BHEL, Bharti, Grasim the most preferred stocks: ML

Merrill Lynch recently came out with a report wherein thee have updated their most and least preferred stock list . 

According to the report, "In this note we update our most- and least-preferred stock list, consistent with our fundamental 12-month opinions but intended to appeal to investors with a shorter-term time horizon, with potential short-term price catalysts."

This month’s stock list:

With the monsoon season at an end, we expect cement producers to hike prices, especially since no new major supply is expected till 4QFY08. Earnings of cement companies are highly sensitive to cement prices. We add Grasim, our top cement pick, to our most preferred list. We are correspondingly removing TCS where valuations are looking attractive but strong rupee poses earnings risk.

Most preferred:

BHEL: 1) We expect 30% growth in order book in FY08E led by key customers NTPC, APGenco etc 2) Potential success at super-critical tenders & gas-based projects 3) BHEL’s capacity expansion plans are running on time to meet backlog.

Bharti Airtel: 1) Continued strong subscriber growth. 2) Solid revenue growth and strong margins in FY08E despite continued competitive pressures. 3) Visibility on tower portfolio in terms of build-out & tenancy.

Grasim Industries: (1) Strong cement prices in the upcoming construction season (Oct ’07 onwards) (2) No major new supplies till 4Q FY08E (3) strong quarterly earnings

Least preferred:

Hindalco: 1) September quarter results likely to disappoint owing to lower Aluminum prices and rupee appreciation. 2) Copper smelting business sharply affected by falling TCRCs.

Tata Motors: 1) Expect volumes to decline (YoY) over the next 2 quarters. 2) Earnings will disappoint led by slowing volumes and margin contraction.

Pantaloon: 1) Same store sales growth data has been choppy in the last few months and has been slowing down; 2) Margin pressure is likely to intensify with rising salary costs and 3) likely inventory write-off in the full year results due late Sept may have implications for gross margin going forward.