These 7 'lucky' stocks saw EPS upgrades in last 3 of 4 quarters; time to buy?
Investors should pick those stocks which are displaying signs of consistent growth.
The June quarter earnings have largely disappointed and it is showing on D-Street as well.
Based on a sample of 2,976 companies, there is a clear slowdown in growth in net sales and profitability of the companies. In Q1 FY20, the net sales of the sample companies grew at a slower 4.6 percent compared with the 13.5 percent in the comparable quarter last year.
Similarly, the aggregate net profit of these companies grew at a moderate 6.6 percent year-on-year (YoY) as against the 24.6 percent in Q1 FY19, the report said.
“The June quarter disappointed, with earnings declining by 11% YoY. However, much of the weakness was anticipated, and earnings were a bit below expectations,” Vivek Ranjan Misra, Head of Fundamental Research, Karvy Stock Broking, told Moneycontrol. In terms of earnings growth, this was the worst outcome in two years.
While most of the companies witnessed a slowdown, seven stocks saw a consistent upward FY20 earnings revision in at least three of the four quarters, says an Elara Capital report. These include Nestle, Wipro, Dr. Reddy’s, Bajaj Finance, Power Grid, HDFC Life and Bharti Infratel.
The Nestle India reported an 11 percent rise in the PAT on a YoY basis lead by volume growth, while Bajaj Finance also continued to post consistent AUM/loan growth despite an increase in provisions.
In the IT space, Wipro delivered a profit growth of 12.8 percent YoY despite slowing down on a sequential basis and maintained positive commentary for coming quarters through differentiated offerings.
Among stocks that saw consistent downward FY20 earnings revision in the last four quarters are Exide, Eicher Motors, Mahindra & Mahindra and Lupin.
Only a handful of companies in June quarter managed to defy the slowdown seen in the past few quarters and delivered steady earnings growth on a sequential basis and managing to beat the industry average by a decent margin.
Investors should pick the stocks that display signs of consistent growth. The list can be used as a filter to short-list stocks but investors should measure these based on their own study as well, suggest experts.
“Most of the companies which displayed consistent growth are fundamentally sound companies backed by superior management at the helm and consistent financial performance aided few of those names to outperform even during the volatile market,”
Given the tepid growth, some of the companies mentioned above certainly make for “good-luck stocks” in the portfolio.
Should you buy?
Most of the companies have been delivering consistent growth rate for some time now, and a lot of good news is already baked into the price, suggest experts. Though, these are good stocks to have but might not deliver high returns.
Most of the companies have delivered good numbers given the operational efficiencies, expansion undertaking and sound management. All but needed praise and therefore upgrades are but natural for such outstanding performance.
But, this scenario can change in the coming few quarters, considering the slowdown can hit these efficient companies as well. We don’t recommend these stocks because Mr Market has a habit of overreacting to good news and therefore, the good news from quarterly results has already been factored in.
However, it is advisable to invest in a staggered manner as we could see some profit-taking/consolidation in these stocks in the near term.
MORE WILL UPDATE SOON!!
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