Deep Value

Value investing is one of the very popular strategies to build a portfolio of stocks which have the potential to outperform over the long run. The strategy found favour with legendary investors like Benjamin Graham (who is also referred to as the father of value investing by many). The premise of value buying is to look for stocks which are trading at a discount to their intrinsic value. Two important ratios used to initiate the search for such stocks include price-earning ratio and price to book ratio.

PE ratio is the most popular measure to judge whether the stock is available cheap or expensive, and is calculated by dividing the stock's current market price with its earning per share. PB ratio is a useful measure to compare a stock's market value to its book value. If both the ratios are significantly lower than market averages, then it could mean that the stock is undervalued. Such stocks can also have a high dividend yield.

We searched for stocks which have a price-earning ratio of less than 10, price to book ratio of less than 1.5, and dividend yield of at least 3 per cent. 18 stocks made it to our list, which includes a lot of banks. It is sorted in the descending order of PE ratio.

Company    Price    P/E Ratio    P/B Ratio    Yield    Returns (%)        (Rs)    (Times)    (Times)    (%)    3 mths    1 yr Shipping Corpn. of India   139.30   4.14   0.86   8.26   2.88   -8.84 Mercator Lines   37.65   4.61   1.44   3.45   -11.72   6.24 City Union Bank   119.20   4.81   0.95   3.36   17.90   30.20 Allahabad Bank   72.90   4.85   1.02   5.49   -10.22   -15.63 Simbhaoli Sugar Mills   78.40   4.96   1.23   3.83   -27.74   -19.13 Guj Narmada Valley Fert   98.75   5.16   1.17   4.30   -15.38   5.78 Aarti Industries   32.40   5.45   0.93   5.86   -49.30   -54.42 Chennai Petroleum   200.55   5.88   1.18   5.98   -9.46   1.75 Bongaigaon Ref & Petro   56.65   6.03   1.18   4.77   0.89   -26.90 Canara Bank   212.40   6.46   1.21   3.11   -3.19   -2.77 LIC Housing Finance   155.60   6.75   0.96   3.86   -13.34   -20.91 Syndicate Bank   72.20   6.80   1.34   3.46   -5.68   -4.56 Andhra Bank   85.45   8.02   1.38   4.10   17.46   -7.27 India Glycols   159.65   8.80   1.49   3.76   8.83   -12.33 SREI Infra Finance   42.80   8.88   1.10   3.86   -12.21   -29.43 Deepak Fertilisers & Petro   83.50   8.99   1.23   3.59   -6.96   6.17 Union Bank of India   114.85   9.64   1.36   3.05   5.56   -7.38 Electrosteel Castings   373.50   9.76   0.99   3.35   5.17   -7.89 Data as on August 25, 2006

· The premise of value buying is to look for stocks trading at a discount to their intrinsic value
· Stocks having price earning ratio of less than 10, price to book ratio of less than 1.5 and a dividend yield of at least 3 per cent