5 Fundamentally Strong Stocks Trading Near 52-Week Lows. Do they Have the Potential to Rebound?

When a fundamentally strong company with a decent moat is trading near its 52-week low, smart investors know those are great deals. But picking the right stock is tough - how do you determine which ones are likely to rebound?

After all, catching a falling knife has many times resulted in steep losses where investors waited for years, only to see their investment value go down even more.

Buying the dip is not a simple strategy and requires cautious consideration. If done right, you can earn a fat discount on stocks. Think of it like buying quality stocks at a discount.

It's important to acknowledge that all great companies may encounter declines in their stock prices at some point. Nevertheless, exceptional stocks often display impressive long-term performance, rebounding strongly from short-term downturns.

In this article, we take a look at five fundamentally strong stocks that are currently trading close to their 52-week lows.

#1 UPL

First on the list is UPL.

UPL is a global generic crop protection chemicals and seeds company. The company is engaged in the business of agrochemicals, industrial chemicals, and chemical intermediates.

The agrochemicals segment consists of agrochemicals technical and formulations. The industrial chemicals segment consists of industrial chemicals and speciality chemicals.

Presently, UPL shares are trading at a value just 1% away from its 52-week low of Rs 624, reflecting a decline of over 12% over the past year.

Market sentiment towards UPL has been influenced by the anticipated weaker performance in the first quarter results of FY24, particularly in the agrochemical business, both in domestic and international markets.

The sluggish demand in markets like Europe and Latin America, where UPL has significant exposure, has contributed to these concerns.

For the financial year 2023, UPL achieved a commendable 16% YoY rise in revenue, amounting to Rs 535 bn. Despite this, the net profit for the year experienced a slight decline of 2% YoY, reaching Rs 36 bn. This dip in profit was attributed to headwinds in the post-patent space, driven by an oversupply of certain molecules.

UPL acquired Arysta in 2019, and this was funded through debt of around US$ 3 bn.

While the company has consistently rewarded shareholders by announcing big dividends and its management has committed to reducing debt, the net debt-to-equity level is still above the levels, where it needs to be.

Over the long term, however, UPL is well placed to grow thanks to its product portfolio and established geographical presence.

Additionally, the recent announcement of hiving off its speciality chemical business to a 100% owned entity, UPL Specialty Chemicals Limited (USCL), for Rs 35.7 bn showcases the company's strategic measures to unlock further value.

For more details, see the UPL company fact sheet and quarterly results.

#2 Goldiam International

Second, on the list is Goldiam International.

The company is engaged in the business of manufacturing and exporting gold and diamond jewellery to global retailers.

Its products include engagement rings, wedding bands, bridal sets, and earrings made of natural and lab-grown diamonds.

Presently, Goldiam International shares are trading at just 3% away from its 52-week low of Rs 121, reflecting a decline of over 17% over the past year.

This decline can be attributed to weakening demand for gold jewellery. The global demand for gold jewellery has been declining in recent years due to several factors, including the economic slowdown in China and India, two of the world's largest gold jewellery markets.

Further, the cost of gold has been rising in recent months and has also put pressure on Goldiam International's margins.

For the financial year 2023, Goldiam International reported a 4.2% decline in revenue to Rs 5.5 bn. The net profit for the year also fell 10% to Rs 938.3 m.

The dip in financial performance can be attributed to delays in the company's new manufacturing facility, adversely affecting its production capacity. Moreover, increased marketing and promotional expenses in FY23 further added to the challenges faced by the company during this period.

Going forward, the company is planning a capex of Rs 100 million (m) to enhance its lab-grown diamond capacity. Despite its aggressive capex plans, the company continues to remain debt-free.

The smallcap company also consistently pays dividends to its shareholders and has carried out six share buybacks in the last six years.

To know more, check out Goldiam International's financial factsheet and its latest quarterly results.

#3 Indoco Remedies

Third, on the list is Indoco Remedies.

Indoco Remedies is a fully integrated, research-oriented pharma company engaged in the manufacturing and marketing of Formulations (Finished Dosage Forms) and Active Pharmaceutical Ingredients (APIs).

At present, the shares of Indoco Remedies are trading 3% away from their 52-week low. Over the year, the company has delivered a negative return of 15.8%.

The company's underperforming operations in both the US and emerging markets have been contributing factors to its challenges.

Further, in February 2023, the US Food and Drug Administration (USFDA) inspected Indoco Remedies' Sterile Facility (Plant II) in Goa and issued four observations.

Despite facing headwinds, the company managed to achieve a revenue of Rs 167.1 bn in the financial year 2023, representing an 8% YoY growth. However, the net profit for the same period stood at Rs 14.2 bn, showing a decline of 7.9% due to increased expenses.

Going forward, the company plans to implement measures to mitigate adverse effects, thereby paving the way for a stronger and more promising future.

Presently the company's debt-to-equity ratio is 0.3x, highlighting a reasonably healthy financial position.

For more details, see the INDOCO REMEDIES company fact sheet and quarterly results.

#4 SRF

Fourth on the list is SRF.

SRF is a chemicals conglomerate that manufactures industrial and speciality intermediates.

Leading the market in most of the segments, its portfolio spans fluorochemicals, speciality chemicals, packaging films, technical textiles, and coated and laminated fabrics.

The company is currently trading 5% away from its 52-week low. Over the year, it has fallen over 10%.

The recent downtrend in the company's shares can be attributed to the weakness observed in the packaging and textile segments. Rising costs of raw materials and other inputs have further impacted the company's performance, with factors like the ongoing conflict in Ukraine contributing to this situation.

For the financial year 2023, the company reported a total revenue of Rs 148.7 bn, up 19% YoY. The net profit for the same came in at Rs 221.6 bn, up 17.3% YoY.

The positive financial results were due to the moderation of input costs in the last quarter and an upswing in international demand.

SRF's debt-to-equity ratio has shown a declining trend, falling from 0.9x in fiscal year 2019 to 0.4x in 2023.

SRF is one of the companies that has announced massive capex. It has planned a capex of Rs 150 billion (bn) between the financial years 2024-28. Most of it will be invested in the chemical business and the rest in the packaging film business.

With this capex, the company plans to launch new products, enter new markets, and increase the share of value-added products in revenue.

For more details, see the SRF company fact sheet and quarterly results.

#5 Symphony

Last on the list is Symphony.

The company provides residential mobile commercial packaged and central air cooling solutions for domestic and industrial customers in 60 countries across the globe.

Over the years, Symphony has built its moat by focusing on product innovation and distribution for cooling solutions that people purchase while graduating from a fan.

The shares of Symphony are trading just 7% away from its 52-week low. It has fallen over 8% in the past year.

The recent decline in Symphony's shares can be attributed to the impact of its share buyback. After announcing a buyback worth Rs 2 bn in February 2023 at a premium of 109%, the company's shares traded ex-buyback on 29th March 2023. Subsequently, the share prices have been on a downward trend.

For the financial year 2023, the company reported an 18% YoY in revenue at Rs 12.4 bn. The net profit for the year also jumped 6% YoY to Rs 8 bn.

These positive results were due to robust demand for Symphony's products, particularly among channel partners, and its successful presence in tier 2 cities where affordable air conditioners are in high demand.

Going forward, the company plans to increase product pricing in the future, in conjunction with declining input costs, to achieve EBITDA margins equivalent to its historical peak of 0.3%.

Symphony is also poised to benefit from favourable market conditions in the sector.

The company is nearly debt-free. Its debt-to-equity ratio is just 0.02%. This financial strength provides the company with a stable foundation for future growth.

For more details, see the SYMPHONY company fact sheet and quarterly results.

Conclusion

Investing in fundamentally strong stocks that are trading near their 52-week low can be a compelling strategy for various reasons.

These stocks are often available at discounted prices compared to their recent highs, providing an opportunity to enter the market at a favorable valuation.

Further, these fundamentally strong companies tend to rebound from short-term price declines and show resilience over the long term.

For income-focused investors, some fundamentally strong companies pay dividends, making the investment even more attractive.

It is crucial to acknowledge the inherent risks associated with it. Due diligence, research, and a well-diversified investment approach are essential when considering these stocks as investments.

Also, individual risk tolerance and financial goals should be carefully assessed before making any investment decision.

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...