An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.
An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.
– Benjamin Graham, economist and financial investor
– Benjamin Graham, economist and financial investor
Value investing is one of the best ways to build long-term wealth in the stock market. This investing style was developed by Benjamin Graham, the father of value investing, about 100 years ago.
The stocks that promise ‘safety of principal’ and ‘adequate return’ are called value stocks. These are shares of companies with good quality fundamentals and decent growth prospects.
However, due to various reasons, these stocks may be undervalued by the market in the short term. This makes value stocks very attractive to long-term investors. If purchased at the right price, these stocks can deliver very high returns.
So, how do you find a good-quality, value stock that also happens to be undervalued by the market?
Sometimes, due to negative market sentiment, the price of a stock can trade at a discount to its peers or the industry average. This can be an example of an undervalued stock.
Valuations tools like the commonly used price to earnings and price to book ratios can help you find a good value stock that is trading at a discount to its historical valuations.
#1 ONGC
ONGC is India’s largest oil and gas exploration and production company. It’s a dominant player in India’s energy sector, contributing around 70-71% of the country’s domestic crude oil production and about 84% of natural gas production.
The Maharatna PSU is vertically integrated across the entire oil and gas industry, involved in exploration, development, and production activities across basins in India.
ONGC also has an international subsidiary, ONGC Videsh, which explores and produces oil and gas in 15 countries, expanding India’s energy footprint globally. Its Indian subsidiaries include Hindustan Petroleum Corp. Ltd and Mangalore Refinery and Petrochemicals.
The company’s share price has been under pressure due to falling crude oil prices. The global price of crude oil has been on a steady decline since mid-2022. Over the past year, Brent crude has been down about 17%. This has been on the back of rising production and sluggish demand.
As a commodity producer, the company naturally benefits from the rising price of crude oil.
The stock’s PE ratio is 6.9, and its PB ratio is 0.8. The dividend yield is 5.3%.
Going forward, the company is working to enhance production.
ONGC has entered into strategic partnerships, such as the contract with BP. This will leverage advanced technologies and global best practices at the Mumbai High field.
ONGC plans to double its natural gas production over the next 5-6 years, aligning with the Indian government’s vision to increase the share of gas in the energy basket from 6.5% to 15%.
#2 PFC
Power Finance Corporation (PFC) is a major player in India’s power sector. It’s India’s largest government-owned non-banking financial company (NBFC) with Maharatna status.
It provides financing to companies operating in the power sector, specifically projects in power generation, transmission, distribution, and renewable energy.
The stock has been in a downtrend for many months now due to a subdued outlook for the power sector as far as government spending is concerned.
Media reports have highlighted that the government might cut back on additional spending towards renewable energy in the upcoming budget. This is because the money already committed hasn’t been spent yet.
If there is no increase in the power sector spending or a decrease, companies like PFC will find it hard to grow their loan book.
The stock’s PE ratio is 3.4 and its PB ratio is 0.9. The dividend yield is 4.7%.
As a government-backed financial institution, PFC is well positioned to gain from government plans to boost infrastructure, especially in the power sector.
It’s prioritising clean energy and renewable projects, supporting India’s goal of a low-carbon economy and aligning its lending with the country’s sustainability targets.
A few months ago, the Reserve Bank of India (RBI) made a surprise move to relax provisioning rules for infrastructure loans from 1 October 2025.
With reduced provisioning rules, lenders like PFC can now free up more capital to lend, especially for crucial infrastructure projects like power.
#3 Gujarat State Fertilisers and Chemicals (GSFC)
GSFC is a public sector company promoted by the government of Gujarat. It manufactures various fertilisers and industrial products like plastics & synthetic rubbers, and man-made fibres.
Fertilizer products (78% of total revenue) comprise urea, ammonium sulphate, di-ammonium phosphate, ammonium phosphate sulphate, NPK, traded fertilizer products, etc.
GSFC’s share price has faced pressure as the company’s core DAP business has been struggling.
It also had to deal with rising prices of essential raw materials (sulphur, sulphuric acid, and P2O5), adversely impacting production costs.
The stock’s PE ratio is 10.6 and its PB ratio is 0.6. The dividend yield is 2.9%.
The company is looking to sell more profitable fertilizers and industrial products and is also increasing capacity utilisation at its plants in Baroda and Sikka.
GSFC’s investment in the Gujarat Industries Power Company Ltd (GIPCL) 75-MW solar power plant to provide cheaper power is expected to cost ₹3-5 per unit compared to current costs of ₹8-9 per unit.
Also, its urea-II revamping initiative is expected to reduce energy costs by ₹30-35 crore annually.
Conclusion
Value investing is a proven long-term investing strategy, but only if it’s done right. You can’t buy any cheap stock. The quality of the business matters. The quality of the management matters. Corporate governance matters.
However, all things being the same, the cheaper the stock, the better the long-term potential returns.
This is because investors are constantly factoring in everything that could influence a company’s stock price. So, if a stock is cheap, the market has mostly factored in the bad news that is expected to come in the future.
This gives an opportunity to value investors. If the market has become overly pessimistic, then the stock price could be offering a margin of safety.
It’s important to conduct thorough research on financials and corporate governance before making investment decisions, ensuring they align with your financial goals and risk tolerance.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.