Mid-Cap Stocks Model Portfolio By UBS

UBS Investment Research has released its model portfolio of mid-cap stocks.

To design the model stock portfolio, UBS Investment Research has screened about 150-200 stocks top down on fundamental/valuation parameters, met companies and then picked up bottom up ideas.

The stock ideas are based on:

1. Secular themes in agri, consumption, healthcare, industrials.

2. Market leaders in small industries, sometimes with strong brands
 

3. Special Situations – Turnaround stories, value unlocking, regulatory catalysts, SOTP

4. Short-term positions where we see industry cycle bottoming out and stocks cheap

5. Huge resources like coal and cheap stocks

UBS Investment Research has advised investors to stick with winners and explains its stock picking strategy

•Which companies displayed earnings resilience in the last downcycle?

We analyzed the financials of our 33-stock mid-cap coverage during the last macro downcycle (Q3 FY09-Q2 FY10). We find the most resilient earnings for companies which are: 1) market leaders with a strong/niche brand (Exide, Havells, Emami); 2) exposed to non-cyclical demand like agri/healthcare/city-gas (Coromandel, Apollo Hospitals); and 3) present in nascent highgrowth markets like Dish TV.

•How did our coverage mid-cap stocks perform in the last downcycle?

Most of the companies displaying earnings resilience outperformed the Sensex and BSE Mid- Cap Index over September 2008 to March 2009. However, all these stocks were down on an absolute basis; the Sensex/BSE Mid-Cap Index was down 33%/49%.

•2011 YTD performance of our mid-cap stocks selectively impressive

2011 YTD stock price performance also continues to be above trend, arguably also because of some macro uncertainty. The index of our mid-cap stocks coverage has outperformed the Sensex/BSE Mid-cap Index by 8%/12% but performance has been much dispersed.

•Conclusion—continue to stick with winners

We prefer to stick with winners who have displayed resilience in earnings and stock price in the last downcycle and have continued to do so recently.

—Top 10 mid-cap ideas: Coromandel, Exide, Havells, VIP, Triveni, Motherson, Emami, Dish TV, DB Corp, Pidilite.

— Other ideas: Carborundum, Chola Finance, Tube Investments, Jai Balaji