Brokerages recommend investors use the recent fall to buy companies with strong fundamentals and earnings visibility.
Post the recent correction in the markets, most research houses believe concerns like interest rates and inflation have already been priced in. They suggest investors should use the opportunity to pick up select stocks available at attractive prices and whose long-term fundamentals are intact. From a list of such large and midcap scrips, we zoom in on the top five, which find a mention in most reports and should deliver good returns over the medium to long term.
L&T
After a subdued performance in the third quarter, coupled with concerns over higher commodity prices, a slowing capex cycle and higher interest rates, the share price of L&T corrected 16 per cent. However, this has also provided an opportunity for long-term investors as the stock trades at a reasonable 20 times its 2011-12 estimated earnings per share. On the back of a strong order book of Rs 1,14,882 crore, which is almost three times L&T’s 2009-10 sales, its earnings are expected to grow 20-22 per cent over the next two years.
| TOP PICKS | |||||
| Company |
PE (x) | ||||
(Rs)
price (Rs)
(%)
ICICI Bank
Within the banking space, analysts recommend the country’s largest private sector bank, given its focus on profitable growth, a high CASA ratio at 44.2 per cent and improving asset quality. Also, after the recent fall in prices, its stock is trading at 19 times its 2011-12 estimated earnings, which is attractive considering its earnings are expected to grow 22 per cent annually over the next two years on the back of 18-20 per cent loan growth. In addition, analysts also believe its subsidiaries in insurance, mutual funds and broking could unlock value for investors.
| SOME MORE PICKS | ||
| Company | Trailing P/E (x) | CMP (Rs) |
| Axis Bank | 17.7 | 1,271 |
| B H E L | 22.2 | 2,130 |
| Bank of Baroda | 8.7 | 896 |
| Blue Star | 22.3 | 352 |
| Crompton Greaves | 29.8 | 270 |
| Dabur India | 38.7 | 95 |
| Glenmark Pharma. | 56.2 | 293 |
| Hind. Unilever | 33.5 | 273 |
| Indian Hotels | 66.3 | 85 |
| Infosys Tech. | 32.5 | 3,105 |
| ITC | 28.4 | 158 |
| Jubilant Food. | 63.8 | 505 |
| Lupin | 30.0 | 425 |
| M & M | 18.3 | 680 |
| Rural Elec.Corp. | 12.1 | 247 |
| Tata Steel | 8.4 | 619 |
| UltraTech Cem. | 32.7 | 938 |
| United Phosp. | 48.4 | 139 |
| Yes Bank | 16.3 | 269 |
| Source: Analyst reports, CapitaLine Plus | ||
IDFC
IDFC is a good long-term buy, given its positioning and expertise in the lucrative segment of infrastructure financing. Over $1 trillion is to be invested in India’s infrastructure development over the next five to seven years and financing will be critical, largely due to the projects being in the public-private-partnership model. No wonder the company is confident of growing its loan book three times over the next three-four years. Analysts see 16-18 per cent earnings growth in the next two years. On top of that, investors get exposure to leading businesses in their respective segments like mutual funds, investment banking, brokerage and private equity.
IRB Infrastructure
Infrastructure stocks were beaten down due to concerns over new order flows and interest rates. IRB Infrastructure, which is a leading player in the road segment with a number of projects on a build operate transfer (BOT) basis at key or lucrative locations, has seen its share prices correcting over 40 per cent from its peak of Rs 308 in August 2010. The company has a strong order book of Rs 9,000 crore (five times the 2009-10 revenue) along with a large portfolio of 15 existing and ongoing BoT road projects. Analysts are expecting the company’s earnings to grow 18-20 per cent over the next two years.
Bajaj Auto
Bajaj Auto, which is the leading player with a 21 per cent market share in the two-wheeler segment and 47 per cent market share in the three-wheeler segment, is a good buy at current prices, analysts feel. The stock is trading at a reasonable valuations of 12 times the FY2011-12 estimated earnings per share along with cash per share of Rs 110 in the books. Demand is also likely to be robust, with analysts expecting a 15-16 per cent growth in volumes over a higher base and over 18 per cent growth in earnings in FY 2011-12.
