Why these 4 stocks can be good long-term bets

Since January 2020, the fear and uncertainties associated with coronavirus and its implications on the economic growth have spooked investors worldwide. The MSCI World market index (ex-USA) lost close to 12% year-to-date. The BSE Sensex lost over 39% from its all-time high between January 2020 and March 2020. However, after a slew of monetary and fiscal measures by the RBI and the government, the markets recovered 35% from the March low of 25,639.The pandemic has further dented the Indian economy which was already reeling under cyclical and structural issues for quite some time. These issues include lack of demand, declining consumption, banking sector NPAs, NBFC credit issues and weak export growth. Investors are apprehensive as the pandemic and its economic consequences could negatively affect the business prospects of companies. As a result, the stock prices of the majority of the listed companies have exhibited increased volatility in the recent past. The standard deviation based on the daily returns data of the BSE500 index from January 2020 to June 2020 was 2.53% compared to 0.77% in the corresponding period in 2019.Under this environment of fear and uncertainty, it is worth evaluating the financial performance of the companies in the March quarter of 2020. The actual effect of the national lockdown will be visible in the June quarter, but the analysis of March 2020 numbers will help to identify companies that have remained resilient to the challenges fuelled by negative business expectations. Among the listed companies, 627 companies have declared their March 2020 quarter results. Out of these, over 57% and 65% of the companies have reported negative growth in sales and adjusted EPS respectively.The fourth-quarter numbers were analysed only for 868 companies that have a market cap greater than Rs 500 crore (as on 19 June 2020). Out of these, 437 companies have declared their March 2020 quarter numbers so far. An attempt was made to identify companies that have performed well on multiple financial parameters.Companies that have reported positive year-on-year growth in sales revenue and adjusted EPS were included. Also, the companies that reported negative adjusted EPS in March 2019 and positive adjusted EPS in March 2020 were considered. The other filter looked at the reduction in the y-o-y growth in the total expenditure. The final filter looks at the companies with positive operating profit margins in the fourth quarter of 2020 and with sequential improvement in margins (between December 2019 and March 2020). To look at the future potential of such companies, only those covered by at least five Bloomberg analysts and with the majority of buy ratings were considered.Those which passed the above filters comprehensively were the ones that have pricing power, which is visible with the growth in the top-line and are also cost efficient. This is evident from the reduction in their total expenditure. In addition, such companies have generated value for their shareholders by improving their operating profit margins and adjusted EPS growth. Let us look at four such companies:Names that generated value for investorsThese stocks performed well on multiple parameters despite negative expectations. 76657961PE and EV/EBITDA as on 23 June 2020. Operating profit margin (OPM) and Adjusted EPS are based on consolidated numbers for March 2020 quarter. Source: Ace Equity and Bloomberg.Bharti InfratelIt is a provider of tower and related infrastructure with over 39,000 towers across the circles. The company’s gross tower additions have doubled compared to the last year and stood at a nine-year high. Moreover, its long-term agreements may provide opportunities of rent reduction post-Covid. Analysts expect that its merger with Indus Towers may close in the coming months and will provide synergies that will boost its EBITDA and EPS.Deepak NitriteThe chemical manufacturing company saw a consolidated net profit growth of 88% in the March 2020 quarter. The company’s greenfield expansion at Dahej has achieved operating utilisation levels of 95% and the management’s efforts on the development of downstream products will sustain the company’s profitability going forward. Analysts believe that the company (and industry) are expected to derive benefits as the global chemical manufacturers are exploring alternate markets other than China.Just DialThis is a local search engine that provides local search related services to users across India through multiple platforms such as website, apps, telephone, and text (SMS). It reported consolidated net profit growth of 21.6% y-o-y in the March 2020 quarter. The company has undertaken steps to rationalise its costs and has a strong balance sheet and robust cash balance, which will help it effectively deal with the economic slowdown. Also, Just Dial is likely to be a key beneficiary when the market rebounds as digitisation is gaining importance across industries.VoltasThe home appliance company that specialises in air conditioning and cooling technology, improved its market share by 50 basis points to 24.2% in the unitary cooling product segment in March quarter. The national lockdown is likely to create a higher inventory for ACs across the supply chain. According to a research report by Motilal Oswal, the system level inventory is expected to normalise by November-December 2020, and therefore, 2021-22 should turn out to be a normal year. The brokerage house believes that the company will continue to outperform its peers and expects 2019-20 to 2021-22 revenue, EBITDA, and adjusted PAT CAGR of 7%, 8%, and 8% respectively.

from Economic Times https://ift.tt/2NyRrvo