As an investor, you are often encouraged to focus on long-term stock investments to capitalise on the power of compounding. While compounding is important, choosing fundamentally sound stocks is another aspect you must focus on when investing.
Fundamentally strong companies aim to grow their profits and look for ways to enhance their earnings. The strategic decisions and actions companies take to shape their growth trajectory and sets them apart from the rest.
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​​​​​​​As an investor, you must understand a company’s business model and maintain a broad perspective on various factors like government policies and market dynamics. Finding such companies can be challenging from a pool of approximately 1600 companies; therefore, you can start by analysing industry trends.
If an industry has a positive outlook, a well-positioned company with strong fundamentals in that sector is also likely to prosper. Such companies continue to expand based on their operational efficiency and profitability as the market environment supports their growth.
In this blog, we will discuss the top 5 companies that are performing well in their respective sectors and are likely to grow in the future.
Indian Oil Corporation Ltd
Indian Oil Corporation Ltd is a distinguished Maharatna enterprise under the Government of India. It operates across the hydrocarbon value chain with activities such as refining, pipeline transport, and the marketing of petroleum products. It holds a dominant position in India's oil refining and petroleum marketing sectors.
Infosys Ltd
Infosys Ltd is at the forefront of offering consulting, technology, outsourcing, and cutting-edge digital services. It is India's second-largest IT company, just behind TCS. The technology sector is not going to slow down in the future, and Infosys is well positioned to help companies transform digitally.
Tata Consultancy Services Ltd
Tata Consultancy Services is an entity of the Tata conglomerate that specialises in IT services, consulting, and business solutions. For over five decades, it has supported numerous global corporations in their transformation endeavours.
TCS delivers consulting prowess with cognitive and engineering solutions and is noted for its minimal debt levels.
HDFC Bank Ltd
HDFC Bank Ltd was established in 1994 and is a leading banking and financial services entity headquartered in Mumbai. As India's largest private sector bank, HDFC Bank has had a profit growth rate of 19.9% CAGR over the last five years and a steady dividend payout of 19.0%.
Hindustan Unilever Ltd
Hindustan Unilever operates in the fast-moving consumer goods (FMCG) sector, with a portfolio that spans home care, beauty and personal care, and foods and refreshments. The company has manufacturing units nationwide and markets its products across India.
How to pick these fundamentally strong companies that are evergreen?
Choosing fundamentally strong companies involves deeply analysing the industry and the specific company. Industries are composed of companies with similar business interests.
After deciding on an industry, focus on understanding what the company does, its business model, products, services, and revenue streams. This involves qualitative analysis through the company's website and annual reports.
Next is financial health. This requires reviewing the company’s balance sheet, profit and loss account, and cash flow statements over at least the last five years. Look for trends in revenue, net profit, operating expenses, and cash flow to understand the company's financial position and growth prospects.
You must also examine the management team more closely. Evaluate the team's experience and decisions, as their actions directly impact the company's success.
When considering a long-term investment, ensure the company’s offerings remain relevant. Compare the company with its peers to understand its performance, competitive edge, and upcoming projects. Stay updated with the latest company news, as it impacts stock prices from time to time.
Conclusion
In conclusion, navigating the vast ocean of investment opportunities to pinpoint fundamentally strong companies requires diligence, patience, and a systematic approach. Remember, successful investing is about picking winners and understanding why they win.
You can further study each of the companies mentioned earlier in more depth to understand their business fully and then invest in those companies to earn good returns.
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