Markets
5 fundamentally strong stocks hit 52-week highs. More gains ahead?
Summary
- These five stocks have spiked in recent months due to stellar results. But what lies ahead?
During the September 2022 quarterly earnings season, banking and finance stocks were hot favourites. Credit growth picked up and PSU banks saw improvement in their asset quality.
Meanwhile, companies from cyclical sectors including energy reported earnings below estimates.
As the quarterly earnings season has come to a close, investors are reassessing their portfolios.
In the quarter that went by, many stocks reported stellar results and saw their stock prices rise to yearly highs.
Let's take a look at five fundamentally strong companies that reported stellar Q2 results and hit 52-week highs in recent days.
These stocks have good growth prospects within the industries they operate in.
#1 Godfrey Philips
Godfrey Phillips India is a tobacco manufacturer. The firm was originally established in London in 1844. It was one of the first UK companies to mass-produce cigarettes, apart from being one of the founding companies of imperial tobacco along with John Player & Sons.
Godfrey Philips share price hit its 52-week high of ₹1,913 on 18 November 2022 last week. Today, the stock is down a percent.
To say that the year gone by was difficult for the share market would be an underestimate. Market corrections and changing economic scenarios took many fundamentally strong stocks to the cleaners.
However, Godfrey Philips was an exception. Godfrey Philips share price is up 65% on a YoY basis. After seeing a reasonable downtrend in late 2021, the share price has been on a tear.
The share price has been rallying on account of quarterly figures reported by the company.
For the quarter that ended September 2022, the tobacco-manufacturer reported total revenue of ₹12,347 million (m) (about ₹1,234.7 crore). This is 25% higher on a sequential basis, and 53% on a YoY basis.
Similarly, the profit stood at ₹1,782 m, 36% higher on a sequential basis and 70% higher on a YoY basis.
A decrease in the smuggling of cigarettes and a stable tax regime for its products helped the company grow its business.
Another reason for the rise in share price was the sale of its loss-making chewing tobacco business. In October 2022, the company sold the business for a gain of ₹800 m.
This will be reflected in the company's next quarter's financial results. The market is expecting the company to post good quarterly numbers in the next quarter too.
Exide Industries is primarily engaged in the manufacturing of storage batteries and allied products in India. The company is the leading storage batteries manufacturer in India in almost all categories such as automotive, industrial, and submarine.
Exide Industries hit its 52-week high of ₹188 on 18 November 2022. Today, the stock is marginally down by half a percent.
If one wants to look at how volatile markets have been recently, take a look at the share price of Exide Industries. It has been on a roller coaster ride during the entire year.
Overall, the share price has performed positively on a YoY basis. It is up by 5% on a YoY basis. During the year the company announced many investment plans which boosted its share price.
In June 2022, the company invested ₹331.7 m in its subsidiary Exide Leclanche Energy and increased its stake from 77.9% to 80.2%.
The company has capex plans of ₹60 bn for a 12 GWh Li-ion plant in 2 phases. It plans to supply to all vehicle segments and has multiple chemistries and cell types.
However, the company has to face many challenges too. Heavy import duty on Lithium-Ion batteries, increasing cost of lithium, lack of technical expertise, contracting margins, etc. are signs of concern.
To add insult to injury, competitors like Mahindra & Mahindra, Hyundai Global Motors Company, and Ola Electric Mobility are developing their homegrown batteries. These companies have also been awarded PLI schemes to facilitate production of these batteries.
During the last month, Exide share price rallied 21% due to a good quarterly performance.
For the quarter ended September 2022, the turnover of the company was ₹38,768 m. It is 4% lower on a sequential basis and 14% higher on a YoY basis.
However, the profit and profit margins have shown a better sequential performance. Net profit increased by 19% on a sequential basis but only 4% on a YoY basis.
The net profit margin for the said quarter was 6.3% which is 1.3% higher on a sequential basis and 0.6% lower on a YoY basis.
#3 Engineers India
Engineers India is an Indian central public sector undertaking under the ownership of the Ministry of Petroleum and Natural Gas, government of India.
It is under the ownership of the Ministry of Petroleum and Natural Gas, government of India. It was set up in 1965 with the mandate of providing indigenous technology solutions across hydrocarbon projects.
Over the years, it has also diversified into synergic sectors like non-ferrous metallurgy, infrastructure, water and wastewater management, and fertilisers.
The company hit a 52-week high share price of ₹81.9 on 18 November 2022. The share price has been volatile throughout the year. On a YoY basis, the share price rose by 12%.
Most of the gains have come in the last one month owing to stellar quarterly results and big orders.
For the quarter that ended 30 September 2022, the total turnover of the company was ₹8,582 m. It is 2% higher on a sequential basis and 26% higher on a YoY basis.
However, the profit and profit margin have been the real show-stopper. Net profit increased by 66% on a sequential basis and 65% on a YoY basis.
The net profit margin was 10.8%, a very high margin as compared to the 6.3% and 8.6% margins reported on 30 June 2022 and 30 September 2022, respectively.
Last month, the company bagged an order from Oil and Natural Gas Corporation (ONGC) on an EPC reimbursable basis for ₹2.5 bn. The period for execution of the project is scheduled at 33 months.
On 18 November 2022, it bagged an order from Chennai Petroleum for overall project management & EPCM Services for OHCU revamp, CDWU, and related off-site facilities for the group-II LOBS project at the Manali refinery.
#4 TCPL Packaging
TCPL Packaging, formerly Twenty-First Century Printers was incorporated in August 1987.
The company is one of the largest manufacturers of folding cartons in India. It makes flexible and folding cartons for customers including Dabur, Marico, Patanjali, Unilever, etc.
The company hit a 52-week high share price of ₹1,696 on 18 November 2022. Today, the stock surpassed its previous high and touched a new high of ₹1,710.
TCPL Packaging's share price has given a dream performance, generating multibagger returns of 223% in the year gone by.
In the financial year 2022, TCPL has doubled its flexible packaging capacity. It will help the company double its revenue in the next two-three years. The impact of the same can be seen in the company's quarterly results.
For the quarter that ended 30 September 2022, the total turnover of the company was ₹3,641 m. It is 5% higher on a sequential basis and 44% higher on a YoY basis.
Net profit of the company increased by 76% on a sequential basis and a whopping 273% on a YoY basis.
The net profit margin for the quarter that ended 30 September 2022 was 10.9%, a very high margin as compared to the 6.6% and 4.2% margins reported on 30 June 2022 and 30 September 2022, respectively.
Some gains can also be attributed to the company's paper division. As paper stocks have rallied this year, TCPL Packaging having exposure to the paper sector has made the most of the situation.
#5 Atul Auto
Atul Auto is a leading three-wheeler manufacturing company in Rajkot, Gujarat, India.
The company's origins lie in the 1970s, when Jagjivanbhai Chandra sought to modify motorcycles to make transport to meet the needs of rural areas of Saurashtra and adapted the engines from golf carts scrapped by the king of Jamnagar, resulting in his first chhakada vehicles.
Atul Auto hit a 52-week high share price of ₹322 on 18 November 2022. Today, the stock surpassed its previous 52-week high and rose 2% to ₹331.
On a YoY basis, the share price has gained 41%. Most of the gains came in the month of October2022. Before this, the share price was in danger of falling deep into losses.
Rising prices of petroleum and CNG took a hit on the sales of the company. This impacted its financial performance. However, it looks like the winds are changing for Atul Auto.
For the quarter that ended 30 September 2022, the total turnover of the company was ₹1,237 m. It is 15% higher on a sequential basis and 44% higher on a YoY basis.
The company has been turning around for the past couple of quarters. It might even turn profitable this year.
The net loss of the company decreased from ₹64 m reported in September 2021 and ₹37 m reported in June 2022 to ₹1 m in the recent quarter.
With softening of commodity prices and CNG prices, the company expects even better results in Q3.
Early in April 2022, the company announced its foray into the electric vehicle (EV) sector through its wholly owned subsidiary Atul Greentech. Before this, the company was only present in the L3 category of electric three-wheelers which mostly comprised pedal rickshaws.
But after April 2022, the company forayed into the L5 category of EV three-wheelers which compete directly with conventional three-wheelers.
Atul Greentech will be selling EV three-wheelers entirely manufactured by Atul Auto with fixed battery solutions. It will also sell EVs that are powered by Honda's Mobile Power Pack and Valeo's powertrain system by using their powerful batteries.
Atul Auto saw a little boost in April 2022 but the real rise started in early October.
October was filed with good news for Atul Auto's investors. First, the company issued the right shares in the first week of October. In the next week, ace investor Vijay Kedia invested ₹1 bn in the company through convertible warrants.
Also, it is expected that the company will soon announce its EV launch date since it has already received approval for it.
Investment Takeaway
It's a general belief that when a company's share price hits a 52-week high, it is in a bullish trend.
There are many investing strategies based on this approach called momentum investing where investors buy outperforming securities and avoid or sell underperforming ones.
It's built on the premise that stocks that have gone up will continue to go up and vice versa.
However, it should be noted there is a high chance the stocks may be overbought.
The stocks above have shown that if the fundamentals of the company are strong then the company can survive even during bad and uncertain situations in the long run.
These companies are rallying under favourable circumstances right now. But share markets are a tricky place. Just one wrong move could trigger an avalanche.
Carefully consider your personal risk-bearing capacity and investment horizon before making any investments.
In conclusion, rather than focusing more on the price action, your ultimate focus should be on the fundamentals and valuations.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
