Top 5 Undervalued Bluechip Stocks to Invest in After oath-taking ceremony on June 8

The conclusion of the Indian general elections has seen the NDA government secure a third term, ensuring continuity in policy-making—a development that spells good news for the stock market. This renewed mandate is expected to attract more funds into the market, potentially driving up stock valuations.

At Equitymaster, we maintain a positive outlook on the bull market, encouraging long-term investors to stay the course despite potential short-term volatility. Bluechip stocks, known for their resilience and quick recovery, present a low-risk investment opportunity for both novice and seasoned investors. These stocks could outperform the broader market if the current upward trend continues, offering significant valuation upside.

Understanding Bluechip Stocks

Bluechip stocks represent well-established, financially robust companies capable of withstanding market turbulence. They provide moderate but consistent returns and are often industry leaders with widespread recognition. These stocks appeal to all types of investors, thanks to their clean financial records, prudent capital allocation, and strong competitive advantages. Additionally, bluechip companies are known for paying generous dividends, making them a reliable choice for long-term wealth generation.

The Stability and Profitability of Bluechip Stocks

Bluechip stocks are attractive because they exhibit consistent revenue growth, profitability, stable margins, and reliable cash flows and dividends. This consistent performance is typically rewarded by the market, resulting in compounding stock prices over time. While small-cap stocks can offer higher returns in bull markets, bluechips are more likely to emerge as winners across full market cycles due to their lower risk profile.

Top 5 Undervalued Bluechip Stocks Post-Elections

1. ONGC

ONGC, India’s largest oil and natural gas company, is involved in oil exploration and production, contributing 70% of the country’s crude oil and 84% of its natural gas. Operating in eight basins, with plans to open more, ONGC’s revenue has grown at a CAGR of 10.5% over the past four years. Although net profit growth has been slower at 1.8% due to reduced margins and windfall taxes, the company is investing heavily in future projects.

With plans to spend over Rs 310 billion on exploration in the next three years and significant investments in renewable energy, ONGC aims to diversify its revenue streams. The establishment of ONGC Green, a wholly-owned subsidiary focused on renewable energy, highlights its commitment to sustainability. At present, ONGC’s stock has a PE ratio of 5.8 and a PB ratio of 0.9.

2. Dr. Reddy’s Laboratories

Based in Hyderabad, Dr. Reddy’s Laboratories is a multinational pharmaceutical company that saw an impressive FY24, with consolidated revenue, operating profit, and net profit increasing by 12%, 15%, and 24%, respectively. The company’s R&D expenditure rose by 18% to Rs 22.9 billion, emphasizing its commitment to innovation.

Dr. Reddy’s has formed a joint venture with Nestle to bring nutraceuticals to India and has partnered with Sanofi to distribute vaccines. The company has also entered the UK market with new products and biosimilars. With a strong balance sheet and ongoing reinvestment in its drug pipeline and future businesses, Dr. Reddy’s stock currently holds a PE ratio of 17.5 and a PB ratio of 3.4.

3. Power Grid Corporation

Power Grid Corporation, established in 1992, is India’s largest electric power transmission company. As a Maharatna CPSU, it plays a crucial role in transporting electricity across the country. Despite starting modestly, Power Grid has expanded significantly, ensuring a stable supply of electricity and rewarding shareholders with substantial dividends.

The company plans to invest heavily in expanding its transmission network, focusing on connecting renewable energy sources and enhancing grid stability. With significant investments planned in EV charging infrastructure and renewable energy projects, Power Grid aims to meet India’s growing power demand. Its stock currently has a PE ratio of 17.1 and a PB ratio of 3.2.

4. Hindalco

Hindalco Industries, part of the Aditya Birla Group, is a leading player in aluminium and copper manufacturing. As the world’s largest aluminium rolling and recycling company, Hindalco serves diverse industries, including automotive and construction. The company is also investing in the EV ecosystem, with plans to set up a battery aluminium foil plant in Odisha and partnerships to supply battery-grade aluminium foils.

Hindalco’s focus on downstream expansions and value-added products aims to enhance profitability and mitigate price fluctuations. The company also expects to maintain positive momentum in its copper business. Currently, Hindalco’s stock has a PE ratio of 15.3 and a PB ratio of 1.4.

5. Tata Motors

Tata Motors, the automobile arm of the Tata Group, is a leader in India’s commercial vehicle segment and a pioneer in the domestic electric vehicle (EV) market. With popular EV models like Tata Punch, Nexon, Tiago, and Tigor, Tata Motors plans to aggressively grow its EV business, aiming to launch ten new EVs by 2026.

The expansion of Its Sanand plant in Gujarat to include a lithium-ion battery production facility is part of its strategy to boost EV production. Tata Motors is also developing its own EV charging infrastructure to support this growth. Its stock currently has a PE ratio of 9.9 and a PB ratio of 3.6.

In Conclusion, In the wake of the elections, these undervalued bluechip stocks offer solid investment opportunities. Their strong financial health, consistent performance, and strategic growth plans make them reliable choices for long-term wealth generation. By investing in these stocks, investors can potentially reap significant rewards while mitigating risks associated with market volatility.