In times of negative market sentiment, quality stocks can sometimes trade at a significant discount to their intrinsic value or industry peers. This creates potential opportunities for long-term investors following the principles of value investing, a strategy pioneered by economist Benjamin Graham about a century ago.
The Core Philosophy of Value Investing
Value investing focuses on identifying companies with strong fundamentals and good growth prospects that the market has temporarily undervalued. The goal is to achieve safety of principal and an adequate return. Investors often use valuation tools like the price-to-earnings (PE) ratio and price-to-book (PB) ratio to find stocks trading below their historical averages or sector benchmarks.
When a stock is cheap, it often means the market has already priced in expected bad news. This provides a margin of safety for disciplined investors. However, not every cheap stock is a good value pick. The quality of the business, its management, and corporate governance are critical factors alongside the price.
Three Undervalued Picks for the Long Term
Here are three such companies, analyzed by Equitymaster, that currently appear undervalued and merit a place on an investor's watchlist for 2026 and beyond.
1. Oil and Natural Gas Corporation (ONGC)
ONGC is India's largest oil and gas exploration and production company, holding a dominant position in the domestic energy sector. It contributes approximately 70-71% of India's domestic crude oil production and about 84% of its natural gas production.
This Maharatna public sector undertaking is vertically integrated and has an international arm, ONGC Videsh, which operates in 15 countries. Its share price has been pressured by a steady decline in global crude oil prices since mid-2022, with Brent crude down roughly 17% over the past year due to rising production and sluggish demand.
The stock's current valuations appear attractive, with a PE ratio of 6.9 and a PB ratio of 0.8. It also offers a dividend yield of 5.3%. For the future, ONGC is working to enhance output through partnerships, like its contract with BP for the Mumbai High field. It also aims to double its natural gas production over the next 5-6 years, supporting the government's goal to increase gas's share in the energy mix from 6.5% to 15%.
2. Power Finance Corporation (PFC)
Power Finance Corporation is India's largest government-owned non-banking financial company (NBFC) with Maharatna status. It specializes in financing power generation, transmission, distribution, and renewable energy projects.
The stock has faced a downtrend amid concerns over government spending in the power sector. Media reports suggest potential cuts in additional renewable energy outlays in the upcoming budget, which could challenge PFC's loan book growth.
Despite this, its valuations are low, with a PE of 3.4 and a PB of 0.9. The dividend yield stands at 4.7%. As a government-backed institution, PFC is poised to benefit from India's infrastructure push. It is prioritizing clean energy lending, aligning with national sustainability targets. A recent positive development is the Reserve Bank of India's (RBI) move to relax provisioning rules for infrastructure loans from 1 October 2025, which could free up more capital for lenders like PFC.
3. Gujarat State Fertilisers and Chemicals (GSFC)
Gujarat State Fertilisers and Chemicals is a public sector company promoted by the Gujarat government. It manufactures fertilizers and industrial products like plastics and synthetic rubbers. Fertilizers account for about 78% of its total revenue.
The company's share price has been under pressure due to challenges in its core di-ammonium phosphate (DAP) business and rising costs of raw materials like sulphur and sulphuric acid.
The stock currently trades at a PE of 10.6 and a remarkably low PB of 0.6, with a dividend yield of 2.9%. GSFC is focusing on selling more profitable products and improving capacity utilization. Its strategic investments, including in a 75-MW solar power plant with Gujarat Industries Power Company Ltd (GIPCL), aim to reduce power costs significantly. Furthermore, its urea-II revamping project is expected to cut energy costs by ₹30-35 crore annually.
Investing with Prudence and Patience
Value investing is a proven long-term strategy, but success requires thorough research. Investors must examine financial health, business quality, and governance standards before committing capital. These three stocks—ONGC, PFC, and GSFC—present interesting cases where market pessimism may have created a disconnect between price and underlying value.
As always, any investment decision should align with one's individual financial goals and risk tolerance. The current market conditions remind us of Benjamin Graham's wisdom: an investment operation, based on thorough analysis, promises safety of principal and an adequate return. Everything else is speculation.
