Shilpi engaged in the business of the manufacturing cables for various applications used in the Telecom Sector,
Automobiles and Consumer durables sectors and the also trades in cable accessories including various types of cables and their accessories widely used in automotive, telecom infrastructure, instrumentation etc. and also deals in manufacturing various copper conductors.

The company is one of the leading manufacturers of RF cables in the country and they are actively promoting aluminum-based RF coaxial cables. Besides it is cost-efficient compared to copper cables while at the same time, the technical parameters are comparable to any other copper cable. 

Shilpi does business mainly in the following sectors:

RF CABLE MARKET
As a consequence of an explosion of mobile device usage, subscribers expect more services, data, capacity and speedier networks – whether they’re outside or inside. 

As a result, addressing the coverage, quality and capacity requirements of In Building users is mandatory. Thus IBS is going
to be critical in the coming months especially with the launch of LTE/4G services. IBS providers mainly use ½” and 7/8” RF
cable along with related accessories . Thus there will be a large requirement for these this type of cable in the coming months

AUTOMOTIVE SEGMENT
The automotive industry in India is one of the largest in the world and one of the fastest growing globally. India’s passenger car and commercial vehicle manufacturing industry is the sixth largest in the world. According to recent reports, India is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world.

BUNCHED COPPER WIRE
The totalrequirements of bare copper wire/bunched copper wire is around 6 lakh M.T. per annum. Out of which,the organized sector requirement is around 3.5 Lakh M.T. and the unorganized sector accounts for around 2.5 Lakh M.T

WHITE GOODS INDUSTRY
The white goods industry plays a key role in Electrical appliances such as Washing machines, refrigerators, Microwave ovens, ironing machines and even air conditioners are considered as white goods. Shilpi believes there is a business potential of around Rs. 800~1000 crs for wire and cable industry in India in this segment.

The industry is very competitive and there is also a foreign exchange risk, as the company exports some of it's products and doesn't hedge the transactions. Let's look at financials:

The company is growing at an incredible pace, with sales rising 83% and profits 72%. Operating margins have decreased but, but net margin ticked up a bit. While profits went up almost tenfold, EPS increased only six times from 4.43 to 24.89 Rs. (58% growth YoY). This is due the increase in shares outstanding by 50% in 2012, in the recent year, this has decreased to only 7%. There haven't been any insider purchases recently.
Valuation

The most interesting about the company is it's valuation. Assuming 25% profit growth for the next 5 years, then 12.5% for years 5-10 and 2% terminal growth rate, I get the following value:

Even with a 20% discount rates and conservative growth estimates (the company grew 80% this year), Shilpi Cable Technologies looks significantly undervalued, with a potential of at least 140%. If it can grow at least 25% for the next few years, the stock could be multibagger. As you can see the stock increased sharply from 20 Rs. to 60 (market cap 310 Rs.Cr.). but I still think it's undervalued and might go higher.

I think there is no need to introduce Facebook. It is the largest social network in the world, with more than 1 billion active monthly users. Facebook, Inc. was founded in 2004 by Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes and is headquartered in Menlo Park, California. On Facebook, users can post statuses, add friends, send messages, join groups, like posts or pages, play games and all other social stuff.

FB started with a bad IPO, after which the stock dropped almost 50%. However Facebook shares recovered and have been reaching all-time highs ever since.

Revenues have grown almost 10-fold in the past 5 years, while profits increased by 700%. Net income margin has gone down, but on the positive side, free cash flow shot up. For 2015, analyst are estimating EPS growth of 30% to 1.56 USD per share. For the next 5 years, Wall Street expects growth of 37%.

EPS estimates

Valuation

If I take the growth that analysts are expecting for the next 5 years, then take half of that for years 5-10 (18.5%) and assume a 2% discount rate, the Facebook's stock value is as follows:

Even after optimistic assumptions, FB stock doesn't offer that much upside. Of course a DCF valuation is only a rough guide, if Facebook can grow faster than everybody expects it's value is much higher. Compared to similar companies, only Twitter grew faster, Facebook is selling for P/S ratio of almost 20 and a 2015 forward P/E of 37.3.

So to summarize, Facebook looks reasonably valued at current levels and doesn't offer so much upside. Furthermore, the stock is sold heavily by insiders (almost 1 million shares in July alone) and the last buy was in August of 2012. It's a good company but I do not like the stock at these levels, so I decided not to buy it.

Michael Kors is  global luxury lifestyle brand led by a renowned and award-winning designer Michael Kors. The company has successfully expanded beyond apparel into accessories (including handbags, small leather goods, eyewear, jewelry and watches) and footwear, with a presence in 74 countries.

The company's sales and profits shot up like a rocket along with rising margins. In the recent year, they posted 51% growth in sales and a 66% rise in profits. The stock currently holds a Zacks Rank 2, and is known for positive earnings surprises. EPS estimates have increased from 3.82 90 days ago to 3.92 now. Analysts are predicting 24% EPS growth for the next 5 years.

Valuation

Using the 24% growth rate for valuation, with 12% for years 5-10, I arrived at the following value:

KORS appears to be reasonably valued at current levels. If it can achieve higher growth rates, it's definitely worth more, but I think it can't expand margins that much, so most of it will have to come from rising sales. Investors like Stephen Mandel and Joel Greenblatt still hold the stock. However, I am selling it today because KORS has broken several technical levels on the way down, and I never hold declining momentum stocks. If it resumes it's uptrend, I might be a buyer again, but right now I'm out.

I have created a three-stage DCF model to value more than 500 Indian stocks. The valuation was done with the following assumptions:

- Growth for the next 5 years - Half of the past 5-year profit or sales growth (whichever is lower)
- Growth for the years 5-10 - Half of the above mentioned rate
- Terminal growth rate of 2%
- Discount rates of 10%, 12%, 14% (for smaller companies it's best to use 14%, for larger ones use 10-12%)
- profit for the last 12 months

FULL LIST OF 540 UNDERVALUED / OVERVALUED INDIAN STOCKS

Valuing so many stocks is a challenge, given that each one has unique fundamentals and expected growth. I just did a calculation of what are the companies worth, if they can maintain only half of their past growth in the future. DCF models work only with companies which have stable cash flow and are usually in a mature phase. Companies with negative earnings were omitted. Some values might be unreliable, if there is a big difference in expected growth rates in the past and analyst projections for the future.

Here are some notable examples (using discount rates of 10%, 12%, 14%), a negative value means a stock is overvalued, positive is undervalued:
Name                                                                        Market cap (Rs.Cr.)      10%                    12%                         14%

I don't think I need to introduce Apple, it's one the most famous brands in the world. It produces iPads, iPods, Mac computers and of course the iPhone. It was founded in 1976 by Steve Jobs,  Steve Wozniak and Ronald Wayne. The company almost went bankrupt after the burst of the dotcom bubble in 2000s. With the introduction of iPhone, Apple quickly rebounded and became the giant it is today.

Valuation
I have done a three stage DCF valuation with these assumptions:
- 12% profit growth for the next 5 years, 6% for years 5-10 and 2% thereafter
- using the Capital asset pricing model, I arrived at a discount rate of 8.2%

As you can see, Apple is still undervalued with current growth assumptions. Even more so, if it comes up with a new blockbuster products. I believe I used conservative estimates to derive AAPL value, and there is still at least a 31% margin of safety. Hedge funds obviously realize this, and investors like Carl Icahn, Joel Greenblatt, David Einhorn and Daniel Loeb hold large positions in the stock.

Amara Raja Batteries Limited (ARBL) is the technology leader and one of the largest manufacturers of lead acid batteries for both industrial and automotive applications in the Indian storage battery industry. The company holds a dominant market share in the telecom industry, UPS sector (OEM & Replacement) and maintains a significant presene among other industry segments. Both Johnson Controls Inc. and Galla Family own stakes in the company.

Amara Raja is also a leading manufacturer of automotive batteries under the brands - Amaron® and Powerzone, which are distributed through a large pan - India sales & service retail network. The company supplies automotive batteries under OE relationships to Ashok Leyland, Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki, and Tata Motors. The company’s Industrial and Automotive batteries are exported to Asia Pacific, Africa and Middle East

Amara Raja is the second largest automotive battery manufacturer and the largest supplier of Industrial storage battery in India. It entered the automotive battery segment only in FY01 post its JV with Johnson Controls Inc (JCI, USA) when it 
introduced AMARON batteries based on Zero maintenance technology for the first time in India.

Competition

The company is growing steadily and increased revenues even during the financial crisis of 2008-2009, during which many automotive and industrial companies slump. Margins and sales growth have decreased in recent years, however the operating and net margin are slowly rebounding. This might also be a result of lower lead prices, which represent 80% of costs for Amara Raja's products.

Valuation

Using a three stage DCF model, I have derived an estimated value with these assumptions:
- Profit growth of 20% for the first 5 years, 10% for years 5-10 and 2% thereafter
- discount rates of 12,13 and 14%

At current prices (488 Rs.), Amara Raja Batteries seems to be fairly valued or slightly overvalued. The problem with valuations is, that even if you get it right, the stock might continue to much higher levels, and you can miss out on a lot of profit. That's why I will keep holding this one and sell only if it starts declining.

Kajaria Ceramics is the largest manufacturer of ceramic/vitrified tiles in India. It has an annual aggregate capacity of 46.60 mn. sq. meters, distributed across seven plants-Sikandrabad in Uttar Pradesh, Gailpur in Rajasthan, four plants in Morbi in Gujarat and one at Vijayawada in Andhra Pradesh.

Let's take a look at financials:

Using a three stage DCF model, I arrived at the following value with these assumptions:
- profit growth of 20% for the next 5 years, 15% for years 5-10 and 4% thereafter
- discount rates of 11%, 13%, 15% using the Capital asset pricing model (CAPM)

Even after assuming a very optmistic growth of 20% and 15%, Kajaria Ceramics is not worth more than 4000 Rs.Cr. according to my DCF valuation. That implies a downside of at least 10% for the stock. The company is executing and growing well, but at these levels, the margin of safety is nonexistent and buying this stock would present an unfavorable risk/reward ratio. That doesn't mean it can't go a bit higher though. DCF valuation is only a rough metric and Mr. Market can carry stocks far beyond their reasonable values.

Looking at some of it's competitors (indirect or direct), Kajaria Ceramics is valued around the average, with slightly higher profit,sales growth and ROE.

It is a good business with a leading position in India, however I'm not a buyer at these levels. I will rather sit and wait till a more favorable opportunity appears.

I have created a three-stage DCF model to value more than 3000 stocks. The valuation was done with the following assumptions:

- Growth for the first 5 years - The lower of estimated  5-year growth rate or past 5-year sales growth rate
- Growth for the next 5 years - Half of the above mentioned rate
- Terminal growth rate of 2%
- Discount rates of 8%, 10%, 12%, 14%

The DCF valuation model is only feasible for companies with at least slightly predictable cash flow, it doesn't work  well in cyclical or biotechnology sectors, or for companies undergoing rapid change. As estimating a discount rate for each company is more art than science, I have used several discount rates to show potential undervaluation/overvaluation. Only companies with a profit this year, or estimated profit next year were valued. As I used a general formula for all stocks, there might be some extremes due to their growth rates/estimated profits.

DOWNLOAD THE VALUATION OF MORE THAN 3000 STOCKS

Below are some notable examples with upside/downside based on various discount rates (8,10,12,14):

Joel Greenblatt the famous investor outlined in his book "The little book that beats the market" a simple yet powerful concept: Buying cheap stocks with high returns on equity. According to Greenblatt, if you followed this strategy and rebalanced the portfolio every year, your returns would be more than double the market averages. I have screened for Hong Kong stocks with a market cap of at least 1 billion USD, P/E < 11 and ROE > 20%. Here is the full list:

10. Huabao International Holdings Ltd

Market cap: 1.2 billion USD
Industry: Chemical Manufacturing
P/E: 8.16
ROE: 24.77%
Dividend: 3.69%

9. Guangzhou R&F Properties Co Ltd

Market cap: 2.5 billion USD
Industry: Construction Services
P/E: 3.5
ROE: 25.6%
Dividend: 7.3%

8. Luk Fook Holdings International Ltd

Market cap: 1.06 billion USD
Industry: Retail (Specialty)
P/E: 7.5
ROE: 26.5%
Dividend: 5.3%

7. Hang Seng Bank Ltd

Market cap: 18.5 billion USD
Industry: S&Ls/Savings Banks
P/E: 9.2
ROE: 26%
Dividend: 4.2%

6. Truly International Holdings Ltd

Market cap: 1 billion USD
Industry:  Electronic Instr. & Controls
P/E: 8.1
ROE: 27.4%
Dividend: 4%

5. Sunac China Holdings Ltd

Market cap: 1.2 billion USD
Industry: Construction Services
P/E: 4.25
ROE: 27.5%
Dividend: 6.7%

4. Xinyi Glass Holdings Ltd

Market cap: 1.4 billion USD
Industry: Constr. - Supplies & Fixtures 
P/E: 6
ROE: 29%
Dividend: 5.5%

3. COFCO Land Holdings Ltd

Market cap: 1.3 billion USD
Industry: Real Estate Operations
P/E: 4.9
ROE: 30%
Dividend: 0%

2. Great Wall Motor Co Ltd

Market cap: 7.7 billion USD
Industry: Auto & Truck Manufacturers
P/E: 8.7
ROE: 31%
Dividend: 5.7%

1. Hisense Kelon Electrical Holdings Co Ltd

Market cap: 1.07 billion USD
Industry: Appliance & Tool
P/E: 10.3
ROE: 61%
Dividend: 0%

I have created a proprietary screening system for stocks. I rank them based on insider buying, growth, valuation and momentum. Even though these are my top picks, I do further research to filter them out. And remember, always use a stop loss with momentum stocks.

Price to sales ratios are one of the best indicators to use, when looking for undervalued stocks. Sales are more stable than earnings, and you can actually find interesting businesses that are maybe currently losing money but undergoing restructuring. This is a lost of stocks with the lowest price to sales ratios right now (market cap > $2 billion): 

10. Sinopec

Sinopec Shanghai Petrochemical Company Limited, together with its subsidiaries, operates as a refining-chemical integrated petrochemical company primarily in the People's Republic of China. It operates in five segments: Synthetic Fibres, Resins and Plastics, Intermediate Petrochemicals, Petroleum Products, and Trading of Petrochemical Products.

Market cap: $4930 million
Price to Sales: 0.17
P/B: 1.13
Forward P/E: 8
Dividend yield: 1%
ROE: 13.3%
ROA: 6.2%
5-year sales growth: 12.2%
Short float: 0%

9. AmerisourceBergen Corporation

AmerisourceBergen Corporation sources and distributes pharmaceutical products to healthcare providers, pharmaceutical and biotech manufacturers, and specialty drug patients in the United States and internationally. 

Market cap: $16418 million
Price to Sales: 0.16
P/B: 7.8
Forward P/E: 17
Dividend yield: 1.3%
ROE: 19.3%
ROA: 2.3%
5-year sales growth: 4.6%
Short float: 3%

10. Royal Dutch Shell

Shell is a multinational oil&gas company headquartered in the Netherlands and incorporated in the United Kingdom. Created by the merger of Royal Dutch Petroleum and UK-based Shell Transport & Trading, it is the second largest company in the world, in terms of revenue and one of the six oil and gas "supermajors".

Market cap: £62,035 million
Price to book: 0.58
P/S: 0.23
P/E: 16.2
Dividend yield: 4.17%
Revenue growth: -3.4%

9. Kazakhmys

Kazakhmys Plc is a UK-registered copper mining company whose main assets are located in Kazakhstan.

Market cap: £1,352 million
Price to book: 0.55
P/S: 0.75
P/E: 129
Dividend yield: 0%
Revenue growth: -7.58%

Here is a list of good undervalued stocks with P/B ratios below 1 and market cap higher than 1000 crore:

10. Shipping Corporation of India Ltd.

The Shipping Corporation of India was established on October 2nd, 1961, by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation. As the country’s premier shipping line, the SCI owns and operates around one-third of the Indian tonnage, and has operating interests in practically all areas of the shipping business; servicing both national and international trades.

Market cap: 1127 Rs.Cr.
Price to book: 0.44
Price to sales: 0.22
P/E: 17
Dividend yield: 1.8%
Sales growth: 7.4%

9. Ballarpur Industries Ltd.

Bilt Paper B.V. is India’s and Malaysia’s largest manufacturer of Writing and Printing (W&P) paper. Company’s step down subsidiaries includes, BILT Graphic Paper Products Limited (BGPPL), India’s largest writing and printing paper manufacturer and Sabah Forest Industries (SFI), Malaysia’s largest pulp and paper company.

Market cap: 1127 Rs.Cr.
Price to book: 0.44
Price to sales: 0.22
P/E: 17
Dividend yield: 1.8%
Sales growth: 7.4%

In December of 2013, I looked at the 30 best stocks of the year to see what they had in common. I was pretty curious how they have done since the start of the year, because I am an advocate of momentum investing. The results don't look good, their performance as a group has lagged the index for in 2014:

Baidu is the leading Chinese language internet search provider, through it's website Baidu.com. It is the largest website in China and fifth largest globally. The company captures 81.6% of internet search traffic in China and was voted number one out of the BrandZ top 50 most valuable Chinese brands. BIDU is basically a Chinese version of Google and a very successful one. It was founded in 2000 by Robin Li, now the wealthiest businessman in China. He used to work for Dow Jones & Company, where he developed search engine ranking algorithms (he received a U.S. patent for them), which served as a basis for Baidu.

The company makes money by selling advertising space to businesses and websites. The process is the same as with google: an advertiser bids for a certain keyword or ad space, and when a user searches for it, it gets displayed either at the top of the results or on a website the user visits. In addition to search, Baidu offers a range of other online products including: social-networking, UGC-based knowledge products, location-based products and services, entertainment, security products, mobile related products and services and specialized products and services for developers and webmasters.

China has in internet population of 600 million, and mobile internet population of 500 million. But with less then half the country connected, the penetration is far below developed countries. Baidu's video site Iqiyi already became number one, overtaking it's major rival Youku. The company also owns Qunar (QUNR) a major travel website and Nuomi, an online marketplace for entertainment, dining and health products. They also bought one of China's largest mobile game and app distribution companies, 91 Wireless.

Let's take a look at BIDU's financials: