Maximise your portfolio with Value Research Stock Ratings

First, the rooks, then the bishop and finally the queen — one by one, Adolf Anderssen, the German chess master, sacrificed the three pieces in his famous 1852 match with Lionel Kieseritzky, another fellow chess master from the Baltic. It seemed like Kieseritzky was a whisker away from victory. Yet, by the end, Anderssen stunned everyone with a surprising checkmate. While this match-up is from nearly two centuries ago, we were reminded of it in the market crash of June 4, 2024. During the crash, most investors were focused on individual pieces or stocks, worrying about which were in the red and which were in the green. However, in doing so, they missed the bigger picture: Their portfolio performance. Like chess, an investor's goal is to outsmart the opponent—in this case, the market. For that, the price movement of individual stocks should take the back seat. The focus should be on whether the portfolio as a whole is sturdy and capable of generating index-beating returns. In other words, aim to checkmate the market, not just to see your favourite stocks in green. To achieve this, you need to adopt a portfolio approach. View all your investments as a single entity. Before buying or selling, ask yourself if the stock fits your portfolio well. If the answer is no, then regardless of how good the stock is individually, it is not a worthwhile investment for you. However, with over 4,000 listed companies in India, finding the perfect fit for your portfolio may seem like finding a needle in a haystack. This is where our experience comes into play. After 30 years of research, we developed a novel tool: Value Research Stock Ratings. Our ratings assess and rate every stock based on three key drivers of long-term wealth creation: quality, valuation, and growth. Combined with our screener, these ratings can help you filter stocks that suit your portfolio and investment style. Moreover, you might not even have to do that. We have developed five screens for the five most popular investing styles. Each screen provides around 25 stocks. Further, we have picked the six most promising stocks from each screen and summarised their business model and growth drivers. So, fasten your seatbelts as we navigate through each of these screens and companies. But before we set sail, we must warn you: These are not stock recommendations. While our screens are a great time-saver, due diligence is still essential before making any investment. Growth at a reasonable price: Fast growth balanced with comfortable valuation Popularised by the legendary fund manager Peter Lynch, the growth at a reasonable price (GARP) strategy aims to combine the best of both worlds — growth and value. We are not looking for overpriced darlings with sky-high valuations here. Nor are we scouring the bargain bin for undervalued stocks with little growth potential. Instead, we are aiming to strike the perfect balance between growth and value. Using this strategy, you will be able to focus on fast-growing companies available at relatively attractive valuations. Usually, these stocks grow faster than the overall economy. To find such companies, we applied the following filters: Growth Score greater than or equal to seven Valuation Score greater than or equal to four Quality Score greater than five These criteria led us to an initial list of more than 200 companies. To refine this list, we sorted the companies based on their Quality Score and Growth Score. We picked the top 25 from the list. We would like to remind you that these are not stock recommendations. You can go through the entire list here. 1. Cholamandalam Investment & Finance: Harvesting growth in rural lands Part of the renowned Murugappa group, Cholamandalam Investment and Finance started in 1978 as a vehicle finance company. Now, it offers a variety of services, including retail and commercial lending. Over the years, the lender has built strong relationships with automobile makers and dealers. This has provided the company with an competitive edge. Also, with nearly 84 per cent of branches in rural areas, Cholamandalam has effectively tapped into rural credit demand. This rural focus, along with robust underwriting, has driven a 20 per cent annual growth in AUM over the past five years. While SMEs and consumer loans currently represent a small portion of its AUM, these high-yield segments are expected to fuel future growth. However, the highly competitive nature of the industry may present challenges. 2. Dr. Reddy's Laboratories: Searching for the magic growth pill Dr. Reddy's Laboratories is a global pharmaceutical company with two major segments - generics (87 per cent of FY24 revenue) and active pharmaceutical ingredients (12 per cent). The company has an extensive global presence, with North America accounting for half of its revenue. Strong demand for drugs like Revlimid has led to a 13 per cent annual revenue growth in the last five years. In addition, a decline in raw material costs bolstered margins, and its profit after tax grew an impressive 25 per cent in the previous five years. Going forward, opportunities in biosimilars and patent expiries should drive growth. Also, it is expanding into CDMO for biotech drugs through its subsidiary Aurigene Pharma. This subsidiary has already commenced operations in FY24. However, its long history of volatile margins is a future risk that should not be neglected. 3. Narayana Hrudayalaya: A unique mix of care and profitability Narayana Hrudayalaya is a leading hospital operator with over 39 healthcare facilities nationwide. It provides specialised care in multiple areas, including cardiology, oncology and neurosciences. The company's focus on faster discharge and affordability has helped it secure strong footfalls. Between FY21 and FY24, footfalls compounded an impressive 27 per cent annually, driving an annual revenue growth of 25 per cent. It spent nearly Rs 1,000 crore in each of the last two years to improve operational efficiency and boost margins. Going forward, its unique mix of affordability and profitability will drive growth. Also, its new hospitals should help. It plans to spend Rs 1,600 crore in FY25 for greenfield expansion, a new hospital in Cayman Island and maintenance expenses. Note that the new facilities will require time to break even, which may impact profitability. 4. Manappuram Finance: All that glitters is earnings Founded in 1992, Manappuram started as a gold financier. Over the years, it expanded into housing, vehicle finance, and more. The lender boasts an extensive pan-India brand presence encompassing 24 states. It operates out of nearly 4,000 branches, which is higher than several established banks. Its primary growth driver in recent years has been its microfinance arm, Asirvad. Despite the high-risk nature of the segment, the company's conservative approach has helped it find success. It tripled its microfinance AUM between FY19 and FY24 while maintaining a healthy GNPA ratio of 2.8 per cent. However, the asset quality risks in microfinance cannot be ignored. The market, too, is cautious of this risk. As a result, the stock trades at a lower valuation than its key peer in the gold loan space, the renowned NBFC, Muthoot Finance. 5. Fine Organic Industries: A fine plan for global growth Fine Organic is India's largest manufacturer of oleochemical-based additives, used in food, plastic polymers, cattle feed, cosmetics, coatings, and more. With 52 per cent of its FY24 revenue from exports, the company has a strong global presence. It has benefitted from the rising demand for oleochemical-based additives globally. Its revenue has grown 15 per cent annually over the past five years. Its expertise in complex oleochemicals provides a strong moat, allowing it to command impressive margins. Notably, it maintained an average operating profit margin of 20 per cent over five years. Looking ahead, the company is expanding capacity and testing new products in Thailand, supported by a robust cash balance of Rs 1,049 crore. However, it faces

This article was originally published on July 01, 2024.