Buying the dip? These five fundamentally strong stocks are down as much as 50% from 52-week highs.

Uncertainty in the broader market, combined with potential economic headwinds, could prolong the recovery of certain sectors or even deepen the downturn in others. Image: Pixabay
Uncertainty in the broader market, combined with potential economic headwinds, could prolong the recovery of certain sectors or even deepen the downturn in others. Image: Pixabay

Summary

  • As tempting as discounted stocks may be, investors must remain cautious and assess each opportunity based on its long-term fundamentals rather than short-term market fluctuations.

The Indian stock market has been highly unpredictable in recent months, with the broad indices near their 52-week lows.

This volatility has forced investors to reassess their portfolios and take a closer look at stocks that are either undervalued or suffering issues.

While a drop in stock prices may feel uncomfortable, it also provides opportunities for long-term investors.

Today, we look at five such stocks – investigating the causes behind their slide, delving into the broader market variables at work, and determining whether they present good investment opportunities.

#1 Tata Motors

Tata Motors produces of a wide range of vehicles including passenger cars, commercial vehicles, utility vehicles, electric vehicles anddefence vehicles.

It has operations in India, the UK, South Korea, South Africa, China, Brazil, Austria and Slovakia through a strong global network of subsidiaries, associate companies and joint ventures (JVs), including Jaguar Land Rover in the UK and Tata Daewoo in South Korea.

Tata Motors saw a 2.7% increase in revenue to ₹1.1 trillion during Q3FY25.

Operating profit declined 15.4% year-on-year to ₹13,040 crore while the operating profit margin fell to 11% from 14% in the year-ago quarter.

During Q3FY25 the company reported a 22% year-on-year decrease in consolidated net profit to ₹5,580 crore from ₹7,140 crore in the same quarter last year, which underscored the challenges it faces in domestic and international markets.

The stock price touched a 52-week high of ₹1,161.8 on 30 July 2024 and is currently trading at ₹705, a discount of close to 40%.

The company is prioritising the EV market, planning to mainstream EVs with a broader portfolio and a strengthened ecosystem to capture significant market share.

As supply constraints ease and demand rises in the latter half of FY25, Tata Motors remains vigilant about global market conditions, especially in China and Europe.

By balancing growth initiatives with careful resource management, the company is positioned to address immediate challenges while setting the stage for sustained, long-term growth.

#2 Asian Paints

Asian Paints, more than 80 years old, is thelargesthome decor company in India and owns brands such as Asian Paints, Berger, Apco and others.

The company deals in wall paints, wall coverings, waterproofing, texture painting, wall stickers, mechanised tools, adhesives, modular kitchens, sanitaryware, lightings, soft furnishings, and unplasticized polyvinyl chloride (uPVC) windows.

It’s the largest paints company in India, the second-largest in Asia, and the eighth-largest in the world.

It has a share of more than 55% of the organised domestic paints market, 60% of the decorative paints market, and 20% of the automotive industrial coatings market.

Asian Paints' Q2 results reflected a challenging environment, with consolidated net sales dropping 5.3% year-on-year to ₹8,030 crore from ₹8,480 crore in Q2FY24. This decline was primarily due to stiffer competition, which affected the company's market share and sales volume.

The domestic decorative business saw a 0.5% decline in volumes, with revenue in this segment decreasing by 6.7%.

Operating profit came in at ₹1,240 crore, a notable drop from ₹1,720 crore in Q2FY24, with margins shrinking to 15% year-on-year. The margin decline reflects both higher input costs and weaker demand in key markets.

Profit after tax (PAT) took a big hit, too. It dropped to ₹690 crore from ₹1,210 crore in the same quarter last year, driven by lower consumer spending and increased material costs.

The stock hit a 52-week high of ₹3,394 on 12 September 2024 and is trading at ₹2,277, offering a discount of 34%.

Coming to its guidance, Asian Paints is facing stiff competition in the decorative paints sector from established players such as Birla Opus, JSW Paints, and JK Paints, hurting its market share and pricing power. To stay competitive, the company has increased dealer margins, offered price discounts, and introduced innovative products.

Asian Paints plans to regain momentum through strategic acquisitions and new product launches, and is anticipating a decline in input costs which would help stabilise margins.

Although demand may remain subdued in the near term due to economic challenges and weak consumer sentiment, the company’s long-term strategy focuses on expanding its product portfolio to sustain its market leadership.

Despite current market pressures, Asian Paints is well-positioned to maintain its dominance in the industry through innovation and data-driven strategies.

#3 Kalyan Jewellers

Kalyan Jewellers is aleading jewellery retailer in India, with a strong presence in both urban and semi-urban markets. Known for its wide range of gold, diamond, and platinum offerings, the company has established trust and brand loyalty among customers.

It is among India’s top five gold jewellery retailers, accounting for about 6% of the total organised market share.

Sales grew 39.5% year-on-year to ₹7,290 crore in Q3FY25. Operating profit for the quarter stood at ₹440 crore, with a slight decline in the operating profit margin to 6% from 7% in Q3FY24. Net profit for the quarter grew to ₹220 crore. However, the net profit margin declined to 3% from 3.4% in Q3FY24.

The stock hit a 52-week high of ₹787.9 on 2 January and is now trading at ₹500, offering a discount of almost 40%.

Kalyan's growth trajectory appears robust for FY25. It plans to open 80 new stores across India, up from 57 in FY24. Profitability is set to get a boost as well, driven by a revised franchise agreement, which is expected to enhance margins without additional capital expenditure, and the repayment of ₹350-400 crore of debt.

On the retail front, Kalyan is steadily improving margins by increasing sales of studded jewellery in southern markets and beyond.

The company has also demonstrated consistent performance, with same-store sales growing 12% in the first quarter – 13% in the south and 11% in other regions.

#4 Cochin Shipyard

Cochin Shipyard Limited stands out as one of India's most modern and advanced shipyards.

It isIndia's first greenfield shipbuilding yardand the only one with a shipbuilding capacity of 110,000 deadweight tons (DWT) and repairing capacity of 125,000 DWT. The company developed India's first indigenous aircraft carrier, INS Vikrant. It has cemented its position as a leader in constructing and maintaining maritime vessels, including tankers, bulk carriers, passenger ships and defence vessels.

The company saw sales increase 15% year-on-year to ₹1,090 crore in Q2FY25. Operating profit for the quarter stood at ₹190 crore and was flat year-on-year. Operating profit margin declined slightly to 18% from 20% in the year-ago quarter. Net profit for the quarter stood at ₹190 crore while the net profit margin was 17.6%, down from 20% in Q2FY24.

The stock hit a 52-week high of ₹2,979.4 on 11 July 2024 and is currently trading at ₹1,413, a discount of more than 50%.

The company's robust order book, good execution capabilities and expanding export share, position it for continued growth as government spending on defence is expected to rise.

Cochin Shipyard demonstrated impressive growth between FY20 and FY24, with revenue and net profit increasing at a compound annual growth rate (CAGR) of 13.2% and 11.2%, respectively.

The company is investing ₹2,800 crore on expanding infrastructure, including a new dry dock and ship repair yard in Kochi. This will enhance its capacity to build and maintain large warships.

The company's expansion into Mumbai, Kolkata and Port Blair, along with the development of subsidiary shipyards in Kolkata and Malpe, underscores its commitment to strengthening India's defence capabilities.

#5 NTPC

NTPC is akey player in the power sector, producing and distributing large quantities of electricity to various utility providers. It's a leading Indian central public-sector undertaking (PSU) in the power generation sector and has a diversified portfolio of power generation sources, including coal, gas, hydro, solar and wind.

NTPC reported revenue of ₹45,050 crore for Q3FY25, up from ₹42,820 crore in Q3FY24.

Operating profit for the quarter stood at ₹13,320 crore while the operating profit margin rose to 30% from 27% in the year-ago quarter.

Net profit declined to ₹5,170 crore from ₹5,210 crore a year ago while the net profit margin fell to 11.5% from 12.2% in Q2FY24.

The stock hit a 52-week high of ₹448 on 30 September 2024 and is now trading at ₹314, representing a discount of 30%.

The company is enhancing its coal-mining capacity to secure fuel supply, aiming to increase production from 40 million metric tons in FY25 to 67 million metric tons by FY29.NTPC is also poised for significant growth in renewable energy, targeting 60 GW by FY32, including solar, wind, and storage projects. Management remains optimistic about future capacity additions, with plans to award 13.6 GW of thermal capacity by FY27.

Conclusion

While the current market volatility offers a chance to buy undervalued stocks, it is crucial to acknowledge the risks that accompany such investments. Uncertainty in the broader market, combined with potential economic headwinds, could prolong the recovery of certain sectors or even deepen the downturn in others.

As tempting as discounted stocks may be, investors must remain cautious and assess each opportunity based on its long-term fundamentals rather than short-term market fluctuations.

The path to potential gains is rarely without bumps and prudent evaluation of any investment opportunity remains essential. In the unpredictable world of stocks, staying informed about market trends is key to making wise, profitable decisions.

Investors should also consider corporate governance as a criterion for due diligence before considering an investment.

Happy investing!

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

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