG Ratio paints a much clearer picture and helps us decided whether we should buy the stock at a certain price, or not. - EPS – EPS or Earning Per Share tells us how much each share of the company is earning.
EPS is nothing but the Total Profit After Tax or PAT divided by the Total Number of Shares in the Market.
You want the EPS of a company to grow Year Over Year. This will depict the company is earning more and growing each year. - Debt – A company with lower debt means, less revenue goes out of the company as an Interest Payment and a lower chance of the company going bankrupt.
We have seen multiple times in the past how debt-ridden companies have gone bankrupt. - Cashflow – Cashflow of a company is what the blood to a human body is. Without any of them, none can survive.
Regular Cashflow brings in the essential “oxygen” a company needs to fuel its day-to-day activity.
A company with good Cashflow don’t need to take unnecessary debts to provide financial liquidity for its daily activity.
There are far more metrics to look at and much more research to be done before you invest in a company, but the fundamental metrics mentioned above will give you a basic idea of whether looking at the company is worth your time or not.
List of 5 Stocks Under Rs. 500
#1. UPL Limited
Current Market Price as of 1st January 2021 – Rs. 469.30
NSE: UPL
BSE: 512070
Company Website – https://www.upl-ltd.com/
UPL Limited, which was previously known as United Phosphorus Limited, is a Chemical Company, engages in the making of Agro Chemicals, Industrial Chemicals, Speciality Chemicals, etc. UPL also offers Crop Protection Solutions.
The company has a global footprint, starting from India to South America to North America to Europe and every other part of the world. So being Geographically diversified, the Geo Risk becomes very low for the investors.
Being a part of the Nifty 50, UPL is among one of the Top 50 Large Cap Companies in India. Inclusion in the Nifty 50 proves that UPL is a well-established company with a good track record.
Now let us talk a bit about the fundamentals of UPL.
- Valuation of UPL – According to Simply Wallstreet, the Intrinsic Value of UPL is Rs. 752.57/-. So, if buy UPL shares below Rs. 600/-, you are already 20% in the Green.
- PEG Ratio – With a PEG ratio below 1 according to Screener.in, UPL is a good buy.
- EPS – A single share of UPL earned Rs. 7.98/- in the year 2010 and in the year 2020, the Earning Per Share or EPS of UPL was Rs. 23.24/-. Within 10 Years, the EPS of UPL tripled. So with confidence, we can say that the company had a good growth history.
- Debt – As of 31st December 2020, the company has a debt of Rs. 32,364/- Crore. And the Debt to Equity Ratio is 1.70, which is not good. Debt to Equity Ratio above 1 means the company has more debt than equity. But if the company is using the debt in a good way then we should not have any problem.
If we take a look at the Liability section of the Balance sheet of UPL, we can see that in recent years, both the Reserve and the Borrowing has risen tremendously.
So, it is not just the debt that is rising, reserves have risen too, which is good. - Cashflow – UPL is generating a good amount of cash from its operating activity.
There are multiple ‘Compounded Growth’ metrics you can look at, to make an initial judgement on the growth trajectory of a company. Here, we will look at one of the important compounded growth metrics of UPL – Return on Equity or ROE.
For the last 10 Years, the Return on Equity of UPL is 20%. It means, every year for the last 10 years, the company has generated 20% returns for its investors.
Foreign Institutional Investors or FIIs and Domestic Institutional Investors or DIIs hold more than 50% of the company’s share. And with a Promoter Holding of above 27%, UPL should be in your list of top stocks under 500 rupees.
Moving on to the next stock.
#2. Gujarat State Petronet Limited
Current Market Price as of 1st January 2021 – Rs. 218.50
NSE: GSPL
BSE: 532702
Company Website – gspcgroup.com/GSPL
Gujarat State Petronet Limited is a group company of Gujarat State Petroleum Corporation, and GSPL is a Government of Gujarat company. The main business of GSPL is to build infrastructure for gas transmission in the state of Gujarat.
Gujarat is one of the fastest developing states in India, energy consumption at the end-user level is rising day by day. So a utility company that is focused on providing infrastructure to facilitate the energy consumption of a growing state, is a good bet.
Now let us take a look at a few fundamental metrics of the company.
- Valuation of GSPL – According to Simply Wallstreet, the Intrinsic Value of GSPL is Rs. 250/-. So, if you buy shares of GSPL around Rs. 200/- then you are already 20% in the Green.
- PEG Ratio – According to Screener.in, the PEG Ratio of Gujarat State Petronet Limited is 0.19. This is good because we want to invest in a company that has a PEG Ratio of less than 1.
- EPS – On the 38th Page of the Annual Report for the year 2010, we can see that the Earning Per Share or the EPS of GSPL was Rs. 7.36/-.
And the EPS of GSPL for the year 2020 was Rs. 19.66/-, which we can find on the 20th Page of the Annual Report for the year 2020.
Within a span of 10 years, the EPS of GSPL more than doubled. So did the stock price of GSPL.
As we want to invest in a company with a good past track record, Gujarat State Petronet Limited is a good stock to buy under 500 rupees. - Debt – As of 31st December 2020, the debt of the company stands at Rs. 2,038 Crore. While just the Reserve of the company stands at Rs. 4,926 Crore, which is more than double the amount of debt the company have.
The Debt to Equity Ratio of GSPL stands at 28%. Investing in companies with a Debt to Equity Ratio below 50% is a good investment practice. - Cashflow – GSPL has been generating a good amount of cash from its Operating Activity for a long time.
And GSPL has a good Dividend Payout Percentage, meaning it has disposable cash laying around in its book to pay investors in the form of dividends.
If we take a look at the 5 Years Return on Equity metric of GSPL, we can see that the company has compounded investor’s money at a rate of 30% each year for the last five years.
Promoter Holding of GSPL has remained constant at around 37.50% for a long time. Promoters, DII, FII and Government Institutions hold near about 85% of the company’s share, which proves the trust, institutional investors have in the company.
Moving on to the next stock.
#3 Lincoln Pharmaceuticals
Current Market Price as of 1st January 2021 – Rs. 243.25/-
NSE: LINCOLN
BSE: 531633
Company Website – lincolnpharma.com
During the 2020 Pandemic, we realised the true potential of the Indian Pharma Sector. From manufacturing different life-supporting drugs to developing a vaccine for the pandemic, the Indian Pharma Industry has shown its worth. As India is known as the World Pharmacy, well managed Indian pharma companies have a bright future ahead.
Lincoln Pharma is a Smallcap Pharmaceutical Company engaged in developing and distribution pharma products. Being a Smallcap company with just Rs. 445 Crores market cap, we at Money Premier would suggest you be extra careful when researching such kind of companies.
Now let us talk a little bit about the fundamentals of the company.
- Valuation of Lincoln Pharma – As per Simply Wallstreet, the Intrinsic Value of a single share of Lincoln Pharma is Rs. 689/-. But at the moment of writing this article, shares of Lincoln Pharma is trading at Rs. 225/-, so if you buy Lincoln Pharma now, you will get it at a discount of more than 67%.
- PEG Ratio – Lincoln Pharma has a PEG Ratio of 0.27, which is lower than 1. And we want to invest in companies with PEG Ratio lower than 1.
- EPS – As per Screener.in, the EPS of Lincoln Pharma in the year 2010 was Rs. 5.40/-. And the EPS of Lincoln Pharma for the year 2020 rose to Rs. 25.72/-, which is close to 5 times the EPS 10 years ago.
We can say that in the long term, Lincoln Pharma has performed well. - Debt – If we take a peek into the Balance Sheet of Lincoln Pharma, we can see that as of March 2020, Lincoln Pharma has a Reserve of Rs. 293 Crores, whereas the debt of the company is just Rs. 5 Crores.
The company is almost debt-free. The company can pay off its debt with a snap of a finger.
This “debt free-ness” is also reflected in the Debt to Equity Ratio of just 1.6%.
We hope the company can grow while maintaining this debt profile in the future. - Cashflow – Lincoln Pharma has been successfully generating a good amount of cash from its Operating Activity.
Each year for the last 10 years, Lincoln Pharma has generated a Return on Equity of 16%. Meaning, the company has compounded investor’s money at a rate of 16%, each year for the last 10 years.
When it comes to the Shareholding Pattern, Lincoln Pharma falls weak. With just a bit over 33% of Promoter holding and no DIIs and FIIs holding, the holding profile of Lincoln Pharma is not investor-friendly.
After going through a few of the main fundamentals of Lincoln Pharma, we would suggest our readers be super cautious when dealing with such stocks.
Ok. Lincoln Pharma done. Now to the next stock.
#4 HeidelbergCement India Limited
Current Market Price as of 1st January 2021 – Rs. 225.60/-
NSE: HEIDELBERG
BSE: 500292
Company Website – mycemco.com
Heidelberg Cement of India is a subsidiary of the Heidelberg Cement Group of Germany. The main customer base of the company is located in Central and Northern India, with a small portion in Southern India.
The client list of Heidelberg Cement mainly consists of different State Governments. So we can expect that the orders they get are not small in size.
As Heidelberg Cement is not a household name, we should make it a priority to take a look at the Sales number and Operating Profit over the years. This will help us make a better judgement on whether to consider investing in the company or not.
A rising Sales and Operating Profit is what we want, and since 2010, Heidelberg Cement slowly but surely has increased both its Sales and Operating Profit.
Now let us take a look at a few fundamentals of the company.
- Valuation of HeidelbergCement – According to Simply Wallstreet, the Intrinsic Value of HeidelbergCement is Rs. 293/-. But as of writing this article, HeidelbergCement is trading at Rs. 222.05/-, which is about 25% below its Intrinsic Value. And as a rule of thumb in stock market investing, always pay less than what it is worth.
- PEG Ratio – We want to invest in companies that have a PEG Ratio below 1. And HeidelbergCement as of December 2020, has a PEG Ratio of 0.43, which is less than 1.
As of now, HeidelbergCement is looking good. - EPS – Though the EPS Growth of the company hasn’t been consistent. Still, in the year, 2010 HeidelbergCement had an EPS of Rs. 2.79/-, and the same rose to Rs. 11.83/-, in the year 2020.
That is more than 4 times EPS increment in 10 Years. - Debt – HeidelbergCement has slowly reduced its debt from Rs. 1,357 Crores in the year 2013 to Rs. 413 Crores in the year 2020, which is a very big plus point. Investors love to see a company increasing its profitability while reducing its debt.
As of December 2020, the company has a debt of Rs. 294 Crores and the Reserves alone is Rs. 1,088 Crores.
That makes the Debt to Equity Ratio of HeidelbergCement to 22.8%, which is within the limit of 50% we want to see in the company we want to invest in. - Cashflow – The company is generating a generous amount of cash from its Operating Activity.
HeidelbergCement falls a bit weak in the 10 Years Return on Equity metric. The company generated a mere 9% ROE for the last 10 Years.
We are not saying it is bad for the size of a company like HeidelbergCement. Many companies of such size have vaporized investor money within a far shorter time frame. But it could have been better.
Though the company generated a healthy 14% ROE in the last 5 Years. And had a 22% Stock Price CAGR for the last 10 Years. Meaning, stock investor’s money grew at a rate of 22% each year for last 10 years.
HeidelbergCement has a fantastic 69.38% Promoter Holding. Domestic Mutual Funds hold a 4.89% stake in the company as of December 2020. Retail Public holding is just 15%, which shows the confidence big institutional investors have in the company.
Less Public Holding is equal to more big institutional and promoter holding. And those investment firms have far more analytical capabilities than regular retail investors.
Now to final stock which you can buy under Rs. 500/-.
#5 Visaka Industries Limited
Current Market Price as of 1st January 2021 – Rs. 387.30/-
NSE: VISAKAIND
BSE: 509055
Company Website – visaka.co
Visaka Industries is another Smallcap Company that make cement sheets, solar panels, synthetic yarns.
Visaka Industires has a Retail Holding of 52.81% and a 45.84% Promoter Holding. And out of that 45.84%, 4.31% being Pledged Holding, investors should be extra vigilant when researching such a company.
Visaka Industries is more of ‘Turn around’ play rather than just ‘Value Investing’.
So let us see few fundamentals of the company.
- Valuation of Visaka Industries – The Intrinsic Value of Visaka Industries stands at Rs. 1,923/-, while as of writing this article, the stock is trading at Rs. 426.95/-. So it is already trading at a discount of about 75%.
There might be a reason why investors are still not pouncing at the stock even though it is trading at such a high discount rate.
While discussing the EPS of the stock, we will see why the stock is trading at such a high discount rate. - PEG Ratio – Visaka Industries has a PEG Ratio of 0.55 which is lower than 1.
- EPS – When we take a look at the Profit and Loss Statement of the company, we can see that Visaka Industries was losing money each year from 2010 till 2014. Since 2015, the PAT or Profit After Tax or Net Profit of the company has slowly started moving North.
Investors still don’t trust that the company maintain its profitability for a long time and that is one of the reasons why the stock of Visaka Industries is trading at such a low value.
In the year 2010, the EPS of Visaka Industries was Rs. 36.02/- and it came down to Rs. 7.54/- in the year 2014.
Since 2015, the EPS of the company has started rising, and as of 2020, the EPS of Visaka Industries stands at Rs. 31.04/- - Debt – Being such a “differently” (for the lack of a better term) managed company in the past, Visaka Industries has somehow managed to keep a healthy debt profile.
Typically such kind of companies has a horrible debt profile.
As of December 2020, Visaka Industries has a total debt of Rs. 111 Crores, and the Reserves stands at Rs. 558 Crores. And the company has fantastic Debt to Equity Ratio of just 0.19 or 19%. - Cashflow – The cashflow generation of Visaka Industries has been unstable. But the company has been able to generate positive cashflow from its Operating Activity.
Visaka Industries generated a 10 Years ROE of 12% but was able to compound stock investor’s money at a rate of 18% for the last 10 Years.
At such a low valuation, Visaka Industries might tingle your greed sensors. But with the kind of Shareholding Pattern and the Profit and Loss Statement, we would be super careful when dealing with Visaka Industries.
Conclusion
First of all –
Data mentioned in the article is either taken from Simply Wallstreet or Screener.in or Ticker Tape.
Secondly –
To filter out the Penny Stocks, we have not considered any stocks which are below Rs. 50/-. The risk associated with Penny Stocks is very high.
As the price of Penny Stocks is low, these kinds of low priced stocks easily become the victim of market manipulation. And investors easily get trapped in Penny Stocks, especially the beginner investors. So we will stay away from Penny Stocks.
As you can see, the smaller the Market Cap – the riskier the stock. That is why we ask our readers to handle Smallcap Stocks or Mutual Funds with utmost caution.
Equity Investment carries substantial risk in itself and smallcap, intensifies that risk multifold. So divided your investment into small chunks and diversify it in different stocks.
We have discussed a few ways you can save yourself from having sleepless night over your investment in this article. And we have also shown how with the right kind of knowledge and expertise we doubled our money in the stock market.
That article also throws some light into the world of Fundamental Analysis. That 5 minutes read will help you in the long run.
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In the end, we will say – Good Luck and Happy Investing! 😊
Disclaimer: The views, investment tips, presumptions, and calculations expressed on Moneypremier.net are not of the website or its management. This article is for Educational Purpose only. Moneypremier.net advises users to check with certified experts before making any financial decisions.
Stock Disclaimer – As of 25th February 2021, people associated with Money Premier do not own any stock of any of the companies mentioned in the article. But, they might hold stakes in companies mentioned in the article in the future.
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