9 hidden gems Peter Lynch would pick today

Peter Lynch, the legendary former manager of the Fidelity Magellan Fund, wasn't one for chasing fads or overhyped stocks. He believed in investing in companies you can understand—businesses with solid earnings growth, strong balance sheets, reasonable valuations and often those hiding in plain sight with little institutional interest.

Inspired by his philosophy, we ran a screen using Value Research's stock screener to capture companies that reflect the Lynch style. Our filters included:

• Market cap >Rs 500 crore
  
• Debt-to-equity 1 for financial prudence
  
• ROE >15 per cent for capital efficiency
  
• Five-year EPS growth between 15-30 per cent
  
• Institutional holding 30 per cent to spot off-the-radar stocks
  
• P/E 15
  
• Inventory growth 1.2 times revenue growth for operational discipline

This narrowed the list to 16 names, from which we retained 9 stocks rated four or five on our Stock Ratings. Below, we spotlight two of them and explain how they check the boxes of a classic Peter Lynch stock.

Bhansali Polymers

Bhansali Engineering Polymers (BEPL) is a leading Indian manufacturer of specialised plastic materials, including ABS (acrylonitrile butadiene styrene) and SAN (styrene acrylonitrile). These polymers find applications across a variety of industries including automotive, home appliances, electronics and packaging. With integrated manufacturing facilities in Abu Road (Rajasthan) and Satnoor (Madhya Pradesh), BEPL mostly caters to the domestic market.

Financially, BEPL stands out with zero long-term debt and healthy cash reserves, reflecting a conservative approach to capital management. The company boasts impressive return ratios, with an average ROE of around 20 per cent over the last five years, demonstrating exceptional capital efficiency. Moreover, its backward integration has kept operating margins robust by driving cost efficiencies and offering better control over product quality.

Over the past few years, BEPL's growth has been fuelled by a surge in demand from the automotive and white goods sectors, as well as the growing trend of import substitution in India as the country imports almost 50 to 60 per cent of its ABS requirement. With capacity expansion and the government's continued push to support domestic manufacturing, BEPL is poised for continued growth, especially as demand for ABS resins increases. With institutional holding at a meagre under 2 per cent, BEPL remains a high-quality business that is yet to catch the market's attention.

But despite its strengths, BEPL faces several risks. These include volatility in raw material prices, particularly crude-linked inputs, dependence on cyclical industries like automotive and appliances and growing competition from global players, which could pressure margins and limit market share expansion over time.

Credo Brands

In a fashion space dominated by foreign brands and flashy startups, Credo Brands, the parent of men's casualwear label Mufti, stands out for its blend of profitability, brand equity and capital efficiency. Founded in 1998, Mufti has carved a niche in the mid-premium menswear segment, bridging the gap between mass-market and high-end apparel.

The numbers speak to its discipline. Over FY21-24, revenues grew at 33 per cent per annum, while net profit margins consistently remained above 10 per cent. With a three-year median return on capital employed (ROCE) of 31 per cent and zero debt, Credo runs a capital-light business. It outsources manufacturing, allowing it to focus on design and distribution. It derives nearly 27 per cent of revenue from exclusive brand outlets (EBOs), 26 per cent from multi-brand stores and 12 per cent from online channels.

Despite the positives, Credo trades at just 13.6 times earnings that can be attributed to the current industry-wide softness. Demand for the premium and mid-premium segments has been subdued in the past few quarters due to reduced discretionary spending and weak consumer sentiment. This has caused revenue slowdown for the company; its FY24 revenue growth slowed to 14 per cent and Q3 FY25 saw just 4 per cent YoY expansion.

Before you leave

This Peter Lynch-inspired screen highlights companies with solid fundamentals and balance sheets that are flying under the market's radar. However, as always, stock screens are merely a starting point, not the finish line. Deeper research into each business is essential before making investment decisions. If you are looking for thoroughly researched stock ideas, explore Value Research Stock Advisor , which will get you meticulously researched stock recommendations and ready-to-invest portfolios, updated every month.

Also read: How Sunil Singhania picks and exits stocks