Gearing Up for Growth: 5 Stocks to Watch Out in Anticipation of a Bull Market

Last week, the US benchmark S&P 500 officially entered a bull market after it surged 20% from its October 2022 lows.

This was primarily due to cooling inflation and a pause in the rate hike by the Federal Reserve.

After a series of rate hikes and fears of recession in the US, global markets saw a steep correction towards the end of 2022.

As inflation came under control and the world considered the possibility of US avoiding recession (at least for now), markets received a much-needed boost.

Global markets often join the bandwagon and mimic the performance of US markets as the dollar continues to maintain its dominance. And not surprisingly, Asian markets have continued their good run.

Indian share markets are also making headlines as they near record high. Sensex and Nifty registered their all-time high closing on Friday this week. Markets are expected to continue the good run.

If there's a bull market in India, here's a list of five stocks that should be on your watchlist.

#1 Mazagon Dock Shipbuilders

First on the list is Mazagon Dock Shipbuilders, a leading shipbuilding company.

The company build and repairs passenger ships, cargo ships, destroyers, warships, water tankers, submarines, fishing trawlers and corvettes for the Indian Navy and Indian Coast Guard.

In the last 63 years, the company has delivered 801 vessels, 27 warships, and seven submarines.

It is also the only shipyard to have built destroyers and conventional submarines for the Indian Navy and manufacture corvettes in India.

Shares of the company are currently trading at an all-time high of Rs 1,050, rallying over 270% in the past one year.

The primary reason behind this sharp rally is the strong order book and consistent growth in financial performance.

As of March 2023, the company's order book stood at Rs 387 bn. In the financial year 2023, the company reported the highest-ever revenue of Rs 78 billion (bn) and the highest-ever net profit of Rs 10 bn. While revenue grew by 37% year-on-year (YoY), net profit surged 83% during the same period.

Mazagon Dock Shipbuilders also pays consistent dividends to its shareholders. Ever since its listing in 2020, it paid two dividends with an average dividend yield of 3.5% and an average dividend payout of 31.7%.

With the government's phased import ban on defence items, Mazagon Dock Shipbuilders will be the primary beneficiary as it is the only public sector defence shipyard constructing destroyers and submarines.

From a valuation perspective, shares of the company are trading at a P/E ratio (price to earnings) of 20.2x, which is much higher than its two-year average of 9x.

Its P/BV ratio (price to book value) comes to 4.3x at the current price, also higher than its two-year average of 1.2x.

To know more, checkout Mazagon Dock Shipbuilders financial factsheet and latest quarterly results.

#2 Oracle Financial Services Software (OFSS)

Second on the list is Oracle Financial Services Software (OFSS). The company is a leading IT solutions provider to the financial services industry.

The company develops, sells and markets computer software and computer systems and provides consultancy and other information technology (IT) related activities.

Owned by Oracle, it has several brands and trademarks registered on names such as Oracle, Java, MySQL, and Flexcube.

OFSS has operations across the globe, including India, the USA, Europe, Asia Pacific, and the Middle East and African regions.

Shares of the IT company are trading at their 52-week high of Rs 3,900. In the last one year,

it gave close to 17% returns.

The company is rapidly moving its solutions to the cloud and AI platforms. It has made big investments towards implementing this change ahead of its peers.

This has worked well as the pace of investments by financial companies in to digital capabilities had grown significantly. This is expected to continue over the coming years.

As a result, the company's financial performance has improved. Its revenue saw a growth of 18% YoY, while net profit grew by 27% YoY in the financial year 2023.

The company also pays consistent dividends to its shareholders. It has always maintained a dividend payout ratio above 80%. It's among the biggest dividend paying stocks like ITC and Coal India and investors call it a dividend aristocrat.

Coming to its valuations, the company trades a P/E multiple of 18.7x, compared to its five-year average of 19.8x, and its P/BV is 4.4x, while the five-year average comes to 5.3x.

The industry P/E stands at 36.2x, which is much higher than the company's valuations. Low valuations of OFSS give a slight comfort to investors on the earnings front.

Historical Valuations of Oracle Financial Services Software

	FY18	FY19	FY20	FY21	FY22
Average PE (x)	26.5	24.7	15.2	13.8	19.0
Price to Book Value (x)	7.3	7.2	3.5	3.6	5.2
Dividend Yield (x)	3.4	0.0	6.9	7.1	4.6
Marketcap to sales	7.2	6.9	4.6	4.9	6.9

Source: Equitymaster

Going forward, growing demand for digital transformation services and emerging technologies will drive the company's revenue and profit growth.

To know more, check out OFSS's financial factsheet and latest quarterly results.

#3 Engineers India

Next on the list is Engineers India, an Indian central public sector undertaking under the ownership of the Ministry of Petroleum and Natural Gas, government of India.

It was set up in 1965 to provide indigenous technology solutions across hydrocarbon projects.

However, the company has diversified into synergic sectors like non-ferrous metallurgy, infrastructure, water and wastewater management, and fertilisers.

It serves Indian and overseas clients, including ONGC, GAIL, NMDC, and Qatar Petroleum.

Shares of the company currently trade at Rs 109, almost close to its 52-week high of Rs 113 touched on 7 June 2023.

The sharp rally in recent weeks comes after the company reported stellar financial results for the financial year 2023, along with a high-order book of Rs 90 bn.

In financial year 2023, revenue saw a growth of 14.8% YoY while net profit surged a massive 148%. As a result, net margins expanded from 5% to 10% in the past one year.

The company is also a dividend paymaster and has paid 42 dividends since 1999 (including final and interim dividends).

Its five-year average dividend payout ratio is 60.2%, and its end-of-the-year dividend yield was 4.69%.

As the energy consumption in India is lower than the global average, there is a high growth potential for the Indian energy sector. This gives Engineers India enough room to grow in the medium and long term.

From a valuation perspective, the company's shares are trading at a P/E multiple of 17.8x, and a P/BV multiple of 3.1x. The five-year average P/E and P/BV stand at 18.5x and 3x, respectively, and the industry average is 24.2x.

Historical Valuations of Engineers India

	FY18	FY19	FY20	FY21	FY22
Average PE (x)	28.6	22.8	13.0	16.3	12.1
Price to Book Value (x)	4.7	3.6	2.3	2.4	2.3
Dividend Yield (x)	4.7	3.6	2.3	2.4	2.3
Marketcap to sales	6.0	3.4	1.7	1.4	1.4

Source: Equitymaster

Going forward, the company's investment in research and development, high order book, and growing demand for energy will drive its revenue and profit.

To know more, check out Engineer India's financial factsheet and latest quarterly results.

#4 Exide Industries

Fourth on the list is Exide Industries, an Indian-based storage battery company.

It manufactures storage batteries and allied products in India for the automotive, industrial, and submarine sectors.

With over 75 years of experience, the company leads the battery market in India. It caters to all top original equipment manufacturers (OEM), including Tata Motors, Maruti, and Bajaj.

The company has nine manufacturing units with a total production capacity of 57 bn units of automotive power and five billion amperes (ah) of industrial power.

It also has a wide distribution network, over 150 warehouses, and 55,000 direct and indirect dealers.

The most ambitious new initiative of Exide is the upcoming Lithium-ion cell manufacturing project. Here the work is on in full swing.

This is the reason why shares of Exide Industries are trading at a 52-week high of Rs 215 and have rallied around 40% in the last one year.

In FY23, the company launched several new products, which helped improve its volume. As a result, the EV battery company's revenue grew by 18% YoY. Due to the company's cost optimisation and margin expansion strategy, the net profit also saw a growth of 18%.

Exide Industries also pays regular dividends to its shareholders and has a five-year average dividend payout ratio and yield of 29.4% and 1.3%, respectively.

With rising urbanisation, increasing income levels, and growing demand for passenger vehicles, the demand for batteries is expected to go up.

India is lacking in 70% of the value chain of the EV battery ecosystem, which is cell manufacturing. Only 30% is in packs or modules. Right now, we are missing out on the first 70% and are present only in the other 30%.

Exide is one of the early movers in the first 70% of the value chain where it will start manufacturing Lithium-Ion cells as well.

From a valuation perspective, the company trades at a P/E multiple of 22.3x compared to its five-year average of 22.5x.

The P/BV ratio is 1.5x, and its five-year average stands higher at 2.5x. The industry P/E stands much higher at 27.4x.

Historical Valuations of Exide India

	FY18	FY19	FY20	FY21	FY22
Average PE (x)	27.1	25	19.6	20.2	20.9
Price to Book Value (x)	3.5	3.5	2.3	2.0	1.4
Dividend Yield (x)	1.1	1.0	2.3	1.1	1.2
Marketcap to sales	1.5	1.4	1.0	1.4	1.1

Source: Equitymaster

Exide has strong financials but growth has remained a challenge, especially on the bottomline front.

To know more, check out Exide Industries' financial factsheet and latest quarterly results.

#5 Gujarat Pipavav Port

Last on the list is Gujarat Pipavav Port.

The company is India's first private sector port that connects India with the US, Europe, the Middle East, and Africa to the west, and the far east on the other side.

It handles four types of cargo, namely container, dry bulk, liquid bulk, roll and roll-off ships.

Gujarat Pipavav Port immensely benefits from its parent company's (APM Terminals) operational and technical know-how.

In the last one year, the company's shares have zoomed over 44% and currently trade at Rs 115.

The primary reason behind this rally is healthy financials and growth in volumes.

In the last one year, the company's revenue has grown by 24% YoY, and the net profit grew by 51%.

The growth in volumes across all segments, including dry bulk cargo, liquid bulk cargo, and roll-on roll-off cargo, supported the revenue and profit growth for FY23.

It also pays dividends consistently. In the last five years, the average dividend payout stood at 85.3%, and the average dividend yield was 4.4%.

The company is investing to upgrade its existing liquid berth for handling partially loaded vessels. It is also promoting its dedicated freight corridor among its customers, which will help reduce the transit time.

With respect to valuations, the company trades at a P/E ratio of 19.1x and a P/BV ratio of 2.4x. This is almost similar to its five-year average of 22.2x and 2.2x.

The industry average is also around the same level, which is 16.3x.

Historical Valuations of Gujarat Pipavav Port

	FY18	FY19	FY20	FY21	FY22
Average PE (x)	33.4	23.7	11.1	18.6	24.5
Price to Book Value (x)	3.4	2.5	1.5	1.8	2.2
Dividend Yield (x)	2.2	3.0	7.6	5.3	4.0
Marketcap to sales	11.4	8.0	4.8	5.6	6.5

Source: Equitymaster

To know more, check out Gujarat Pipavav Port's financial factsheet and latest quarterly results.

To conclude...

Although these five companies are trading at their 52-week highs, they are set to benefit and continue their good run on the back of strong growth prospects. That's because these are zero debt companies which come with strong fundamentals.

Apart from that, they're also trading at a discount to their long term average and industry average valuations.

However, markets tend to go up and down as they please. Retail investors are simply along for the ride.

The key to succeed during these situations is keep a long term approach in mind and don't get too excited or too nervous.

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...