Identifying the Safest Stocks for Investment in 2023
Investing in stocks always carries inherent risks, but some stocks offer relatively safer returns. This article aims to help investors identify the safest stocks suitable for long-term investments, ensuring a more secure portfolio in volatile market conditions. We will discuss key benchmarks and specific stocks to consider.
Understanding Investment Risks
As Warren Buffet famously said, 'You never wanna lose money. Always have rule number one in mind.' Investing in stocks, while often rewarding, involves risks that differ from one stock to another. The theses risks depend on market conditions, company performance, and external factors. However, some stocks are significantly less risky than others based on specific criteria.
Benchmarks for Identifying Safe Stocks
When it comes to identifying the safest stocks, four key benchmarks stand out:
1. Steady Growing Revenue
Companies that show steady revenue growth over multiple years are less likely to experience severe price volatility. Erratic revenue often correlates with erratic stock prices, while consistent revenue indicates a more stable situation.
2. Lack of Cyclicality
Cyclicality refers to a company's economic sensitivity. Cyclically sensitive industries like the auto sector may perform well during economic expansions but struggle during recessions. In contrast, utilities, which people need regardless of economic conditions, are less cyclical.
3. Dividend Growth
A history of steady or growing dividends can be a strong indicator of a company's long-term stability. A Dividend Aristocrat is a company that has raised its dividend for at least 25 consecutive years, making it a good candidate for long-term investments.
4. Durable Competitive Advantages
Companies with durable competitive advantages tend to maintain or expand their market share over time. These advantages can come in various forms, such as brand recognition, cost advantages, or high barriers to entry. Identifying such companies can help secure long-term returns.
Safe Stocks for Long-Term Investment
Based on the benchmarks outlined above, here are some specific stocks that stand out as relatively safe options:
1. IRCTC
IRCTC, a railway sector monopoly, has delivered consistent profit growth of 32.30% CAGR over the past five years. With a good return on equity (ROE) track record of 33.62% over three years and maintaining a 52.41% dividend payout, it is a strong candidate for long-term investments.
2. SBI Cards
SBI Cards, a leader in the card sector, boasts a zero promoter pledge, with institutions increasing their shareholdings. Traded at 14.92 times its book value, this company is well-positioned for growth. The steady revenue and leading market share in the Indian card market make it a safe investment.
3. DMart
DMart, a leading supermarket chain in India, has a strong cash-generating ability and improved cash flow from operations for the past two years. With an increasing book value per share and no promoter pledge, it is one of the best options for safe, long-term investments.
4. HDFC Asset Management Company (AMC)
HDFC AMC, a major asset management company, has consistently grown its earnings and assets under management (AUM) by a CAGR of 44% over the past decade. With a 33.15% ROE track record and a 52.21% dividend payout, it is a strong contender for long-term investments.
5. Adani Total Gas
Adani Total Gas, a leading gas production company, has shown robust profit growth and a 28.78% ROE track record over the last three years. However, the company has struggled with sales growth, making it a higher-risk option compared to others on this list.
6. Bandhan Bank
Bandhan Bank, the largest Microfinance Institution (MFI) in India, has demonstrated a consistent growth in balance sheet and earnings. With an AUM growth rate of 44% CAGR over the past decade, it is a strong option for long-term investors.
7. Infosys
Infosys, known for its strong performance history, has shown consistent and trend-setting growth, especially during low-interest-rate environments. With a high market capitalization and a 2.0242 dividend yield, it is a solid choice for long-term investments.
8. Deepak Nitrite
Deepak Nitrite, a leading player in the chemicals sector, has recently broken out and hit a new high price. The company has a market capitalization of Rs 22.325 billion and a net profit of Rs 1,239.57 crore, up 25.08% from the previous quarter. This makes it a potentially safe, albeit higher-risk, investment option.
It is important to note that while these stocks meet the benchmarks for safe investments, thorough research is necessary before investing. These stocks have been selected after considering factors such as debt-to-equity ratios, dividend yields, and earnings per share. Always conduct your own research and make informed decisions.
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Conclusion
Identifying the safest stocks for long-term investment involves careful analysis and adherence to key benchmarks. By focusing on companies with steady revenue growth, a lack of cyclicality, strong dividend history, and durable competitive advantages, investors can build a more secure portfolio. Always do your own due diligence before making any investment decisions.