Top 5 Fundamentally Strong Smallcap Stocks Trading 30% Below 52-Week Highs

When fundamentally strong companies fall down during a market crash, investors often face the challenge of determining their position in the market.

The period of downturn can be both daunting and opportunistic.

Coming to the recent crash, the Nifty Bank index closed at 46,386 and Nifty50 at 21,817 falling for the eight consecutive day on 19 March 2024.

Buying in the dip is a strategy based on the belief that stock prices will eventually rebound.

However, purchasing stocks during a dip may also expose investors to market volatility or sudden price swings.

It is important to acknowledge that even fundamentally strong companies may encounter declines in their stock prices at some point.

In this article, we take a look at five fundamentally strong stocks that experienced declines of up to 30% in the recent stock market crash.

#1 Lloyds Engineering Works

First on the list is Lloyds Engineering Works.

Lloyds Engineering Works (LSIL) specializes in developing, producing, and deploying equipment for sectors like oil, gas, hydrocarbon, power plants, and nuclear facilities.

Founded in 1974, it also manages turnkey and engineering, procurement, and construction (EPC) projects for various industries.

Currently, LSIL shares are trading at Rs 47.8 after reflecting a decline of approximately 24% since February 2024. The recent crash of 20 March resulted in a one-day decline of 3% in stock value.

It is currently trading at a 24% discount from its 52-week high of Rs 62.9.

Negative market sentiment towards Lloyds has been influenced by a 22% decline in share price in March 2024 itself.

Lloyds is facing challenges as a manufacturer and designer of heavy equipment and machinery.

The need for competitive rates, procurement, from politically supported cartels, and increasing risks in EPC contracts are adding to the company's challenges.

For the financial year 2023, Lloyds achieved a commendable Return on Equity (ROE) of 24.1% reflecting its ability to generate profits. The ROCE of 26.8% indicates that the company is financially healthy to cover its capital costs.

It maintains a conservative approach to dividends and debt management. The adjusted dividend per share of Rs 0.10 and a total debt-to-equity ratio of 0.25x, the company demonstrates balance.

Lloyds also plans to spend Rs 500 million (m) during the financial year 2024 for capacity enhancement.

Over the long term, Lloyds is expected to enhance its product portfolio, manufacturing process, and strengthen its share price.

#2 Pondy Oxides & Chemicals Ltd.

Second, on the list is Pondy Oxides.

Pondy Oxides & Chemicals Ltd (POCL) is a leading secondary lead facility in India. It specializes in the production of high-quality lead and lead alloys, zinc metals, zinc oxides, and PVC additives.

The company's product portfolio includes zinc oxide, lead suboxide, litharge red lead, and liquid stabilizers for PVC. About 50% of its production is exported to countries like South Korea, Japan, and Indonesia.

The one-year performance reflects a 100% increase in the share price. However, during the recent stock market crash, the share price fell by 8%.

Presently, the shares of the company are trading at Rs 625, which is 31% below its 52-week high of Rs 906.

The decline can be attributed to the weakening market sentiment in the chemical stocks in the recent fall.

Pondy Oxides & Chemicals' net profit decreased by 6.4% YoY in the December 2023 quarter.

Presently, the company's ROCE is 20.80% and ROE is 21.29%, which indicates a balanced approach towards generating profit and shareholders' equity.

POCL partnered with ACE green recycling in 2022 to establish the world's largest GHG emission-free battery recycling facility in Andhra Pradesh, India.

The collaboration is a step towards embracing green technology and expected to commence operations to recycle more than 28 mn lead-acid batteries. It will prevent 500 mn kg of GHG emissions and 40 mn kg of solid waste.

Pondy Oxides & Chemicals is optimistic towards its global recycling industry. The expansion of the building and construction sector provides growth prospects.

#3 Green Panel Industries

Third, on the list is Green Panel Industries.

Green Panel Industries Ltd is India's premier wood panel manufacturer. Incorporated in 2017, the company has been a leader in producing top-quality medium-density fiberboard, plywood, veneers, flooring, and doors.

The share price of Green Panel shows fluctuations and suggests a period of volatility for 1 year.

During the recent downturn in March 2024, the company's share price experienced a significant decline of 20%.

It is currently trading 28% below its 52-week high of Rs 449.

Green panel is facing a decline for several reasons. Firstly, due to the weak performance in the December quarter of FY23, which contributed to the downward trend.

The company reported a decrease in net profit of 48%. The fall in net profits can be attributed to low demand in the US and Europe.

Green panel's management believes that there is a strong medium-density fiberboard (MDF) demand, however, increased imports have affected the domestic market sales.

Financials of the company highlight ROE as 21%, ROCE as 25.2%, and total debt-to-equity ratio at 0.16 for FY23. The company pays a dividend at an adjusted dividend per share of Rs 1.5.

Green panel aims to meet the growing demand for wood panels by boosting the company's capacity to 891,000 CBM by FY25.

Overall, the future aim of the capacity expansion project in India is to capitalise on rising urbanization, increasing per capita disposable income, and growth in tourism sectors.

#4 Bigbloc Construction

Fourth on the list is Bigbloc Construction.

Bigbloc Construction Ltd incorporated on 17 June 2015, in Gujarat manufactures building blocks and aerated autoclave concrete (AAC) bricks.

Marketed as NXTBLOC, its AAC blocks are eco-friendly solutions in the construction sector.

The company has focused on sustainable building materials since its inception and aims to align with the green initiatives in the industry.

Presently, the share price of Bigbloc is trading at Rs 197, which is 26% below its 52-week high of Rs 267.

However, the stock experienced a recent decline since February 2024, resulting in a decrease of approximately 26%.

The recent downtrend in the company's shares is attributed to its intense competition in the AAC blocks industry. It has moderate entry barriers for fresh players to enter the market.

The AAC industry, where Bigbloc operates lacks expertise which leads to slow growth and awareness in the market. India maintains a strong preference for traditional building materials over AAC.

Moreover, fluctuations in the real sector further create risks to revenue and profitability.

Bigbloc maintains a healthy ROE (35.9%) and ROCE (32.1%), indicating efficient utilisation of funds and capital employed.

The company maintains a moderate 0.75 total debt-to-equity ratio.

#5 VIP Industries

Last on the list is VIP Industries.

VIP industries is India's largest luggage manufacturer. The company is based in Mumbai, Maharashtra with over 50 years of experience of bringing innovative products with international design standards.

Mr. Dilip G Piramal is the chairperson of VIP industries.

Presently, the share price of VIP is trading at Rs 463, which is 35% below its 52-week high of Rs 722.

The last one-year performance shows a 20% fall. During the recent market crash, VIP Industries experienced a significant decline, plummeting by 17% and hitting its lowest point in March 2024.

The company is experiencing a decline attributed to a loss of market share, inventory management issues, and difficulties in expanding its e-commerce operations.

VIP lost market share to a smaller yet more aggressive competitor, Safari Industries, over the past 5 financial years. The postponement of VIP Industries' 2 bn plan for luggage expansion has further dented investor confidence.

Financially, VIP holds a strong ROE (29.54%) and ROCE (33.08%). It maintains a low total debt to equity ratio of 0.23. The impressive Profit After Tax (PAT) of Rs 16.08 bn highlights the company's profitability for the specified period.

The future outlook for the company appears optimistic with its financials.

VIP Industries is expected to signal a turnaround in the upcoming quarter with e-commerce expansion and market share growth.

Conclusion

Investing in stocks that are trading at their 1-year lows in the recent market crash can be a compelling strategy for investors seeking discounted prices compared to their highs.

The fundamentally strong stocks mentioned in this article present opportunities for investors.

Lloyds, Pondy Oxides, Green panel, Bigbloc and VIP presents unique strengths and strategies to explore through the market downturns.

However, it is crucial to acknowledge the inherent risks associated with such stocks.

Thus, investors should carefully analyze their risk tolerance and investment goals before considering these opportunities.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...