Bhavin Shah has a good track record as a stock picker. His stock picks of 2012 gave a fabulous return of 77%. His performance in 2013 was marred by three stocks that disappointed though two stocks out-performed to the extent that he still managed a respectable return of 19%.
Now let’s take a close look at his stock picks for 2014:
Tata Consultancy Services (TCS):
TCS has been a stellar performer in 2013 and though it is very richly valued by historical standards, we are seeing a very strong demand environment in which TCS is the best positioned company today. It has very strong momentum with clients, especially with large clients. What it is offering in terms of capabilities, in terms of breadth and depth definitely now puts it right at the top. As a result, if you look at the recent data points they have sort of gone ahead of their FY14 hiring targets already and then completed that by December which suggests that they are looking at a very strong year ahead. TCS is seeking to address its high working capital and that will improve free cash flows further. From these levels, taking a March 2015 view, TCS can still move up to something close to Rs 2600 which suggests a decent upside from current levels.
Stocks in the pharma sector have done very well but the market is kind of under-estimating some of the opportunities that Sun Pharma has in front of it especially with drugs like Lupron Depot and Glivec with 180 day exclusivity. The Taro business also has very strong potential. So, high teens organic earnings growth is quite possible with Sun Pharma. So, again looking at March 2015 there is at a target price of Rs 715 at 23x of trailing earnings.
City Union Bank:
City Union Bank has pretty strong upside and can easily cross Rs 70 as market moves beyond asset quality concerns across the board. City Union Bank has had a very good performance on that front with very controlled quality deterioration. It has maintained very strong interest margins and also with sufficient capital they don’t need to dilute for another two to three years. So, City Union Bank is a good pick in the banking space.
Two companies, Ashoka Buildcon and Sadbhav Engineering, have had very careful approach to selecting projects and also very good track record in completing them. Ashoka Buildcon has a very good mix of completed projects plus a couple of BOT projects becoming operational soon and that will support healthy cash flow. The cash position will allow it to re-enter bidding whenever it sees the opportunity. It has been very careful not to get involved in aggressive bidding that was going on in the sector. The margins are pretty good as well and when the company is valued based on its entire portfolio projects, there is decent upside in the stock. Rs 77 is a fair value and that suggests a good upside from here as well.
Finolex Industries is the largest player in the pipe segment. However, the company has had a volatile earnings history because of number of factors that affect their earnings. Finolex has taken steps such as hedging their input cost which are input raw material which are imported. With an increasing volume of pipes and less of PVC sell through in the market Finolex should be able to at least reduce some of the volatility in their margins. Free cash flow generation of this company has been very good. Some of the other stocks in the sector have done significantly well and Finloex exhibits lower volatility in earnings and healthy growth in high teens the stock could give you upside both from multiple re-rating as well as growth. Finolex Industries also has very good dividend payout which is one of the key reasons why you should buy the stock.