Beaten but not out: Stocks trading at all-time lows hold potential to yield better returns
ETIG analysed some of the beaten-down stocks and has listed a handful of companies which still hold the potential to yield better returns in the medium to long term.
One out of every five companies in the S&PBSE list of 500 companies now trades at a price lower than what it was on March 9, 2009, when the markets plunged to a new low after the financial crisis of 2008, an ETIG analysis shows. That may be cold comfort for sceptical investors against the backdrop of a slowing economy and a battered local currency.
A majority of these 'cheap' stocks are from sectors such as capital goods, power and construction, which have been severely beaten down because of policy, execution and funding issues.
Are valuations still attractive and should investors take another shot at buying some of these stocks? ETIG analysed some of the beaten-down stocks and has listed a handful of companies which still hold the potential to yield better returns in the medium to long term.
NMDC
NMDCBSE 0.93 % will benefit thanks to the recent fall of the rupee. During the past year domestic iron ore prices were cut several times to match global prices. However, the over 15 per cent fall in therupee over the last two months provides cushion from any further downside in global iron ore prices. At the current market price, NMDC is much cheaper than its global peers (price-book value ratio of 1.5, compared with 3 for global peers). This discount may not be justified given the cost advantage NMDC enjoys.
ALLCARGO LOGISTICS
The slowdown in the economy has severely impacted the earnings of Allcargo LogisticsBSE 0.93 % in FY13. After two years of earnings growth of over 30 per cent, the company reported an 8 per cent decline in profits in FY13. Its stock price has corrected by as much as 42 per cent in the past year alone. But having built logistics infrastructure, it could be one of the major beneficiaries as both exports and imports gain pace.
PRAJ INDUSTRIESBSE 1.86 %
The company's order book expanded to Rs 1,010 crore in the quarter to June, and 56 per cent of the orders are from overseas. The recent spike in oil prices and the rupee's depreciation will both benefit the company. Besides, it is debt-free and over Rs 200 crore or one-third of its market value is in cash. It has also recently diversified into new businesses such as water treatment, which today contributes close to 30 per cent of its total revenues.
The company's low valuations have driven the dividend yield above 4.5 per cent. It has also started construction of Asia's first second generation ethanol plant, which if successful in attracting investors, will be a key trigger.
A majority of these 'cheap' stocks are from sectors such as capital goods, power and construction, which have been severely beaten down because of policy, execution and funding issues.
Are valuations still attractive and should investors take another shot at buying some of these stocks? ETIG analysed some of the beaten-down stocks and has listed a handful of companies which still hold the potential to yield better returns in the medium to long term.
NMDC
NMDCBSE 0.93 % will benefit thanks to the recent fall of the rupee. During the past year domestic iron ore prices were cut several times to match global prices. However, the over 15 per cent fall in therupee over the last two months provides cushion from any further downside in global iron ore prices. At the current market price, NMDC is much cheaper than its global peers (price-book value ratio of 1.5, compared with 3 for global peers). This discount may not be justified given the cost advantage NMDC enjoys.
ALLCARGO LOGISTICS
The slowdown in the economy has severely impacted the earnings of Allcargo LogisticsBSE 0.93 % in FY13. After two years of earnings growth of over 30 per cent, the company reported an 8 per cent decline in profits in FY13. Its stock price has corrected by as much as 42 per cent in the past year alone. But having built logistics infrastructure, it could be one of the major beneficiaries as both exports and imports gain pace.
PRAJ INDUSTRIESBSE 1.86 %
The company's order book expanded to Rs 1,010 crore in the quarter to June, and 56 per cent of the orders are from overseas. The recent spike in oil prices and the rupee's depreciation will both benefit the company. Besides, it is debt-free and over Rs 200 crore or one-third of its market value is in cash. It has also recently diversified into new businesses such as water treatment, which today contributes close to 30 per cent of its total revenues.
The company's low valuations have driven the dividend yield above 4.5 per cent. It has also started construction of Asia's first second generation ethanol plant, which if successful in attracting investors, will be a key trigger.
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NTPC
The stock has been impacted due to the negative sentiment prevailing in the power industry. However, NTPC stands out among other utilities due to its focus on assured fuel and power purchase agreements for each plant. Going ahead, a healthy balance sheet and clarity on fuel supply may lead to NTPC meeting its power generation targets for the twelfth five-year plan.
JP ASSOCIATES
A high Rs 55,000 crore debt has been a drag on the JP Associates stock, which has shed 44 per cent in the past three months but is seeing a moderate rise now. The management's plan to sell stakes in some of its core assets is expected to improve the company's financials in the next few quarters. While many infrastructure companies are planning to pare assets, JP Associates stands out among them because most of its assets are operational.
MRPL
MRPL's market capitalisation of less than Rs 5,500 crore is at a decadal low. The company incurred heavy losses in FY13 and in the first quarter of FY14 owing to a weak rupee and delayed projects. The captive power plant supporting its expanded capacities got delayed by nearly 18 months, resulting in lower refining margins.
With its power plant likely to be operational by October 2013, MRPL will be able to convert low cost heavy crude oil into high priced products such as diesel. Its other key projects such as the 440,000 tonne per annum polypropylene plant and single-point mooring to handle big crude carriers are also near completion. Commissioning of these projects will lead to improved profitability starting from the last quarter of this fiscal.
BHEL
Being the largest company in the power equipment industry with 20 GW production capacities, BHEL will be one of the biggest beneficiaries of any turnaround in the industry. The BHEL stock has been battered due to a depleting order book, weak revenue growth and margin pressures. The stock has fallen over 70 per cent in the past three years, hitting an eight-year low of Rs 101.50 last month.
Interestingly, the stock has seen a sharp 40 per cent recovery since then and now quotes at Rs 141.55, mostly due to the government's plans to speed up approval for infrastructure projects. While the current momentum is expected to ease soon, the stock is still a value buy at current levels from a medium to long-term perspective.
The stock has been impacted due to the negative sentiment prevailing in the power industry. However, NTPC stands out among other utilities due to its focus on assured fuel and power purchase agreements for each plant. Going ahead, a healthy balance sheet and clarity on fuel supply may lead to NTPC meeting its power generation targets for the twelfth five-year plan.
JP ASSOCIATES
A high Rs 55,000 crore debt has been a drag on the JP Associates stock, which has shed 44 per cent in the past three months but is seeing a moderate rise now. The management's plan to sell stakes in some of its core assets is expected to improve the company's financials in the next few quarters. While many infrastructure companies are planning to pare assets, JP Associates stands out among them because most of its assets are operational.
MRPL
MRPL's market capitalisation of less than Rs 5,500 crore is at a decadal low. The company incurred heavy losses in FY13 and in the first quarter of FY14 owing to a weak rupee and delayed projects. The captive power plant supporting its expanded capacities got delayed by nearly 18 months, resulting in lower refining margins.
With its power plant likely to be operational by October 2013, MRPL will be able to convert low cost heavy crude oil into high priced products such as diesel. Its other key projects such as the 440,000 tonne per annum polypropylene plant and single-point mooring to handle big crude carriers are also near completion. Commissioning of these projects will lead to improved profitability starting from the last quarter of this fiscal.
BHEL
Being the largest company in the power equipment industry with 20 GW production capacities, BHEL will be one of the biggest beneficiaries of any turnaround in the industry. The BHEL stock has been battered due to a depleting order book, weak revenue growth and margin pressures. The stock has fallen over 70 per cent in the past three years, hitting an eight-year low of Rs 101.50 last month.
Interestingly, the stock has seen a sharp 40 per cent recovery since then and now quotes at Rs 141.55, mostly due to the government's plans to speed up approval for infrastructure projects. While the current momentum is expected to ease soon, the stock is still a value buy at current levels from a medium to long-term perspective.
Source : By ET Bureau
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