Tuesday, 13 March 2018

Top 12 contra buys ;Best Investing Stocks Tips By TradeIndia Research - 13-03-2018


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Scouting for value stocks? Top 12 contra buys in volatile market


After the recent correction, valuations of Indian market have come down to a reasonable level which should give motivation to investors to accumulate quality stocks on declines.

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After a blockbuster 2017, profit booking and relentless selling by foreign institutional investors (FIIs) pulled the S&P BSE Sensex lower by 6 percent so far in the year 2018 as of closing price of on March 12.
There are plenty of domestic and global factors which pulled the index lower but the good news is that the bull run is intact and investors who are in the market for long innings have nothing to fear.
Investors should look at companies across market caps which have a sustainable business model and can deliver high-quality growth. Smallcaps are still a better bet than Sensex or Nifty, suggest experts.
“After speaking to the management of many companies in the last 1 month in which we have exposure suggest that FY19 numbers for most of the companies suggest earnings growth of 30-50 percent or even 150 percent which makes valuations not very demanding,” he suggests.
After the recent correction, valuations of Indian market have come down to a reasonable level which should give motivation to investors to accumulate quality stocks on declines. Investors should focus on stocks which have either corrected a lot or have huge growth potential.
Here is a list of top 13 stocks compiled from different experts which are contra buys at current levels
The home textile companies which are mainly exporters of bed linen and terry towels like Indo Count should do well in the next 2-3 years as the destocking by large retailers in the US is coming to an end and as they start restocking growth should come back. Indo Count is trading at 10x FY19E for a 10 percent RoE profile.
Cochin Shipyard has been performing poorly because of the physiological linkage to the shipping industry. It does a large amount of ship building work for the Navy and Coast Guard.
The order book is healthy providing visibility for next 4 years. If one removes the cash and other income then operational RoE goes to 25 percent compared to 11 percent reported in FY18E.
Agrochemical stocks which have corrected a lot are also contra buys. We like UPL Ltd. in this space as it is the largest player in the industry and its earnings this year is expected to be nearly 5x higher than its second largest peer, PI Industries.
The sector has companies which have a RoE profile of 20 percent and trades at ~20x one Forward PE basis. UPL for a 24 percent RoE profile and trades at 15x on Fw PE basis.
DB Corp could be a good contra play in the media space. People have a very negative sentiment towards print media companies.
The worst seems to be behind in FY18 and numbers should improve from FY19E onwards. Due to the favourable election cycle, the print advertisement should pick up in FY19. For more than 25 percent EBITDA margin, more than 20 percent RoE and a dividend yield of over 3 percent the stock trades cheap at around 13x FY19E.
Tata Motors could be a good contra play in the automobile space. Past few quarters have disappointed investors due to volatile margins and forex hedging losses. Going forward as Hedging losses unwind we expect JLR EBITDA margins to improve.
Based on the anticipated improvement in EBITDA margins and earnings the stocks look cheap. There could be a positive surprise from Indian operations, mainly CV business.
The SBI stock has corrected 21 percent from its recent high. However, the stock can be a good contrarian play as lower slippages in FY2019E over FY2018E, improving loan growth and resolutions of IBC accounts are expected to improve margins in the near term.
CASA growth has remained strong in recent quarters led by strong growth in savings accounts and this will provide some relief to incremental borrowings cost.
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
The stock underperformed the benchmark Nifty index in the last 1 year, up to a little over 13 percent. Geojit continues to remain positive on HCL on a consolidated basis driven by traction in deal wins and strength in Mode 2 & 3 services (focus on next-gen offerings).
Revenue contribution from Mode 2 & 3 services surpassed 25 percent of the total revenue and the management is eyeing to further increase the contribution from digital business to 40 percent over the next few years.
After rallying a little over 50 percent in the last one year, the stock has undergone some bit of consolidation so far in the year 2018. It rose a little over 2 percent in the same period.
AARTI Industries Ltd (ARTO) is a global leader in Benzene based derivative products. The company has a diversified product portfolio with end users in pharma, agrochemicals, specialty polymers, paints & pigments.
The stock is down nearly 6 percent so far in the year 2018 and on a 1-year basis, it slipped by nearly 1 percent. But, Geojit feels that there is tremendous potential in the business.
Torrent’s acquisition of branded formulations business of Unichem Laboratories will strengthen its presence in the domestic market with expansion in the chronic portfolio, improved market share and widen distribution networks.
Amid the ongoing troubles in the telecom sector, shares of Idea Cellular slipped a little over 27 percent so far in the year 2018 and on a 1-year basis it has fallen over 24 percent.
Idea’s focus on the Vodafone merger and accelerating synergistic benefits both in terms of operating cost and capex is expected to achieve a higher level of efficiency going ahead.
The stock has fallen over 14 percent so far in the year 2018 but it nearly doubled in the calendar year 2017. Geojit Financial Services feel that the stock is a good buy on declines.
Tata Global Beverages (TGB), an integrated natural beverage company derives ~70 percent of revenue from branded tea business and ~60 percent of the revenue comes from markets outside India.
The stock witnessed profit booking so far in the year 2018 after it rallied over 600 percent in the last one year. Investors should look at adding positions on every fall.
The company currently has a capacity of Rs80,000 whereas the domestic demand is 350000 which is being catered by only two such companies in India.
The stock has underperformed on a 1-year basis when compared to the benchmark index. It rose a little over 11 percent in the last one year. But, tracking the momentum in 2018, IT stocks are likely to pick up momentum.
FSL is into small cap IT – Software’s we have seen IT has been performing and likely to outperform. As per RRG IT sector is the only sector which is in the Trending quadrant.
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