For an investor, its always exciting to find some deep undervaluations in market which are easy to assess and provide significant upside with minimal risk at portfolio level .
I find the below three themes very exciting at this point with potential big returns in the coming years.
Theme # 1 : China
The China story needs no introduction to any investor given the dynamics of political and regulatory environment over the past 3 years. This has resulted in severe price falls for Chinese equities . China is being termed as an “uninvestable country” and equities are priced for a bleak future. That creates a potential hunting ground with a notable good businesses trading at deep discounts .
The in-country management , who is most aware of the situation on ground meanwhile, is taking advantage of lower share prices and increasing shareholders’ ownership via buybacks .
Theme # 2 : India financials
The story on India financials (primarily NBFCs) has been even bleaker for 5+ years . Various names have been beaten down in valuations as ‘ dead businesses’ and accorded zero to insanely low multiple to book value even after accounting for significant NPA provisions and clean ups made to the Balance sheet over past five years.
While lending balance sheets can somewhat be a black box for an outsider to figure out, but one can find several names where one doesn’t need an opinion on this piece.
Market is providing opportunities to buy depressed diversified financial services businesses where one is paying nothing for the lending business and getting the big upside for free whenever the economic environment improves.
Theme # 3 : Cable industry
Cable businesses represent the third lot I find deeply undervalued. A stable predictable Free cash flow industry is undervalued on multiple concerns of competition , slowing economy, leverage and other concerns in the US and other developed geographies- people have divided opinions on whether that is justified or not.
However, if you look outside the US, one can find some names which don’t even need an opinion on such issues. Similar to better quality cable assets are trading at even deeper valuation discounts and providing opportunities to own cable businesses in various geographies of the world for free. The insider buying + stable Free Cash Flows + buybacks add juice on the top.
As is possible in this game, some of the opportunities will not turn out to be big as hoped, but as long as risk is limited and upsides on a few turn out to be multi-baggers, the returns should be satisfactory.
But there is no free lunch. These themes have already tested half a decade of investors patience and may even test more. Here the price for lunch could be further years of unrecognised valuation by Mr. Market . However, as long as business are increasing intrinsic value per share every year, its worth the wait.
Akhil D.
Disclaimer : The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and represent personal opinion. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.
None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund.