Top 5 Undervalued Stocks to Invest or Buy Right Now for 2024

The stock market has already rallied enough that buying the stocks at such high levels seems risky, especially if you are looking to get returns in the medium to short run, as most of the stocks moved and achieved their valuation levels and some of them even trading at higher valuations.

Hence, finding the undervalued stocks becomes a challenging task for investors. And if you are also looking for such stocks, then you are landed at the right place.

Also Read: Types of Risks Associated with Investing in the Stock Market

We have mined the top five undervalued stocks that you can add to your watch list and whenever get the opportunity to buy, you can grab them in your portfolio.

Top 5 Undervalued Stocks buy for Long Term:

#1 Dabur (CMP: Rs 500)

The stock is trading at around its six-month valuation and underperformed the broader market. While many stocks in the FMCG segment moved well, this stock is still trading around its four-year-back levels.

Though, the earnings and net income of the company have grown in the past years stock prices have not moved accordingly. Hence the stock is undervalued and deserves to be at a higher valuation.

Growth Driving Factors

If you see the sector growth story, the health and personal care sector is likely to keep the growth momentum in the coming quarters. While on the other hand, the foods and beverages segments are also expected to grow in the last quarters of the FY24.

As per the company’s growth plan, Dabur is planning to expand its product range in recently acquired Badshah products in other parts of the country. Though, its inorganic growth was muted till the third quarter of FY24, but now after the acquisition this segment of the company will get the advantage of growth due to penetration in the new markets.

The international business of the company is also likely to growth with double-digit growth and that will backed with the growth in the North African and Middle East markets. However, in the short term due to currency fluctuations, the income from a few countries can be affected.

Financials & Valuation

At the financial growth end, the sales of the company grew from Rs 8704 crore in FY20 to Rs 11530 crore in FY23 and while taking into account the last three quarters the revenue is likely to touch around Rs 14300 crore in full year FY24. The growth is steady and the company is likely to keep the growth in upcoming years.

While owing to better operating margins, the EBIDTA of the company improved from Rs 1495 crore in FY20 to Rs 2164 crore in FY23 and is likely to reach at Rs 2950 crore in FY24. The Net profit of the company is also increasing with the steady growth. In FY20 Net Profit was Rs 1545 crore surged to Rs 2054 crore in FY23 and is expected to touch Rs 2330 crore in the full year FY23.

While projecting its revenue and net earnings growth for coming years and considering its current price Dabur is trading at a P/E multiple of 38x FY25E earnings, hence you can add this stock to your wish list or buy at this level with the long-term prospects.

#2 Wipro (CMP: Rs 471)

In my, Wipro is also one the best-undervalued stocks you need to add to your watch list or you can add to your portfolio at current levels. The valuation of stock is at a discount compared to its peers.

The underperformance of stock is mainly due to weak growth in revenue owing to weakness in the industry verticals. The revenue growth was flat and there was pressure on operating margins in previous quarters. However, for the last quarter of FY24, the revenue is likely to remain flat.

The existence of several top management also created instability and decreased the morale of the employees. However, the entire IT sector has been affected due to the slowdown in the US economy, and Wipro was already in a slowdown trajectory.

Growth Opportunities with New Management

However, now the several strategic acquisitions in the last quarters are likely to bring the growth momentum with new management with better guidance and growth opportunities.

The revenue growth of the company will be backed by the flows of deals that came into the second half of FY24. In the third quarter company bagged more than 14 large deals with a total large deal win was $900 million and a total win of $3791 million in FY23.

The key growth strategies of the company include the acquisitions under the end-to-end capabilities in consulting, digital, cloud, and IT transformation services. The company has acquired companies to enhance its consulting capabilities in various industry verticals like cyber security, communication, BFSI and SAP practises.

Valuation & Outlook

At the valuation end, thanks to underperformance in past quarters, the stock is trading at a discount valuation compared to its listed big rivals in the industry. The economic conditions in the US are improving and with the new management guidance revenue growth is likely to improve. Hence you can add this stock to your wish list to buy anytime at current levels.

#3 Power Grid (CMP: Rs 275)

The stock has moved well in previous quarters but corrected and is now available at an attractive valuation that you can add to your wish list. It is currently trading at trading at 2.7 times its expected 2026 book value and offering a dividend yield of around 4.2% making it a good bet for the long term. ]

Growth Driving Factors

The company has a huge Capex (capital expenditure) plan for the next two years. Even it has revised the capex target of Rs 8,800 crore to Rs 10,000 crore in FY24. While for FY25, the company has set a capex target of Rs 15,000 crore giving a better revenue scope for the company.

Moreover, the company has ensured the project pipeline worth Rs 1.75 lakh crore over the next eight years which can give the potential annual capex of Rs 20,000 crore. And company has managed to secure projects worth Rs 26,000 crore in the first nine months, maintaining a 67% success rate.

And out of the total projects, 70% (valuing around Rs 77,000 crore) of current projects execution is dedicated renewable energy projects, giving a significant contribution towards green energy and clean energy production in India.

Operational Efficiently & Valuation

The financial performance of the company is also impressive with the steady growth in revenue and net income as well. However, despite huge capex plans, the operational efficiency was slightly affected which resulted in the lower operating expenses. The EBITDA margins improving giving the better net profit visibility in coming quarters.

In line with better execution capability in new projects, the upcoming quarters are likely to achieve better revenue and net earnings visibility. The stock is also trading at an attractive valuation with the scope for growth due to robust earnings visibility and attractive valuations.

#4 Subros (CMP: Rs 582)

With the market share of 44% as Subros is one of leading suppler of automotive AC components to OEMs for automobile industry. The company is going to get the benefit from demand arising from the passenger vehicle (PV) and the commercial vehicle (CV) segments. Apart from passenger vehicles, now air-conditioners (ACs) in truck cabins are becoming mandatory.

Similarly, there are many factors that are going to benefit the Subros with the growth of the automobile industry. Considering all such growth-driving factors and current valuation, we recommend adding this stock to your wish list from the buying perspective.

Growth from the Automobile Industry

As per the management demand for SUVs is likely to continue and change in consumer behaviour towards SUVs will continue to be a growth driving factor for the company, because the PV segment is going to play a key role in the growth driving factor for the company.

Also Read: Factors to Consider Before Investing in Stocks of a Company

In the passenger vehicle segment, the demand for the top-selling vehicles of auto manufacturers like Maruti and Mahindra is backed by new launches, especially in SUVs.

While on the other hand, in the commercial vehicle segment, there is strong growth momentum likely to continue. While due to mandatory AC installations in CVs like trucks and bus cabins also boost the demand for ACs, in such segments. Moreover, towards the focused infrastructure and development, the introduction of a mandatory scrap policy is also likely to increase demand for CVs.

Orders in the Pipeline

The company has secured significant orders worth Rs 400 crore in the first nine months of FY24. The orders are mixed from the railway and bus sectors and from the hybrid and electric vehicles to supply them as an original equipment manufacturer (OEM).

Owing to the adoption of electric vehicles (EVs) manufacturing by all the leading automobile companies, Subors has also indicated that it has been focusing aggressively on this segment. The company is going to get the benefits due to technological changes in compressors and engine cooling module demand. And it will increase its contribution to the EV segment.

Financial Growth Perspective & Valuation

The Net Sales of the company were Rs 2806 crore in FY23 which is expected to touch Rs 3085 and Rs 3550 crore in FY24 and FY25 respectively. Owing to better operating efficiency, the EBITDA margins of the company are likely to improve by up to 2500 basis points which will help the company to earn a high net profit during the same period.

The PAT margins are also likely to improve translating the high earnings per share (EPS) making the current valuation of stock attractive for the investors. The stock is trading at 22.6 times FY26 projected earnings, which seems to be an attractive valuation at current levels.

#5 Hindustan Unilever (HUL CMP: Rs 2234)

Another FMCG stock that has moved merely 6% from pre-COVID highs, while Nifty is more than 75% in the last four years. The stock price movement is justified by the volume growth during the same period that has been subdued due to demonetisation and the pandemic impact.

However, now owing to an increase in demand and change in spending patterns, the stock is attractive is seems to be undervalued due to muted industry growth. As per the reports, HUL’s rural volume growth was -1% (2-year CAGR) till Q2 FY24.

Growth Driving Factors

The growth momentum is likely to improve with the increase in demand for the products in the key segments like detergent bars, tea, and soaps. In premium categories like liquid detergents, oral care, and beverages the volume growth with better pricing will achieve the new sales volume.

Further, as per the Nielson IQ and Kantar, the FMCG sector is expected to grow in mid-single digits in CY24 amid weak consumer sentiment. But sluggish demand outlook or regular products also provide the opportunity for new product development for the customers who are capable of paying the premium for value-added offerings.

At the operation efficiency end, HUL has utilized the gross margins for the brand investments in premium beauty and high-growth laundry products. This strategy helped the company to gain market share in such a segment. Further demand from the food and refreshment category is also likely to improve due to stable commodity inflation in food categories.

Valuation & Outlook

FMCG is one of the highest competitive industries in India, but the demand for premium products will be the growth-driving factor for the company. On the other hand, the operating margins are also likely to be supported by reasonably priced raw materials.

The stock is trading at a P/E of 40x of its estimated earnings of FY26, which is below its 10-year average P/E of 50x making the stock to be accumulated at this level. Or you can add this undervalued stock to your wish list if the market is corrected and HUL comes at lower levels.

Final Words

Undervalued stocks are those that have not moved along with the movement in the broader market index, and the reason could be anything, either previously it was trading at higher valuations or the fundamentals or financial performance of the company was not as per the expectations of the investors.  

But now the situations are getting improved, and these undervalued stocks can become in the eyes of other retail investors or institutional investors. Once it becomes in demand the stock price will move and it can give you significant returns, but you need to wait and keep patience to get such returns.   

Disclaimer: The views and investment tips expressed by investment experts here are their own and not those of the website or its management. And the movement of recommended stocks are subject to the movement of the main index or entire stock market. Hence, there is risk investing in the stock market, it is advised users to check with certified experts before taking any investment decisions.