Equity investors are always on a look out of stocks which offers growth and at the same time available at reasonable valuations which makes them attractive ‘buy on dips’ stock.
Morgan Stanley in its report released earlier in the month of April handpicked over 10 stocks which are available at reasonable valuations. For computing these stocks, the global investment bank filtered stocks using parameters such as beta, future growth rate, and Return on capital employed.
Most of the stocks such as Asian Paints, Cadila Healthcare, BPCL, Havells India etc. have a beta less than 1 which in other words mean that these stocks are less volatile and will not fall/rise with the same magnitude compared to market movement.
“Low beta stocks indicates less volatility in price movement and simultaneously, and if the ROCE is rising investor can be pretty sure that the money invested in the company is being used efficiently, leading to higher profits,” D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd told IdealStock.
However, these may not be the only indicators of the company's prospects. The growth of the industry the company operates in and investment in productive capacities also merit close scrutiny.
“Besides ROCE and Beta, investors should look price-to-book value (P/BV) ratio, debt-to-equity ratio and price/earnings growth ratio to name a few. The P/BV ratio values shares of companies with large tangible assets on their balance sheets,” said Aggarwal.
Apart from these ration investors could also look at a debt-to-equity ratio which shows how much debt the company has on its books.
The PEG ratio which is price earnings to growth will help investors to know the relationship between the price of a stock, earnings per share (EPS) and the company's growth, suggest experts.We have collated a list of top 10 high growth stocks which are available at reasonable valuations based on a report from Morgan Stanley:
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
Cadila Healthcare Limited
The management expects that the fourth quarter would see around 10-12 new product launches in the US and this would continue for the upcoming quarters. The company expects, the share of US to rise in overall revenue - from a roughly 50 percent now to 55 percent in FY19 and the US would contribute around 60 percent of its revenues by FY20.
The management expects that US business to witness price erosion in the range 10-12 percent in FY2018E and 8-10 percent in FY2019E. It has guided for overall US revenue (reported) growth in FY19E, despite high base due to gLialda sales in 180?days exclusivity in FY2018E.
The company has planned a capex of Rs 1000 crore for FY2019. Research & Development (R&D) expenses will remain in the range of 7-8 percent of sales over next two years.
Havells India Limited:
The company has been continuously growing in each business parameter and it is expected that it would be directly benefitted by the Government initiatives such as “Housing and power for all”.
It is best placed to attain scale across businesses with its new SBU (Strategic Business Unit) structure and focused product-wise branding strategy.
It has pioneered the concept of the exclusive brand showroom in the electrical industry with ‘Havells Galaxy’. It became the first FMEG Company to offer doorstep service via its initiative ‘Havells Connect’.
Indraprastha Gas limited:
The company expects its sales volume to industrial and commercial clients rise 20 percent in 2018-19, after experiencing a similar gain last fiscal year, following a ban on using polluting pet coke and fuel oil in the National Capital Region on rising green concerns.
It plans to use the restrictions on polluting fuel as an opportunity to add as many as 2,000 industrial and commercial customers in 2018-19 to its current base of 3,000. It is also planning to rapidly expand sales of compressed natural gas (CNG), used by cars and buses.
To tide over the scarcity of land in cities for setting up fuel stations, IGL has begun appointing dealers to set up CNG stations – so far the company owned and operated all its filling stations.
For its expansion, IGL is focusing on congested colonies, which had escaped attention earlier but are now being targeted with enhanced security features.
Mindtree Limited:
The Company’s overall strategy of achieving industry-leading growth through deep domain expertise in chosen verticals combined with technical depth, customized for clients remain the same.
An enviable client list and a fantastic leadership team are two clear advantage areas for Mindtree and plan to leverage them to engineer meaningful technology solutions to help businesses and societies flourish.
The company has positioned itself as a comprehensive solutions provider. As per management of the company it has the capability to create opportunities to cross-sell its R&D engineering services to its clients and also supplement its IT services capabilities.
Petronet LNG Limited:
As there is a shortage of natural gas supply, the company will get the benefit as the primary play on increasing usage of LNG. In the long term, we expect volumes to remain strong and contribute significantly going forward.
Dahej capacity expansion from 15.0 million tonne (mt) to 17.5 mt is expected by June 2019. The project is 70 percent complete. In addition to the on-going capex, the company has also decided to add one more tank at a cost of Rs 600 crore.
This would increase the operational flexibility for PLNG and allow it to operate the terminal at full capacity. Management expects FY19 capex at Rs 400 crore, mostly on Dahej expansion and some initial capex on new storage tanks at Dahej.
Zee Entertainment Enterprises Limited:
The company has entered into newer geographies both domestically and globally, launched multiple channels, strengthened distribution, expanded the genres and widened its audience profile.
Moreover, the management focuses towards expansion and it is expected that market share would give strong growth to the company in coming years. Going forward, better content performance, increasing regional market share, tight cost control at the sales and distribution levels, a turnaround of the loss-making Zee Tamil, & TV and music businesses in FY19 may lead to superior margins.
JSW Steel Ltd:
Goldman Sachs maintains a buy call on JSW Steel and raised its target price to Rs342 from Rs 315 earlier. The medium-term fundamentals remain resilient, and the tariff barriers can impact steel margins, said the report.
ITC:
Credit Suisse maintains a neutral rating on ITC with a target price of Rs 320. The budget is still relevant post-GST for ITC and the risk-reward favourable at the margin. The valuations for ITC attractive relative compared to its peers.
Infosys:
CLSA maintains buy on Infosys with a target price of Rs1340. The IT major reported results which were largely inline with revenues but ahead on margins. The FY19 revenue guidance is solid at 7-9 percent YoY in USD (6-8 percent in CC).
The guidance suggests growth acceleration and stable client relationships. Infosys should get back to catching up with peer growth rates soon. The stock offers the highest potential for a rerating in the sector.
Titan Company Ltd:
Titan’s stock has delivered immense value to investors over the last several years, and its ability to compound earnings at 23 percent p.a. over the past 10 years has been a key enabler in this regard, JM Financial said in a note.
“We believe that 20 percent revenue CAGR over FY18-23E should also support margin expansion that should ideally lead to an even higher rate of growth in profit over the same period (operating leverage), which would help sustain the stock’s premium valuation, in our view,” said the report.
Titan just announced an ‘extension’ of its target 20 percent-CAGR phase in its Jewellery business (2.5x increase in size in 5 years) to FY18-23E. It is important to note that the company has not delayed the time by which its Jewellery business will grow 2.5x vs FY17 level. Titan aims to compound jewellery revenue by 20 percent p.a. in the next five years as well, on FY18’s base.
Most of the stocks such as Asian Paints, Cadila Healthcare, BPCL, Havells India etc. have a beta less than 1 which in other words mean that these stocks are less volatile and will not fall/rise with the same magnitude compared to market movement.
“Low beta stocks indicates less volatility in price movement and simultaneously, and if the ROCE is rising investor can be pretty sure that the money invested in the company is being used efficiently, leading to higher profits,” D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd told IdealStock.
However, these may not be the only indicators of the company's prospects. The growth of the industry the company operates in and investment in productive capacities also merit close scrutiny.
“Besides ROCE and Beta, investors should look price-to-book value (P/BV) ratio, debt-to-equity ratio and price/earnings growth ratio to name a few. The P/BV ratio values shares of companies with large tangible assets on their balance sheets,” said Aggarwal.
Apart from these ration investors could also look at a debt-to-equity ratio which shows how much debt the company has on its books.
The PEG ratio which is price earnings to growth will help investors to know the relationship between the price of a stock, earnings per share (EPS) and the company's growth, suggest experts.We have collated a list of top 10 high growth stocks which are available at reasonable valuations based on a report from Morgan Stanley:
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
Cadila Healthcare Limited
The management expects that the fourth quarter would see around 10-12 new product launches in the US and this would continue for the upcoming quarters. The company expects, the share of US to rise in overall revenue - from a roughly 50 percent now to 55 percent in FY19 and the US would contribute around 60 percent of its revenues by FY20.
The management expects that US business to witness price erosion in the range 10-12 percent in FY2018E and 8-10 percent in FY2019E. It has guided for overall US revenue (reported) growth in FY19E, despite high base due to gLialda sales in 180?days exclusivity in FY2018E.
The company has planned a capex of Rs 1000 crore for FY2019. Research & Development (R&D) expenses will remain in the range of 7-8 percent of sales over next two years.
Havells India Limited:
The company has been continuously growing in each business parameter and it is expected that it would be directly benefitted by the Government initiatives such as “Housing and power for all”.
It is best placed to attain scale across businesses with its new SBU (Strategic Business Unit) structure and focused product-wise branding strategy.
It has pioneered the concept of the exclusive brand showroom in the electrical industry with ‘Havells Galaxy’. It became the first FMEG Company to offer doorstep service via its initiative ‘Havells Connect’.
Indraprastha Gas limited:
The company expects its sales volume to industrial and commercial clients rise 20 percent in 2018-19, after experiencing a similar gain last fiscal year, following a ban on using polluting pet coke and fuel oil in the National Capital Region on rising green concerns.
It plans to use the restrictions on polluting fuel as an opportunity to add as many as 2,000 industrial and commercial customers in 2018-19 to its current base of 3,000. It is also planning to rapidly expand sales of compressed natural gas (CNG), used by cars and buses.
To tide over the scarcity of land in cities for setting up fuel stations, IGL has begun appointing dealers to set up CNG stations – so far the company owned and operated all its filling stations.
For its expansion, IGL is focusing on congested colonies, which had escaped attention earlier but are now being targeted with enhanced security features.
Mindtree Limited:
The Company’s overall strategy of achieving industry-leading growth through deep domain expertise in chosen verticals combined with technical depth, customized for clients remain the same.
An enviable client list and a fantastic leadership team are two clear advantage areas for Mindtree and plan to leverage them to engineer meaningful technology solutions to help businesses and societies flourish.
The company has positioned itself as a comprehensive solutions provider. As per management of the company it has the capability to create opportunities to cross-sell its R&D engineering services to its clients and also supplement its IT services capabilities.
Petronet LNG Limited:
As there is a shortage of natural gas supply, the company will get the benefit as the primary play on increasing usage of LNG. In the long term, we expect volumes to remain strong and contribute significantly going forward.
Dahej capacity expansion from 15.0 million tonne (mt) to 17.5 mt is expected by June 2019. The project is 70 percent complete. In addition to the on-going capex, the company has also decided to add one more tank at a cost of Rs 600 crore.
This would increase the operational flexibility for PLNG and allow it to operate the terminal at full capacity. Management expects FY19 capex at Rs 400 crore, mostly on Dahej expansion and some initial capex on new storage tanks at Dahej.
Zee Entertainment Enterprises Limited:
The company has entered into newer geographies both domestically and globally, launched multiple channels, strengthened distribution, expanded the genres and widened its audience profile.
Moreover, the management focuses towards expansion and it is expected that market share would give strong growth to the company in coming years. Going forward, better content performance, increasing regional market share, tight cost control at the sales and distribution levels, a turnaround of the loss-making Zee Tamil, & TV and music businesses in FY19 may lead to superior margins.
JSW Steel Ltd:
Goldman Sachs maintains a buy call on JSW Steel and raised its target price to Rs342 from Rs 315 earlier. The medium-term fundamentals remain resilient, and the tariff barriers can impact steel margins, said the report.
ITC:
Credit Suisse maintains a neutral rating on ITC with a target price of Rs 320. The budget is still relevant post-GST for ITC and the risk-reward favourable at the margin. The valuations for ITC attractive relative compared to its peers.
Infosys:
CLSA maintains buy on Infosys with a target price of Rs1340. The IT major reported results which were largely inline with revenues but ahead on margins. The FY19 revenue guidance is solid at 7-9 percent YoY in USD (6-8 percent in CC).
The guidance suggests growth acceleration and stable client relationships. Infosys should get back to catching up with peer growth rates soon. The stock offers the highest potential for a rerating in the sector.
Titan Company Ltd:
Titan’s stock has delivered immense value to investors over the last several years, and its ability to compound earnings at 23 percent p.a. over the past 10 years has been a key enabler in this regard, JM Financial said in a note.
“We believe that 20 percent revenue CAGR over FY18-23E should also support margin expansion that should ideally lead to an even higher rate of growth in profit over the same period (operating leverage), which would help sustain the stock’s premium valuation, in our view,” said the report.
Titan just announced an ‘extension’ of its target 20 percent-CAGR phase in its Jewellery business (2.5x increase in size in 5 years) to FY18-23E. It is important to note that the company has not delayed the time by which its Jewellery business will grow 2.5x vs FY17 level. Titan aims to compound jewellery revenue by 20 percent p.a. in the next five years as well, on FY18’s base.
