These stocks are still value buys despite the run-up in market indices

The Indian stock market indices have bounced back from the lows during the last two months and are now just 2-3% below their all-time peak tested last October.

In a bull market, it’s easy to be swayed by a herd mentality to look for growth stocks. But as concerns of valuations in the market grow, investors start looking at alternative investment themes such as value investing.

On the flip side, when the markets are flush with liquidity, it is still important to identify value stocks, which refers to shares of firms that appear to trade at a price below what is suggested by its fundamentals, such as earnings, revenues and dividends.

One way to gauge a set of such companies is to scan them through the lens of the Piotroski score, named after Chicago accounting professor Joseph Piotroski, who created the scale. The parameter covers aspects of profitability; leverage, liquidity and source of funds besides operating efficiency.

Companies are awarded scores for sub-parameters under each of these three broad heads including one point each for positive net income, positive return on assets (ROA), positive operating cash flow and cash flow from operations being greater than net income.

It also captures lower amount of long-term debt in the current period, compared to the previous year and similarly higher current ratio this year and whether or not any new shares were issued in the last year to get a picture of dilution.

The score also picks one point each for a higher gross margin and higher asset turnover ratio compared to the previous year.

In total, stocks are weighed on these nine sub-metrics with higher score making it a more attractive value stock.

Typically, stocks with scores of 8-9 are considered the most lucrative from a value investing theme.

Based on this criterion, we get a list of 39 stocks that score high on the Piotroski’s scale currently. This is nearly a third less than the 58 stocks that appeared under-priced a couple of months back.

This set incudes names like ABB India, Allcargo Logistics, Ambuja Cements, Bharat Dynamics, Brigade Enterprises, Century Plyboards, Container Corporation, GAIL, GIC, GMM Pfaudler, Godfrey Phillips, Hindustan Zinc, Indoco Remedies, IRB Infrastructure, JSPL and JK Paper.

Others in the group include, Minda Corp, Narayana Hrudayalaya, NBCC, Network 18 Media, NLC, Oil India, Phoenix Mills, PI Industries, Rain Industries, Shipping Corporation, Sobha, Suven Pharma, Tata Consumer, TV18, Uflex, United Breweries, Welspun India and Zee Entertainment.

Some of the stocks that had slipped out of the pack recently include Vedanta and SAIL.

Out of these, five names ABB India, Asahi India Glass, Bharat Dynamics, Century Plyboards, General Insurance Co, Gujarat Narmada Valley and Hindustan Zinc, were pitched right at the top with a score of 9 on the Piotroski scale. Two months back, just one ABB India was at the top.