Top 5 quality stocks trading near 52-week lows. Should you buy?

Investing in a falling stock is akin to catching a falling knife that has burned many, with investment values plummeting further. Therefore, buying the dip demands careful consideration. (Image: iStock)
Investing in a falling stock is akin to catching a falling knife that has burned many, with investment values plummeting further. Therefore, buying the dip demands careful consideration. (Image: iStock)

Summary

  • While a stock trading near its 52-week low can be tempting, it's important to consider other factors before investing.

Indian stock markets have been on a tear in recent months, rewarding investors with outsized returns. While the broad market index touched its all-time high, so did most stocks.

But this rising stock market tide did not lift all boats. A handful of stocks are still trading at their 52-week lows.

Investing in a falling stock is akin to catching a falling knife that has burned many, with investment values plummeting further. Therefore, buying the dip demands careful consideration.

However, if executed wisely, it presents a wonderful opportunity to obtain quality stocks at discounted prices.

Here are 5 stocks trading close to their 52-week lows. Are they worth your attention?

Let's find out…

#1 Kotak Mahindra Bank

Kotak Mahindra Bank is among the leading private sector banks in India with a total loan book (assets under management as of FY23) of nearly 4 tn.

It enjoys a strong urban franchise in India with an extensive distribution network of more than 1,750 branches and 2,800 ATMs.

The lender enjoys a strong presence in the retail segment and is investing significantly in digital platforms.

Moreover, through its subsidiaries, it has also built a presence in businesses like auto loans, broking, life insurance and asset management.

However, despite a strong brand identity and financials, the stock hasn’t performed in the last year. The stock is trading at 1,721, close to its 52-week low of 1,644. It has been on a downward trend since May 2023, falling 15% from 2,014.

Investors have been pessimistic anticipating a rate cut. When the Reserve Bank of India (RBI) cuts the repo rate, it typically aims to stimulate economic activity by reducing the cost of borrowing for businesses and individuals. The repo rate is the rate at which commercial banks borrow money from the RBI.

Now, when the RBI cuts the repo rate, commercial banks often pass on this reduction to their customers by lowering the interest rates on loans, such as home loans and car loans.

However, banks may not lower deposit rates as quickly or to the same extent, as they want to maintain competitiveness in attracting deposits.

As a result, when loan interest rates decrease more than deposit interest rates, the NIM of banks tends to compress.

This is because the spread between the interest earned on loans and the interest paid on deposits narrows. When the NIM decreases, banks may experience a reduction in profitability.

 

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Between 2019 and 2023, the advances and net profit reported a 5-year CAGR of 11% and grew at 19.2%, respectively.

While the company has maintained its NIMs in the range of 4-3-4.6% over the last 10 years, FY23 was higher at 5.3% driven by driven by our risk adjusted pricing on loans.

Its ROE has averaged 12.4% over the same period.

The lender’s asset quality has improved drastically, with the NPAs going down from 0.75% in 2019 to 0.37%. Moreover, its CASA

The company continues to guide for steady growth trend and aims to improve the mix of unsecured loans, expressing confidence in the quality of the underlying portfolio.

The lender boasts a well-capitalised balance sheet with a healthy CAR of 19.9% as on December 2023.

#2 HDFC Bank

HDFC Bank is the largest private sector bank in India with an extensive network of over 8,000 branches.

The lender has a high market share (15-20%+) in most retail loan categories like unsecured retail, vehicles, and even in mortgages post its impending merger with HDFC Ltd.

Between 2019-2023, the advances have grown around 2x in the last five years at a 5-year compounded annual growth rate (CAGR) of 18.9%.

Despite expanding its advances, the bank has maintained its asset quality thanks to its conservative attitude with its margins and provisioning policies.

This is depicted in the low level of net non-performing assets (NPAs) reported by the bank.

The NPAs of the bank have remained steady in the range of 0.3-0.4% from the financial year 2018, the lowest in the industry.

This is quite admirable as it indicates the company hasn't taken any unnecessary risks to expand its business.

The company’s net interest margin (NIM) has also been on the rise every year since 2018. However, none of this has helped the stock price.

Over the last year, while the broad market index jumped up by 22% since January 2023, the stock of HDFC bank has fallen by over 10%.

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HDFC Bank is currently facing setbacks, including delays in merger benefits and liability reductions, impacting its stock.

Since the December 2023 quarter results announcement, the shares have experienced a nearly 14% decline. It is trading at 1427, close to its 52-week low of 1,363.

Key factors include a miss in net interest margins (NIM) due to increased fund costs, elevated provisions, and a decade-low growth in earnings per share (EPS) in Q3, collectively contributing to the downward trend in shares.

Investors are worried the bank would need to play the deposit pricing game to garner high volume of deposits, thus shrinking its margins and dampening profitability. Moreover, the anticipatory cut in repo rates has added to the pessimism.

However, while the short term worries remain, the long-term story of the lending major remains intact.

Others believe that the worst is almost over, and there should be an improving trend across all important parameters, with the expectations of long-term synergies from the merger,

#3 Page Industries

Page Industries is a textile player. It specialises in the design, development, sourcing and supplying of apparel and accessories for various global fashion brands.

The company offers knitted garments. It further offers a range of products for men, women, and children. The company is engaged in the manufacturing and marketing of Jockey products.

Page Industries holds the license of SPEEDO, an international brand for swimwear. The company's Jockey brand products are sold through exclusive brand outlets (EBO), large format stores (LFS), multi-brand outlets (MBO), traditional hosiery stores, and multi-purpose stores, spread across India. It also sells its products online.

It has approximately 930 EBOs, which includes, 46 Jockey Woman EBOs catering to its women customers. It has six operational EBOs outside India, four in UAE, and two in Sri Lanka.

The Speedo brand is available in 1,300 stores, 34 EBOs, and 15 large format stores spread across 230 and more cities.

Despite a strong market presence, the stock is trading at 324, close to its 52-week low of 282. The stock has been very volatile in the past year, led by a patchy operating performance.

Moreover, the company’s shareholding pattern reveals that the promoters have reduced their stake by 1% during the third quarter of 2023. Their ownership dropped from 46% in the June 2023 quarter to 45% in September 2023. This adjustment might be attributed to concerns about brand fatigue.

Page Industries' flagship brand, Jockey, boasts a rich history spanning over a century and holds a dominant position in the Indian innerwear market.

However, the company has faced increased competition in recent years, both from domestic and international brands.

Notably, direct-to-consumer (D2C) brands pose a significant challenge, along with the growing popularity of private labels offered by large retailers.

For the nine months ended December 2023 quarter, Page Industries reported a 4.7% dip in revenues. Net profit for the same period was 6.4% lower, primarily due to reduced demand.

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Looking ahead, the company expects to grow on the back of thecountry's rising population, strong purchasing power, internet penetration, and evolving fashion trends.

This trend is accompanied by the accelerated growth of the middle-income population, rapid urbanisation, and the increased organisation of retail and online sales.

The company is undertaking various expansion plans. It is ramping up both manufacturing and sales capacity. It is also expanding its channel presence in distribution, exclusive brand outlets, large format stores, and e-commerce.

How the expansion plans pan out in the future remains to be seen.

#4 Asian Paints

Asian Paints, established in 1942, stands as India's largest paint company, renowned for its wide range of products including varnishes, enamels, and lacquers.

The company operates in 15 countries with 26 production sites globally, serving customers across 60 nations under various brand names like Apcolite and SCIB.

However, recent concerns over heightened competition with Grasim Industries entering the decorative paints segment with its Birla Opus range have led to a correction in the stock price.

Despite the strong pedigree, the stock is trading at 1,451, close to its 52-week low of 1,415. The stock has been moving within a narrow range, following the release of the quarter ending December 2023 results.

The biggest cause for concern for the paint makers has been its 60 bn capex. Grasim Industries has tapped major advertising firms to market the product.

It may also tap into their pre-existing distribution network for offerings like Birla White and UltraTech Cement.

With 25-30% of the paint market in to the unorganised sector, Birla Opus is poised to capture a significant share. Even well-established players are expected to feel the impact of the heightened competition.

The anticipation of intensified competition has investors rattled as it is expected to impact both volume growth and margins for paint manufacturers, including Asian Paints.

However, Asian Paints has strategically diversified into non-paint businesses over the past decade, offering a comprehensive home decor solution.

From modular kitchens to sanitaryware and furniture, the company caters to diverse customer needs.

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Additionally, it is investing in eco-friendly paints and enhancing its technological capabilities through strategic acquisitions, such as acquiring a majority stake in a speciality chemical and nanotechnology player.

While Grasim emerges as a contender in the paint sector, Asian Paints' diversified approach and technological advancements suggest it remains resilient amid evolving market dynamics.

#5 Hindustan Unilever

Hindustan Unilever (HUL), part of the Unilever Group, stands as India's leading Fast Moving Consumer Goods (FMCG) company with a vast portfolio of over 44 brands spanning 14 diverse categories such as fabric solutions, home and hygiene, skin care, and foods.

It enjoys widespread adoption, with nine out of ten Indian households using its products.

In a competitive landscape featuring multinational, domestic, and regional FMCG firms, HUL holds either the top spot or a strong second position in most categories it operates.

Its portfolio targets various market segments, including premium, mid-price, and economy, setting it apart from competitors focused solely on premium or mass markets.

HUL boasts one of India's finest distribution setups, with an extensive distribution network comprising over 4,500 distributors and 8 million (m) retail outlets.

Moreover, its revenue skew towards health and hygiene segments provides a relatively advantageous position compared to peers.

Despite a stronghold in the market, the stock price has been volatile in the past year. At present, it is trading at 2,414, close to its 52-week low of 2,347.

This underperformance comes on the back of poor quarterly performance. On nine months ending December 2023 basis, the company reported a dismal 2.9% and 2.4% growth in revenues and net profit, respectively.

On a quarterly basis, the company reported a 0.5% dip in sales and a 5.6% dip in net profits.

HUL faced challenges with negative realisations in its home care and beauty & personal care segments, falling below expectations.

Increased competition in detergent bars affected home care, while declines in skin cleansing impacted beauty & personal care.

Volumes declined in foods and refreshments due to consumer shifts to lower-priced tea brands. The rural slowdown and active local competitors contributed to weaker growth.

Margin miss occurred across segments, particularly in-home care, with margins declining YoY and below expectations.

Management addressed most corrections in-home care but not in foods and refreshments, especially tea.

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Looking ahead, the company anticipates gradual demand recovery, linked to rural income growth and winter crop yields, amid ongoing highly competitive intensity. Negative pricing is expected due to current commodity prices.

In fiscal 2025, HUVR plans to split its beauty and personal care business to focus on driving growth and premiumisation in the beauty segment.

Conclusion

A stock trading at its 52-week high or low alone does not guarantee strong returns or vice versa.

Considering stocks just because they are rising or falling in value without a solid rationale can be dangerous.

Stock prices can fluctuate for various reasons, including market sentiment, speculation and short-term news events.

Without understanding the underlying factors driving these price movements, investors may make impulsive decisions that are not based on fundamentals.

So, if you want to invest, a better approach is to dig deeper. Do your research.

Check to see if there are any long-term triggers to growth. Study and analyse the company's fundamentals and always look for a margin of safety before investing.

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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