Cyclical companies are those that offer goods and services that are luxuries, instead of absolute necessities, such as entertainment and gambling. Gitanjali Gems and Lahoti Overseas are cyclical stocks on my list that are potentially undervalued, which means their current share prices are trading well-below what the companies are actually worth. Smart investors can make money from this discrepancy by buying these shares, because they believe the current market prices will eventually move towards their true value. And those that want more exposure to the economic cycle should consider the following list of potentially undervalued cyclical stocks.
Gitanjali Gems Limited (BSE:532715)
Gitanjali Gems Limited engages in the business of manufacturing, trading, importing, and exporting diamond cutting and polishing, diamond studded jewelry, and plain gold jewelry in India, the United States, the United Kingdom, Belgium, Italy, Singapore, Japan, the Middle East, and China. Established in 1966, and now run by Mehul Choksi, the company size now stands at 6,400 people and with the stock’s market cap sitting at INR ₹501.75M, it comes under the small-cap category.
532715’s shares are currently trading at -83% less than its actual level of INR25.39, at a price of ₹4.23, based on my discounted cash flow model. This mismatch signals an opportunity to buy 532715 shares at a discount. Additionally, 532715’s PE ratio stands at 0.25x against its its Luxury peer level of, 17.12x suggesting that relative to its comparable company group, 532715 can be bought at a cheaper price right now. 532715 is also in great financial shape, with current assets covering liabilities in the near term and over the long run. It’s debt-to-equity ratio of 112.22% has been falling for the last couple of years showing 532715’s capacity to pay down its debt. More on Gitanjali Gems here.
Lahoti Overseas Limited (BSE:531842)
Lahoti Overseas Limited, together with its subsidiaries, engages in the export trading of cotton yarns and fabrics. Lahoti Overseas was established in 1990 and has a market cap of INR ₹555.72M, putting it in the small-cap category.
531842’s shares are now hovering at around -52% lower than its true value of INR40.02, at a price of ₹19.05, according to my discounted cash flow model. The discrepancy signals an opportunity to buy low. Also, 531842’s PE ratio stands at 5.04x relative to its Retail Distributors peer level of, 60.64x meaning that relative to its competitors, you can buy 531842’s shares at a cheaper price. 531842 also has a healthy balance sheet, with current assets covering liabilities in the near term and over the long run.