News

Finding companies that are both highly profitable and undervalued is the “holy grail” of value investing. One key measure of profitability is Return on Equity (ROE), which shows how efficiently a company uses shareholders’ money to generate profits.

In 2026, with valuations stretched in many sectors, looking for stocks with strong ROE and attractive prices can help investors target both growth and safety.

We screened for companies with ROE around 20% or more and price-to-earnings ratios near 10. Here are three that stand out. This article is not a stock recommendation.

Coal India produces over 80% of India’s coal and ranks as the world’s largest coal miner. Investors have long favoured it for its attractive dividend yield. The stock trades at a price-to-earnings ratio of 9.1, with a strong ROE of 35.6%.

Looking ahead, Coal India targets 1.23 billion tonnes by FY2035, projecting 8% annual growth from FY2025. Priority access to railway infrastructure and expedited project clearances support operational efficiency.

The company is diversifying into coal gas, coal bed methane, and renewable energy, aligning with emerging policy incentives. Joint ventures in coking coal washeries aim to support domestic steel manufacturers. Operational improvements, ranging from digital mine management to productivity and environmental measures, complement these long-term initiatives.

India’s largest iron ore producer, NMDC is a state-owned enterprise under the Ministry of Steel. With an ROE of 22% and a price-to-book of 2, the company is known for strong dividend yields.

NMDC plans to double production to 100 million tonnes by 2030, up from 45 million tonnes in 2023-24. Expansion efforts include slurry pipelines, beneficiation and pellet plants, and its Nagarnar steel plant through subsidiary NMDC Steel.

The company is also exploring international mining opportunities – coking coal, lithium, copper – to diversify revenue and reduce reliance on iron ore. If executed successfully, NMDC’s ramp-up could significantly boost production, revenues, and market influence by 2030.

Founded in 1935, Bank of Maharashtra has evolved from a regional lender into a nationwide public sector bank. It had a strong ROE of 19.3% and a capital adequacy ratio of 20.5%, with a net NPA of just 0.15% as of Q3FY26, one of the cleanest balance sheets in Indian banking.

Q3FY26 results exceeded guidance, with total business up 17.24% year-on-year. The bank is expanding rapidly, aiming to open 1,000 branches over five years. Its Project 321 initiative targets 321 new branches in the next 18 months. Retail, agriculture, and MSME (RAM) lending form over 62% of its domestic credit portfolio. With improving metrics and a growing footprint, the bank is well-positioned to ride India’s economic growth.

High ROE plus low valuation can signal a productive company trading at a discount. But caution is essential. High ROE may be artificially inflated by debt, and undervaluation can reflect permanent industry decline or shifts in consumer behaviour.

The key is ensuring the company has a durable competitive advantage to protect margins. Only then is an undervalued, high-ROE stock a true opportunity rather than a value trap.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

Download the Mint app and read premium stories