The stock market is one such area of investment that involves a lot of risks but if an individual examines
all the stocks and makes the right decision, the returns will be immense and fruitful. So in this article,
we will talk about the top 5 stocks to buy for the next 5 years. I will talk about the types of stock
investing, what are the benefits of investing for the long term in the stock market, the parameters that we
have taken into account to choose the worthy stocks to invest in, and the top 5 stocks and their
description, history and other details.
As I promised let us start with the types of investing in the stock market. There are two types here, Short term and long term investing:
Short term investing:
This can range from investing for several minutes to hours, known as intraday trading to investing
for days called position trading. People who are extremely proficient in this field take the risk and
invest largely based on their technical analysis. Short-term investing is super risky and is suitable for
investors who highly focus on earning money from the stock market and have ample time and market
knowledge. Long-term investing is the best approach if one has to invest and is not in a hurry to get early gains and have long-term wealth creation. This requires a lot of patience and not take decisions if the stocks go down due to market fluctuations. There is a saying for people engaged in Long term investing - ‘buy right sit tight’. This investment approach demands a lot of patience from investors.
As I mentioned in this article we are going to talk about long-term investment so let’s talk about why is long-term investing healthy?
If you invest for a long time, your return gets compounded over time. Your returns will get manifold if you do not withdraw your returns or interest earned midway. You will compound returns on an accumulated number rather than just your principle. Even if it helps us get rid of frequent market volatility and short-term risks, we need to have immense patience and courage to stay put.
I have been a long-term investor in stocks and all the things written in this article are based on personal experience.
So now we will talk about the things to be kept in mind and how to conduct long-term investments in the stock market.
We need to do is pick a few financials, look deeply at the qualitative aspects of the respective firms like
Ethics and CSR activities
3-5 years of Historical information based on the above two points and finances.
Step 2: Filter companies, according to their market capitalizations, pick the top performers who have shown proven long-term sustainable performance.
Step 3: Conduct a detailed industry analysis to understand specific factors and risks and then invest only if you understand their business process.
Now, let us see the parameters that can be considered to make a list of deserving companies to invest in for a long period.
In this article there are three things we are considering:
1. Market capitalisation: The threshold for this should be at least more than Rs 10,000 crore.
Market cap is the value of the company in the current market. The price at which an individual can purchase all the outstanding shares of the company.
Calculation: Number of outstanding shares x cost of each share trading in the market.
The stock price is dynamic and the market cap changes frequently. Companies with higher market caps have reached that stage where they are less prone to volatility and have lower chances of bankruptcy.
Conclusion: A high market cap and low volatility ratio is an excellent measure to single out companies.
2. Operating profit margin should be more than 15%
Definition: The profits that any company earns from its core business is known as Operating Profits. For example, Asian Paints core business is manufacturing and selling paints of different shades. Other business would be considered ancillary or subsidiary. It examines the operating profit of a company to its revenue.
Calculation: Operating profit margin= operating profit/sales revenue
It is a good indicator of sustainability, efficiency, health as real value from a company is derived when it makes good businesses from its core businesses rather than from any other subsidiaries.
3. Profit growth should be more than 10% for a long term
Unlike Operating profits, net profit takes all aspects of a company into account. It also considers costs such as taxes, interest expense for an outstanding debt and reflects the real earnings of the entire business.
Let's talk about 5 majorly reliable, nonvolatile stocks.
1. Reliance Industries: RIL has been the first to achieve a new milestone in the domain of market capitalization with the first company in India to reach Rs.10 lakh crore, Rs.11 lakh crore, and Rs.12 lakh crore.
Background: This company started as a textile-based company in the 1950s and then began to diversify into multiple business categories. Currently, the company has its core business in the field of oil and gas, refining, and petrochemicals. Other subsidiaries include reliance retail, telecom, media, and many others.
Reliance Industries is one of the top stocks to buy in long term.
2. Bajaj Finance: Bajaj Finance is one of those companies that performed exceptionally especially during the lockdown. Anyone who would have invested in this stock in march 2020 would have gained double the profits by now. This stock has given phenomenal returns in the past few years.
As of January 11, the stock had over 7973% returns.
Bajaj Finance is a subsidiary of Bajaj Finserv Ltd, a financial services company definitely among the top 10 stocks to buy for the long term.
3. Bharti Airtel: The company was established in 1995. Being one of the country’s leading companies in the telecom industry and providing its prepaid, post-paid, and broadband services, it further diversified its portfolio and was the first company to set up a payments bank in India.
Lately, it overtook Jio in terms of monthly new subscribers count. Reliance Jio added 2.2 million subscribers while Bharti Airtel added 3.7 million in October last year. In the previous month as well, Airtel added 2.3 million subscribers while Jio ended up with a count of 1.46 subscribers.
Presently, Jio stands first being the highest market share company in the industry, 35.28% while Airtel is at second position with 28.68% market share.
4. FMCG group HUL / ITC:
HUL is one of the largest FMCG companies in India and so is ITC. Some of the brands under HUL are very well known like Glow & Lovely, Lifebuoy, Clinic Plus, Vim, Bru Coffee, and ITC is also diversified into categories like FMCG, IT info-tech, hotels, many others. HUL was founded in 1933 while ITC in 1910. In the past 10 years, HUL has outperformed Sensex by giving more than 680% returns as of 2021 whereas its net profit has grown at a CAGR of 10.28% in the last five financial years. ITC has also been one of the non-volatile companies with its returns at 23.73%
5. Another list of stocks to focus on for long term gains