Top five beaten-down stocks that could surprise investors in FY23
The Indian equity market has delivered double-digit returns for the second consecutive year. The benchmark BSE Sensex is up 18 percent in the last 12 months which is quite remarkable given a stream of negative news flows such as the slowdown in GDP growth, rising inflation, higher bond yields and global economic upheaval post the Russian invasion of Ukraine.
Many stocks have seen a sharp decline in their stock price in FY22 after a big rally in the previous year. The decline in their stock price was either due to company-specific reasons or as part of the sell-off in their industry.
The stock price of financially strong and well-managed companies usually follows a cycle and a period of poor performance is followed by a period of a strong show.
As such, a decline in their stock price is an opportunity to accumulate them and wait for their upturn.
Here are five stocks from the BSE500 index that have seen a sharp decline in their stock price in the last 12 months and offer a good buying opportunity for long-term investors. Some of them could even see a rally from the current level driven by value-buy from long-term investors.
1. Public sector General Insurance Corporation (GIC) is at the top of the list. The company’s stock price is down 38.5 percent since the end of March 2021 as it has posted a decline in earnings due to higher insurance claims from COVID19.
Analysts however expect a much better financial performance by the company in FY23 as the worst of COVID19 related claims are behind the industry.
The stock could also get support from its relatively low valuation. GIC is trading at a trailing P/E of 12.1X and price to book value of 0.65X, a fraction of that of private insurance companies.
2. Lubricant maker Gulf Oil Lubricant is next on our list. The stock is down 38 percent since March 2021 hit by higher crude oil prices - its key raw material. Its net profits have declined in the last two quarters due to a sharp decrease in margins despite double-digit growth in revenues. Analysts expect an improvement in margins in FY23 as crude oil prices peak and it's done with price hikes. Its valuation remains attractive with a trailing P/E of 11X and P/BV of 2.5X. The stock also offers a relatively high dividend yield of 3.5X.
3. Automotive battery maker Amara Raja Batteries is next on our list. The stock is down 33 percent since the end of FY21 and has been one of the biggest laggards in the automotive space. The stock has suffered from earnings decline due to higher raw material prices, especially lead. But there are indications that industrial metals prices may have peaked for now. This could translate into better margins for the company in FY23. The stock is currently trading at an attractive valuation with a trailing P/E of 16X and a price to book value of 3X.
4. Multinational P&G Health is next on our list. The stock is down 31 percent since the end of March 2021 due to growth concerns. The company's net profit was down 33 percent in the last four quarters due to higher raw material costs despite revenue growth. There is a strong possibility of an improvement in its margins in FY23 as commodity prices peak and the company is done with price hikes. The stock is currently trading at a P/E of 47X and P/BV of 7.5X which is on the higher side but is normal for MNC stocks in the FMCG space.
5. Tyre maker CEAT is next on our list. The company stock price is down 29 percent since March 2021 as its earnings were hit by higher rubber and crude oil prices. The company’s net profit is down 43 percent in the last four quarters due to a sharp decline in margins. In contrast, its revenues were up 31 percent during the period. Analysts expect an improvement in the tyre makers’ margins in FY23 as commodity prices come off their high which should help CEAT. The stock remains reasonably priced with a trailing P/E of 22X and P/BV of 1.4X.
Happy Investing!
(Advice: This article is for information purpose only. Readers are advised to consult a certified financial advisor before making investment in any of the funds or securities mentioned above.)
(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).
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