Shd you buy a Stock trading at lower than Book Value?

Most of the Banking stocks are trading at 1/3rd their book value. Although there is a problem of NPA's in Banks - but 1/3rd price is too much...

What are your views on this?

 

My view is
anyone who takes the so called "book value" of non-performing banks seriously, is an idiot

 

lol....

So you mean that we shd scrap off 100% of the book value

 

no.. contrary to that - I am saying add 2/3 to 1/3 for true book value

 

PSU Banks are dangerous stocks better to be with good private like DHFL, CAPF, Bajaj Finance, CUB etc because even though valuation are high safety of stock is there IMHO.

 

@Srouta Mukherjee , do you think a correction is round the corner? So say, if Nifty dips below 8000, what kind of a correction do you see from current levels in both (i) high safety stocks you list and (ii) the dangerous public sector banks

 

If correction comes all stocks go down but recovery is faster in stocks with high ROE and solid growth potential because business model in proven. In PSU Bank risk is there may be collapse and confidence is not there in investors to buy if stock price sinks. So from long term aspect better to stick to private stocks with good ROE IMHO.

 

@Srouta Mukherjee ji, My question was slightly different - I asked you - in the event of a big correction, to what extent would the two types correct downward? will dangerous PSU banks correct (downwards) more than the high safety stocks you list.

Further, do you really believe that PSU banks will collapse? Pretty outrageous I would say given that the Government will not let this happen

I think in hindsight, everybody (who has not buying into PSU Banks in their troubled stocks) will be saying they should have. How true is the Mark Twain quote by @BombayBoy in another post.

And so I continue to embark on a creeping acquisition of some PSU Banks and wait for corrections to buy into some of the high quality richly priced scrips you mention.

 

How true is it?

I just feel there are better stocks

I dont think anyone thinks PSU banks will collapse. It won't! But that doesnt mean they are great to invest in. I think @Srouta Mukherjee is saying there are better stocks to put your money in.

 

Will leave that to you to find out for yourself.....when in times to come if you will be more disappointed by the things that you didn’t do than by the ones you did do

 

I know PSU Banks will not collapse but our respected @Srouta Mukherjee mentions this explicitly.

I also know that there are better stocks in the current time-zone. Interesting will be how the future time zone plays out. There is a lot of talk of 10x, 100x multibaggers in 10-15 yrs in here by many. SBI vs Bajaj or CAPF or DHFL over this time frame will certainly have me glued on.

 

That feeling is inevitable since most of us look at so many stocks. Misses hurt!

 

My views

1. If there is a correction, everything will fall including PSU Bank Stocks
2. Sometimes, it does make sense to buy troubled stocks and make a fortune. However, there is a high element of risk involved. Remember: Higher the risk, higher the return.

PS: You have a strong point that there is a high probability that Indian Govt will not let any bank fail.

 

good Book value is not eveything. if you think PSU banks can do better business than their private peers then it is your choice. among psu banks SBI is best according to me..