The Hindu Business Line : Two picks for the long term

LAST week's bloodbath in the market has laid low quite a few stocks that are fundamentally sound. These are stocks that deserve superior valuations but find themselves caught in the downward current in the market. These will be amongst the first to rebound when the overall market sentiment improves. For the present though they represent a good buying opportunity for investors willing to stick it out in the medium term. We profile two such stocks here.

Tata Motors: Buy

THIS stock has shed 20 per cent value in the last three weeks and appears attractive at the current price of Rs 412. Investors can consider buying the stock from the medium term perspective. The next few sessions may present good buying opportunities if the current panic sentiment continues to hold sway over the market.

The month of April, contrary to precedent, was an exceptionally good one for the automobile industry in general and Tata Motors in particular. The company's sales shot up 71 per cent and 51 per cent in commercial vehicles and passenger cars respectively compared to April '03. Trends in the current month appear encouraging. Given these, the first quarter of the current fiscal should prove to be a good one for the company. Tata Motors is due to declare its earnings card for the fourth quarter of 2003-04 and for the entire year this week. A good earnings performance, which is strongly expected, could turn around sentiment in the stock.

Canara Bank: Buy

AT Rs 135, the stock trades at a price to earnings multiple of about 4 times its earnings per share for the period ended March 2004. The dividend yield too is attractive at about 3.7 per cent with the added possibility of significant growth in dividends over the next few years. The bank is also sitting on a pile of unrealised gains on its portfolio of Government securities.

In terms of business growth too, the bank's performance has been better than that of the industry over the past few years. The only cause for concern is in the area of non-performing assets. Canara Bank significantly added to the pile of non-performing assets in 2003-04. That problem also seems to be under control and the bank is targeting a reduction in bad loans through recoveries in the following years. The prospect of continued, better than industry business growth and lower provisions for bad loans will help it post reasonable growth in profits in the next couple of years. In this context, the valuation appears attractive.

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