5 Stocks Nearing 52-Week High in a Weak Market. What's the Secret Behind their Gains?

Indian share markets have been on a wild ride since the beginning of the year.

After touching an all-time high of 61,200 in January 2022, the BSE Sensex swung like a pendulum.

The index tumbled to 52,800 in March 2022 and then shot up to 60,000 in April 2022, only to fall back to 52,100 in June 2022.

This roller coaster ride has been a function of weak market sentiments.

Foreign institutional investors (FIIs) have been net sellers led by geopolitical tensions, high rate of inflation, interest rate hikes, and the inherent risk of slow growth.

The recent sell-off has not spared anyone.

Most stocks have fallen, with some even nearing their 52-week lows. However, a handful of stocks are trading at their 52-week highs. What is the secret behind their gains?

Let's find out.

#1 Mahindra & Mahindra

Top of the list is automobile giant, Mahindra & Mahindra (M&M).

After shooting up by 25% in the past year, the stock is a mere 6% away from its 52-week high of Rs 1,025.

This leap comes on the back of strong product launches and higher margins expectations.

The company is the world's largest manufacturer of tractors and enjoys a strong presence in the utility and low commercial vehicle segment in the country.

It is a dominant player in the Indian tractor segment with a 41% market share.

However, their market share in the utility vehicle segment has been declining, led by an onslaught of multiple players.

Apart from automobiles, Mahindra & Mahindra is present across a wide array of sectors.

From IT to real estate, it runs businesses in eleven different sectors via various listed and unlisted entities.

In the last 5 years, the company's revenue has grown at a CAGR of 2.4% while net profit has grown at a CAGR of 4.2%. The company's 5-Yr ROE average stands tall at 18.3%.

To know more, check out the financial factsheet and the latest quarterly results of Mahindra & Mahindra.

#2 Hindustan Aeronautics

Next on our list is Hindustan Aeronautics.

The stock has surged by 80% in the past year, bucking the stock market's downward trend. It is now trading now almost near its 52-week high of Rs 1,940.

Hindustan Aeronautics designs, develops and manufactures aeronautic products, comprising aircraft, helicopters, aero-engines etc.

In the financial year 2022, the company won its first light combat helicopter order after bagging a fighter aircraft order in 2021.

The order in 2021 was the country's biggest Make in India order (US$ 5.6 bn). Not only did it widen the order pipeline, but it also reversed the company's declining backlog.

Apart from this, the company's results for the financial year 2022 have been strong. Its net profit grew 17% YoY, led by a balance sheet transformation to net cash.

Moreover, a strong order book and a highly anticipated government stake sale have piqued investor interest, sending the stock price through the roof.

The company's revenue and profits have grown at a 5-Yr CAGR of 4.3% and 10.2% respectively, while the 5-Yr ROE average stands tall at 21.3%.

Rewarding its shareholders well, the company follows a very liberal dividend policy. The dividend yield in the past 5 years has been averaged around 3.2%, much above the industry average of 1.1%.

To know more, check out the financial factsheet and the latest quarterly results of Hindustan Aeronautics.

#3 Varun Beverages

Third on our list is the soft-drink giant Varun Beverages.

The stock is now touching a 52-week high of Rs 794. It has delivered a 47.7% return for its investors in the past year.

This sharp movement in the stock price was a function of market share gains and an improvement in its quarterly results.

The total revenue grew by 64% compared to the previous quarter due to robust demand, higher realisations and the early onset of summer in India. The net profit went up by 6 times in the same period.

Varun Beverages manufactures, sells and distributes soft drink products under trademarks and brands owned by PepsiCo. These include both carbonated and non-carbonated beverages.

The company works on a franchisee basis with a license to function in 17 states and 2 union territories in India in addition to certain international markets.

The soft drink market is competitive in India, with Coca-Cola garnering a 35% share, PepsiCo's 21% share, and Parle's 11% share by volume.

The company has enjoyed a stellar run over the last 5 years. Its revenue and profit has shot up by a 5-Yr CAGR of 17.4% and 74.8% respectively.

The company's net debt to equity ratio has fallen precipitously from 1.5x to 0.8x in the past five years and current interest coverage ratio stands at 3.2x.

Rewarding its shareholders well, the 5-year average return on equity stands at 15.1%.

To know more, check out the financial factsheet and the latest quarterly results of Varun Beverages.

#4 Elgi Equipment

Fourth on our list is the compressor manufacturer, Elgi Equipment.

A top performer, the stock jumped up by a whopping 91% in the past year.

However, the trend hasn't been linear as the stock price has been pretty volatile since the beginning of the year. It went up to Rs 409 in Feb 2022 only to fall back to Rs 257 in May 2022.

The stock is now trading at close to its 52-week high of Rs 422.

These swings are attributable to the strong numbers reported by the company in the March 2022 quarter.

For the financial year 2022, the company clocked a net profit of Rs 1.8 bn, up 80% compared to its revenue in 2021.

The total revenue grew by 40% during the same period.

Moreover, the company is tackling the weak demand and margins scenario amidst an inflationary environment, war, and political unrest in some geographies.

Elgi Equipment designs and manufactures an extensive range of air compressors.

With over 60 years of experience, the company is a global leader in air compressors catering to a wide variety of sectors in over 120 countries. Exports account for over 50% of its total revenues.

The business has been growing well, registering revenue and net profits 5-Yr CAGR of 6.7% and 15.5% respectively.

The returns have been equally strong. The business generated a 5-Yr average Return on Equity (ROE) of 12.8% and the 5-year average dividend yield stands at 0.7%.

To know more, check out the financial factsheet and the latest quarterly results of Elgi Equipment.

#5 Maharashtra Seamless

Last on our list is the pipe manufacturer, Maharashtra Seamless.

After doubling in the past year, it is currently trading near its 52-week high of Rs 619.

The majority of the gains came in September 2021, when the stock shot up by a whopping 60% in just 15 days.

This parabolic move is attributable to the strong growth in business disclosed by the company in the quarterly results.

Apart from the results, the company also scored a big order from the oil and gas major, ONGC sending its stock price soaring.

The company manufactures an extensive range of seamless pipes, primarily used in oil exploration boilers and pipelines.

The business has been doing phenomenally well.

On a CAGR basis for five years, it has generated revenue and net profit growth of 16.6% and 79.4% respectively.

However, the five-year average return on equity stands at 5.4%. The company has been rewarding its shareholders well, generating an average 1.3% dividend yield in the past 5 years.

To know more, check out the financial factsheet and the latest quarterly results of Maharashtra Seamless.

Snapshot of 52-week high stocks from Equitymaster's stock screener

Here's a quick view at the above-mentioned companies based on some crucial financial parameters.

Please note that these parameters can be changed according to your selection criteria.

In conclusion

A stock trading at its 52-week high or low alone does not guarantee strong returns or vice versa.

Therefore, accumulating stocks just because they are rising or falling in value without a solid rationale can be dangerous.

There are several instances where stocks trading at their all-time highs have performed exceedingly well, multiplying in value and vice versa.

So, if you want to invest, a better approach is to dig deeper. Do your research.

Check to see if there are any long-term triggers to growth. Study and analyse the company's fundamentals and always look for a margin of safety before investing.

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...