Investors are always on a hunt to find stocks that could give inflation-beating returns.
Experts feel that maintaining a small portfolio of quality stocks is always an ideal choice, and dips, if any, due to either global or local factors could be used as buying opportunity in select stocks.
“We believe the ongoing correction in the market is to be used as an opportunity to take fresh positions in quality stocks with strong earnings potential, and are available at discounted multiple,” Rajeev Srivastava, Head Retail Broking, Reliance Securities told Moneycontrol.
“Going forward, we believe that with the recent stimulus measures starting to aid growth, corporate earnings will certainly start picking-up and discounted multiple of various quality mid-cap stocks will start getting re-rated,” he said.
Moneycontrol has collated a list of 10 stocks where different brokerage firms initiated their coverage in December. These could give double-digit returns in 2020. Returns are calculated based on the closing price of December 10.
Alembic Pharma: Buy| Target Rs 660| LTP: Rs 557| Upside 18%
BOBCAPS Research initiated coverage on Alembic Pharma on December 9 with a buy rating.
Alembic Pharma (ALPM) has underperformed the midcap and Sensex since 2015 due to subdued earnings. This cycle should reverse in the next 3-4 years with better yields on the US pipeline starting FY22 and higher earnings growth visibility of +20% through FY25, post full benefits of Rs 16bn in capex.
Market concerns on high US capital allocation and weak margins could drive a large earnings surprise and stock re-rating said the note. Valuations are reasonable at 9.8x FY22E EV/EBITDA (10x sector avg.).
HDFC AMC: Buy| Target: Rs 3435| LTP: Rs 2890| Upside 18%
Chinese Securities firm Haitong initiated a buy rating on HDFC AMC on December 10.
The brokerage firm is of the view that HDFC AMC is well-positioned to capture the positive changes taking place in the Indian AMC industry.
“We value HDFC AMC using a three-stage dividend discount model given its high dividend payout ratio and minimal capital requirement needs,” the note added.
It expects ROEs for HDFC AMC to be 51% by FY22 compared to 35% in FY19 owing to higher net yield and higher dividend payout ratio since the company is over capitalized currently.
Essel Propack: Buy| Target: Rs 190| LTP: Rs 150| Upside 26%
JM Financial initiated coverage on Essel Propack on December 5 with a target price of Rs 190 for a period of 12 months.
Blackstone’s recent acquisition of a majority stake (75%) in Essel Propack (ESEL) is expected to help address the key concern of inefficient capital allocation in the business.
The Board has now been entirely revamped with a clear focus on driving operational efficiencies and raising the standards of governance in the company.
The brokerage firm expects Essel to deliver earnings CAGR of 17.6 percent over FY19-22E and scale-up its ROIC to 18 percent compared to 12.2 percent at present.
Future Retail: Buy| Target: Rs 500| LTP: Rs 338| Upside 47%
HDFC Securities initiated coverage on Future Retail December 9 with a target price of Rs 500 fir an investment horizon of 1 year.
After rummaging through biz with non-core entries and exits, Future Retail finally seems to have zeroed-in focus on its core businesses - Big Bazaar/FBB (Hypermarket) and EasyDay (Convenience format).
While BB remains in steady-state; EasyDay’s path to profitability remains a key monitorable. FRL’s real money maker though is its 16mn+ sq. ft strong store network - largest in F&G which could potentially double up as a strong asset given its pan-India presence (437 cities).
Aditya Birla Fashion & Retail: Buy| Target: Rs 250| LTP: Rs 225| Upside 11%
HDFC Securities initiated coverage on Aditya Birla Fashion & Retail (ABFRL) on December 9 and kept a a target price of Rs 250 for an investment horizon of 1 year.
ABFRL is the most well-rounded play on fashion as its portfolio straddles across multiple fashion categories and income groups. It boasts of an unparalleled apparel retail footprint of ~7.5mn sq. ft (ex-Reliance Retail).
The domestic brokerage firm expects ABFRL to clock revenue/EBITDA/LTL PAT CAGR of 14/23/48% respectively over FY19-22E as both levers – operating and financial go into overdrive. Consequently, RoICs are expected to improve by 390 bps to 12.6 percent.
Kotak Mahindra Bank: Buy| Target: Rs 1950| LTP: Rs 1659| Upside 15%
BOBCAP Research initiated coverage on Kotak Mahindra Bank with a buy rating on December 6 and a target price of Rs 1,950 with an investment horizon of 1 year.
Kotak Mahindra Bank (KMB) has forged a powerful banking franchise backed by a formidable liability profile. Its cost of funds is now comparable to larger peers and serves as a strong moat that enables the bank to gain profitable market share while de-risking the balance sheet.
A calibrated growth approach alongside strong underwriting standards should keep asset quality stable and contain credit costs at 40-60bps over FY20-FY22E.
M&M: Neutral | Target: Rs 570| LTP: Rs 505| Upside 12%
HDFC Securities reinstated coverage on Mahindra & Mahindra (M&M) on December 5, and a SOTP based Sep-21 TP of Rs 570.
After outperforming the PV industry over the past decade, we expect growth rates for SUVs to converge. Further, as competition remains intense, M&M’s automotive segment margins are expected to remain under pressure.
However, the expected revival in tractor demand will partially offset the impact from the above. HDFC Securities advises investors to turn constructive on the stock after further clarity emerges on BSVI/favorable market responses to new launches.
Gujarat State Petronet: Buy| Target: 303| LTP: Rs 217| Upside 39%
Nirmal Bang Institutional Equities initiated coverage on Gujarat State Petronet with a buy rating on December 4, and a target is placed around Rs 303 with an investment horizon of about 1 year.
The buy rating is more a value theme than an earnings growth story GSPL trades at 10.4x PE on Sept 21E, compared to volume and EPS growth of around 8% each over FY20E-FY23E.
“We see potential earnings CAGR of 10%-14% over FY20-25, if we assume a step-change in volume of 25%-50% even after 5 years,” said the note.
Lemon Tree: Buy| Target: Rs 85| LTP: Rs 58| Upside 46%
IDBI Capital initiated coverage on Lemon Tree with a buy rating on December 3, and a target is placed around Rs 85 with an investment horizon of about 1 year.
The brokerage firm is of the view that Lemon Tree’s leadership in the mid-market hotel segment in the domestic market, robust pipeline of inventory addition, focus on the asset-light business model, inorganic expansion through acquisition of Keys Hotels, and 5) foray into upscale segment through Aurika brand would be key catalysts for earnings growth.
IDBI expects the company to clock net sales/EBITDA/PAT CAGR of 19.4%/22.6%/36.8% over FY19-22E. With 16 percent market share, LTH is a leader in the branded midscale domestic market.
Sudarshan Chemicals: Buy| Target: Rs 500| LTP: Rs 392| Upside 27%
IIFL Securities initiated coverage on Sudarshan Chemicals with a buy rating on December 2, and a target is placed around Rs 500 with an investment horizon of about 1 year.
The company has steadily gained market share and become the world’s 4th-largest colour pigment producer, SCIL is well-placed to continue rapid growth in the context of the imminent exit of its two largest global competitors (BASF and Clariant).
The company’s low-cost manufacturing advantage, technical capabilities, wide product portfolio, growing client relationships, and environmental compliance are its key strengths. The aggressive growth plan to drive a ~30% EPS Cagr over FY19-22.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.