5 beaten down stocks with strong fundamentals poised to stage a comeback in 2023

investors rather seek high dividend yield stocks Which can provide them a source of passive income. Or they choose to invest in beaten down stocks that have strong return potential because of their established moats and strong fundamentals.

So, if you’re looking for opportunities in this stock market rebound, keep your eye on these 5 beaten but fundamentally strong stocks that are poised to stage a comeback in 2023.

These companies have done more than 30% correction by making the risk reward ratio favorable.

#1 HLE Glasscoat

First on the list is HLE Glasscoat.

It manufactures process equipment such as filtration and drying equipment and glass-lined equipment for the chemical and pharmaceutical industries.

In its 40 years of existence, it has grown to become the largest player in the filtration and drying equipment segment, accounting for 50% market share in India by December 2022.

It is also the second largest player in glass-lined devices with a market share of 25% by December 2022.

The company’s shares have fallen more than 50 per cent in the last one year.

HLE Glasscoat Share Price – 1 Year Performance

Several factors have contributed to the decline. The slowdown in the economy has had a marginal impact on their order book. Geopolitical factors such as the Russia-Ukraine war have led to supply constraints for brief periods.

To add to this, high inflation has increased input prices such as fuel and metals, which has impacted the company’s net margin. However, it was successful in passing on the cost hike to the customers.

Over the past few quarters, the company has been facing strong demand for its products from the chemical and specialty chemical industries.china plus one megatrend, The same is reflected in their order book. Its order book till December 2022 5.3 billion (BN).

Since the company had already invested in capacity expansion across all its plants, it has been able to accommodate higher orders indicating revenue visibility.

The company’s revenue grew at a CAGR (Compound Annual Growth Rate) of 47.2% due to higher orders. The net profit has also grown at a CAGR of 60.9%.

The company has high return ratios, with a five-year average ROE (Return on Equity) and ROCE (Return on Capital Employed) of 38%.

Moreover, the company has been paying dividend continuously for the last 20 years.

Its debt-to-equity ratio has also come down from 2x to 0.5x over the past four years, so it can continue to pay dividends in the future.

With strong fundamentals and high order book, the company may see a rebound in its share price this year.

#2 Metropolis Healthcare

Next on the list is Metropolis Healthcare.

The company has a chain of 170 diagnostic laboratories and 2,400 collection centers in seven countries, while the central laboratory is located in Mumbai, India.

The company’s share price hit a 52-week low in February 2023, falling close to 49% from a 52-week high in April 2022.

Metropolis Healthcare Share Price – 1 Year Performance

In November 2022, the company’s office was raided by the Income Tax Department as a part of a tax evasion probe.

To add to these concerns, in the December 2022 quarter, the company reported sluggish revenue growth. Although non-Covid revenue grew by 13%, the decline in Covid revenue impacted revenue growth. Net profit also fell by 12.9% YoY.

Non-Covid revenue has increased in the last four quarters. The company expects this to grow further due to rising health awareness among consumers.

Its operational metrics have also shown steady growth. In the December 2022 quarter, revenue per patient and number of patient visits grew by 3.6% and 15.7%, respectively.

Owing to its marketing initiatives, B2C (Business to Consumer) revenue also witnessed a strong growth of 21% in the first nine months of the current financial year.

The metropolis plans to capitalize on the growing demand for accessible healthcare and aims to set up 90 laboratories and 1,800 service centers by 2025.

In line with its network strategy, it has added 12 labs and 396 centers in nine months of FY23.

The company also plans to grow its customer base through its asset-light expansion plan by establishing partnerships with third-party patient service centers.

Over the past five years, the revenue and net profit have grown at a CAGR of 13.7% and 13.9%, respectively. The return ratio is also strong, with a five-year average ROE of 26.5% and ROCE of 37.8%.

It also plans to fully repay its debt by the end of FY2024.

Although the short-term sentiment around the stock is bleak, we think it is only temporary, and the company is poised to rebound.

#3 Clean Science and Technology

Next on the list is Clean Science & Technology, a leading chemical manufacturing company.

It manufactures specialty chemicals, pharmaceutical intermediates and FMCG chemicals.

The company’s products are used in the textile, FMCG, pharmaceutical and agriculture industries.

Shares of Clean Science & Technology have declined more than 30% in the past year.

Clean Science & Technology Share Price – 1 Year Performance

One of the reasons for the decline is its high valuation. Shares are trading at a price-to-earnings (P/E) ratio of 52.3x, which is much higher than the industry average of 24.3x.

Simultaneously, a decline in net profit margin despite an increase in revenue due to higher input costs has contributed to the share price correction.

In the December 2022 quarter, the company’s net profit increased by 44.5% due to reduction in input costs.

Revenue also increased by 32.7%. This is expected to grow further in the coming quarters as the company has started manufacturing Hindered Amine Light Stabilizers (HALS), a performance chemical that India imports.

Over the past five years, the company’s revenue has grown at a CAGR of 12.1% due to rising demand. Net profit also grew at a CAGR of 18.5% during the same time period.

India is the sixth largest chemical manufacturer in the world. With the Government’s ‘Make in India’ initiative and China plus one trend, the specialty chemicals industry is poised for growth.

This augurs well for clean science and its future prospects look bright.

#4 Dr Lal PathLabs

At the fourth position in the list is Dr. Lal PathLabs.

Shares of this leader diagnostic company Has done 20% right in the last one year.

Dr Lal PathLabs Share Price – 1 Year Performance

In the December 2022 quarter, the company’s total revenue fell 2% YoY, and its Covid revenue plunged 80%.

Net profit margin also declined from a high of 22% in the June 2021 quarter to 11% in the December 2022 quarter.

Inflation and falling Covid revenue have taken a toll on Dr Lal PathLabs’ margins. To add to this, the low margins of Suburban Diagnostics, the acquisition of Dr Lal PathLabs, is pulling down margins.

As the Covid situation is easing in the country, its time diagnostic companies focus on non-Covid revenue.

Dr. Lal PathLabs is now focused on strengthening its operations, products and geographical expansion.

As a result of its efforts, the company’s non-Covid revenue has grown from 88% in the December 2021 quarter to 97% in the December 2022 quarter.

Operating metrics, such as the number of patients and public service centres, have also improved significantly.

Last five years have been good for the company as its revenue and net profit grew at a CAGR of 14.5% and 15.3% respectively.

The return ratio is also strong. The company has consistently shared profits with its shareholders in the form of dividends.

Going forward, strong fundamentals and good revenue visibility will drive growth for Dr Lal PathLabs.

#5 LTIMIndustry

The last LTI on the list is Mindtree.

After the merger between L&T Infotech and Mindtree, LTI Mindtree is the fifth largest IT services company in India in terms of market capitalization.

With the attrition rate hovering at an all-time high in the industry, investors fear that there will be high attrition in the merged entity as well.

To add to this, LTIMindtree shares have declined over 19% in the last one year and 27% from their 52-week high due to a slowdown in the economy and a decline in the company’s net profit in the December 2022 quarter.

LTIMindustrie Share Price – 1 Year Performance

However, the fundamentals of the company are very strong.

Over the past five years, the company’s revenue has grown at a CAGR of 15.9%, driven by increased digitization. The net profit also grew at a CAGR of 15.6%.

The five-year average ROE and ROCE are as high as 28.4 per cent and 38.5 per cent.

It also pays a consistent dividend, with a five-year average dividend payout ratio of 35.8% and a dividend yield of 1.54%.

With the growing need for emerging technologies and digitization, IT industry is a good long term investment. The fall in IT stocks has presented a great investment opportunity for long-term investors.

Also, with higher interest rates, the Indian rupee is expected to depreciate against the dollar, which will benefit IT stocks.

Most IT stocks have fallen 30-40% from their 2022 peak and offer good risk reward ratio on the valuation front. The slowdown in the US has mostly affected Indian IT stocks.

2023 may not be a very good year for the market. But there can be a strong jump in IT stocks.

the road ahead…

Three months into 2023 and the benchmark Nifty is at 17,500. Just a few days back, the Nifty was already at 16,000 levels among midcap and smallcap investors.

But yesterday’s rally of over 270 points in Nifty changed the sentiment so quickly.

The point is… Investing in the stock markets can be difficult and many people consider it risky. The main reason behind this is volatility, which is caused by demand and supply forces.

A sharp rise or a sharp correction should not excite you or create panic, as this is a normal phenomenon for the markets.

It is best to stick to your investment strategy and not take hasty decisions during volatile times.

Remember, Warren Buffett accumulated a large portion of his wealth just after his 50th birthday. just think For long term when you are investing in stock markets,

Happy Investing!

Disclaimer:This article is for information purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated equitymaster.com