Top 10 Cheap Stock Picks Under 10x P/E: ICICI-Direct Research Report

It is a Déjà vu (a feeling of having already experienced the present situation) all over again as markets have a tendency, once in a decade, of creating declines of high magnitude and velocity in a very short span of time. This always leaves the investors in a iffy kind of a situation as to whether the world is coming to an end.

However, on the contrary, if one thinks rationally, markets also implicitly offer a lot of dislocated opportunities if one seizes them with patience and holds with conviction. Thus, they can generate alpha over a period of time.

Hence, to capture one such Déjà vu feeling, we are recommending stocks across large caps, midcaps and small caps space, which have currently undergone a massive correction on account of the current uncertain environment.

The underlying thesis of these stocks is:

•Established business models that have survived such panic situations many a time with a credible management at the helm. All the stocks in our recommended universe are trading at or around 10x P/E on FY22E basis

•The companies have a steady balance sheet with no leverage and a credible history of generating positive cash flows across business cycles. The RoCE of such companies (>15%) is sufficient to cover their cost of capital and create incremental economic value added or EVA

•The companies are consistent dividend distributors. The dividends earned in rough times like these, to some extent, will help to cover the opportunity cost of holding such stocks. Even the earnings yield of these stocks is equal to or greater than the 10-year G-Sec yields at this point

This clearly does not indicate a bottom but certainly indicates good entry points. Hence, investors can choose to stagger or invest lumpsum depending upon one risk appetite and time horizon.

To encapsulate, near term volatility in stock prices can be high but at the same time “Nobody rings the bell at the bottom”.

Out top picks under 10x P/E are Hero MotoCorp, Wipro, Tech Mahindra, Mahanagar Gas, KSB, BEL, Gujarat Pipavav, Kewal Kiran Clothing , TV Today and Heidelberg Cement.