How to pick the right 'Bruised Blue Chip' for maximum gains? Motilal Oswal's four tips

In its recent Wealth Creation Study for 2024, broking house and asset management firm Motilal Oswal suggested investors buy into the 'Bruised Blue Chip' theme, by betting on large-cap stocks with a strong turnaround potential.

According to the study, a Bruised Blue Chip is a firm whose stock price, at any time over the past ten years has fallen by 50 percent or more from its 5-year high. Since blue chips are unlikely to be available at reasonable price, it gives rise to the need for  blue chips to be “bruised” as a golden entry point.

Also Read | Turnaround Tales: Motilal Oswal backs 'Bruised Blue Chips' for big returns

The key to profit from Bruised Blue Chips is to buy them close to the lows, post the bruise. Here's how you can pick the right downtrodden player and maximise your gains:

• Create a watchlist of Bruised Blue Chips
  Some Blue Chip stocks often trade far below their recent highs, making them worth tracking. Create a list of these "Bruised Blue Chips" for potential analysis and future action.


• Clearly understand the reasons for the bruising
  Understand why these stocks have fallen. The issues causing the decline need to be resolved for the stock to recover, making it crucial to analyze the reasons behind the drop.


• Await healing triggers
  Once the cause is clear, watch for signs of recovery. Key triggers include positive industry trends or significant internal changes, like new management.


• Buy with Caution
  A price drop alone isn’t a reason to invest. Ensure the company has strong growth prospects and is not overvalued. Historically, Bruised Blue Chips had an average Price/Book ratio of 1.5x at their lows. Aim to buy only when valuations are attractive, ideally around 2x or lower.