Contrarian Stocks for 2013



With NSE Nifty up 26% in 2012, people who largely took a bullish call in 2011 on Indian equities made handsome gains. However like every rally not all stocks participated and there were clear winners and losers as far as individual stock performance were concerned. 

But all is not that bad for the stock that didn't do well last year as some of them has become  candidates in the category of contra bets. Value investors always believe in contrarian investing as only that style gives them the opportunity to buy stocks cheap. Value Investors believe that by chasing euphoric stocks you run a very high risk of quick erosion in stock prices in short span of time due to profit booking or bubble burst. 

With contrarian style of investing you always have many edges like advantage of low ownership, cheap valuation, no bubble in prices and usually good dividend yield. 

Keeping that in mind InvestorZclub has come out with the following list of stocks, that are strong in fundamentals, cheap in valuation and has been an under performer in 2012, for our contra investing readers. However it must be noted that these stocks might not perform as expected if the overall stock market falls significantly this year. But these stocks are also not expected to go down significantly in case of market correction as they are largely under owned and cheap in valuation.

Contrarian Stocks for 2013:

Bharti Airtel: Nobody wants to invest in telecom company due to the cut throat competition and regulatory hurdles and that make us bullish on the specific players in the sector as the stocks in this sector is largely being ignored by the market and valuations are cheap in general. Bharti Airtel being the largest player with diversified businesses such as towers, DTH, Retail etc is the strongest player of this sector in India. Being the fourth largest telecom company in the world and data revenue set to pick up in next couple of years the stock is trading cheap considering the future opportunities and valuation of some of the large telecom companies in the world. China Mobile with almost double the subscriber base trades at 10 times the market value of Bharti Airtel. 2012 also saw some clarity and sanity in regulation and comeptition which will augur well for the stock in 2013. Hence at InvestorZclub we think that the stock could deliver 30% to 50% return in 2013.

Infosys: Infosys has been a big under performer and was down some 16% in 2012. Management shuffling, high billing rates and high expectations didn't went well for the IT bell weather last year. But most of those factors are corrected now and Infosys is doing some major rejigs internally which will help the company grow at the above industry average rate. Also at 2300, valuation wise the stock is trading at around 13 times FY-14 earnings which makes is very compelling considering the size, scale and reputation of the company. Also for the whole of 2013 we expect Indian Rupee (INR) to stay weak against USD which will help the company in sustaining margins even after modest wage hikes. Large institutional investors are also increasing stake in the company with LIC stake in Infosys now standing at  over 7 percent. Hence it is the top contra bet by InvestorZclub for 2013. We expect the stock to deliver at least 30% return in one year from the current levels of 2300. 

Hero Motor: When Hero and Honda parted ways, Hero Motors lost some market share to Honda Motors which resulted in flat volume growth for the company and almost flat performance for it's stock in 2012. The stock delivered 5% return in 2012 compared to 33% return delivered by it's peer Bajaj Auto. But the drag seems to be over for the company as far as losing the market share is concerned. For past couple of months the company is registering good volumes and the intensity of losing the market share has also come down. Valuation wise the stock is trading at almost half the market value of Bajaj Auto and 20% discount to the industry PE.  Hence the stock seems to have limited downside and could generate more than 30% return in 2013.

NTPC: This is one stock which is expected to do very well once the fuel supply agreement with Coal India is signed as that will ensure regular supply of coal to it's plants that can generate more than 40,000 MW of electricity every year. The stock has largely been an under performer and was down 2.5% in 2012 when the NIFTY generated 26% return in the same year. Valuation wise the stock is trading at 13 times current year EPS and has a market value of 3 crores per Mega Watt which is almost 40% discount to its replacement cost. With fuel suppy issue getting resolved the stock has limited downside is expected to perform well in 2013. We expect the stock to generate more than 30% return this year.



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5 comments:

Priyanka said...

Hey Amit,

Good analysis you have posted. Bought some Hero Motors couple of days back and today it has suddenly tanked down.. may be because of results, I think its good time to add some more to the portfolio..... whats your thoughts ?

On you sesa goa rec, made some good profits... booked partial profits at 204/-..... do you think its good time to buy some more at this level 187 odd....

Like your good detailed analysis backed up with solid facts.... keep up the good work.

All the best !!!

Amit Agarwal said...

Hi Priyanka,

Hero Motor is surely an accumulate on dips. Infosys and Bharti however has run up fast since recommended so wait for some correction over there.

Amit Agarwal said...

Bharti Airtel has already appreciated around 10% since it was recommended above in Contra stocks for 2013.

The sector is coming out of prolonged ignorance and hence the biggers and stronger players will see substantial improvement in their stock performance.

Vaibhav Patni said...

Mr Amit, What your views about NTPC..it dipped around 3% today.Is the ri8 time to buy it for a year or two?

Amit Agarwal said...

Infosys has made 52 week high of 3007 today...

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