Looking for “growth” at a reasonable price? Consider these 10 actions

Markets can stay irrational longer than you can stay solvent. The old adage of the famous economist John Maynard Keynes remains valid even today, in all geographical areas. There are times when factors such as the concentration of institutional flows and behavioral biases, such as the unpopularity of a theme or an industry, could lead to value-creating growth stocks trading at pessimists.
identified 10 stocks, which fall into the “value-creating growth” category, where there is a hint of outperformance in the recent past, earnings momentum remains intact, estimated return on equity (RoE) for FY24 is higher than their “cost of equity” and where the generation of operating cash flow is robust.

They included

, Chola Investment, , Bharat Electron and . Larsen & Toubro, Dr Reddy’s Labs, and are the remaining stocks that ICICI Securities consider value-creating ideas. The brokerage has a “buy” recommendation on eight of those stocks and a “add” call recommendation on the other two.

Agencies

Using its proprietary ‘MILTGV’ framework for reverse-engineered stock prices, ICICIdirect said the market attributes less than or equal to 70% of current market value to the earnings growth of these 10 companies beyond of FY24E, adding that stocks generally of this quality derive most of their valuations from growth beyond the explicit period, which in this case is beyond FY24.

ICICI Securities said its value creation criteria were met by these stocks, as they are expected to have a return on equity (RoE) for FY24 greater than their “cost of equity”. Additionally, there is no significant decline expected in the RoE profile in FY22 to FY24. Earnings growth in FY22-24E in the 10 stocks is expected to exceed growth of nominal GDP (more than 12%) supported by a sales CAGR of around 10% and more, the brokerage said.

Keynes’ saying is a critical risk factor in a GARP (growth at a reasonable price) strategy because markets can continue to ignore a stock for various reasons and it can continue to look attractive on GARP parameters for long periods of time without showing performance.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)

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