• OUTLOOK ARENA
  • SEPTEMBER 24, 2022

5 Bluechip Stocks Hitting 52-Week Lows. Time to Take a Look?

5 Bluechip Stocks Hitting 52-Week Lows. Time to Take a Look?

Editor's note: Thanks to US Federal Reserve's big rate hike, Indian share markets have witnessed a sharp fall in the last few sessions.

That's not all. Fed Chair Jerome Powell vowed that borrowing costs would keep rising this year.

Looming global recession concerns have not spared even the defensive sectors. Some of the best FMCG stocks in India and best pharma stocks in India have delivered negative returns.

Then there's bluechip stocks, who are known to stand against the test of time. Even these companies, which are part of Indian benchmarks NSE Nifty and BSE 30 companies, were not spared.

In May this year, we wrote to you about five bluechip stocks which were trading at their 52-week lows.

Bluechip Stocks Performance in 2022

Company Name CMP (Rs) 52-week low price Latest M-cap (Rs m) Performance in 2022 (%)
Axis Bank Ltd. 769 618 2,361,299 13%
HDFC Bank Ltd. 1,447 1,272 8,056,946 -2%
Nestle India Ltd. 18,507 16,000 1,784,380 -6%
Tata Steel Ltd. 104 83 1,274,287 -6%
Wipro Ltd. 394 391 2,163,468 -45%
Source: Equitymaster

As can be seen from the above table, with the exception of Wipro, all others have recovered from their lows.

Read to find out the latest developments of these companies.

5 Bluechip Stocks Trading Near 52-Week Low

Equity markets have been very erratic in the past few months. The weak market sentiments, driven by a variety of factors, have sent the stock markets on a roller coaster ride.

The BSE Sensex came close to its all-time high of 61,200 in January 2022. Since then, much like a pendulum, it has been swinging from 52,800 in March 2022 to 60,000 in April 2022 and back to 52,700 in May 2022.

Selling by foreign institutional investors (FIIs) propelled by geopolitical tensions, rising inflation, and interest rates, among other factors, are the key reasons behind the added volatility.

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This recent sell-off has not spared anyone, including the bluechip growth stocks. Despite their strong fundamentals, a lot of them have corrected in the range of 30-40% from their highs.

Some have even hit their 52-week lows, urging investors to look for bargain bets in this market.

Bluechip stocks are well-established and financially sound companies that could weather turbulent times. They deliver moderate yet consistent returns for their shareholders.

These companies are household names that attract all investors irrespective of their experience with the stock markets.

However, the popularity of such blue chips is the very reason they could tumble sharply. And that's exactly what has happened recently.

With that in mind, we pen down a list of 5 bluechip stocks hitting their 52-week lows. Maybe there is a hidden investing opportunity. Maybe not. Let's find out...

#1 HDFC Bank

First on the list is HDFC Bank.

HDFC Bank's stock price has tumbled down to its 52-week low, touching Rs 1,285 earlier this week amid the recent sell-off.

The dominant private sector bank in the country boasts a total asset base of over Rs 20 tn and an extensive network of over 6,300 branches.

Its dominance and conservative nature has facilitated a smooth road to profitability. The bank's net profit on a 5-Yr CAGR basis stands at more than 20%., Interestingly, HDFC bank's net NPAs (non-performing assets) have never crossed 0.5% of loans.

The returns have been even more gratifying. The business has generated an average return on equity (ROE) of 17.2% in the past five years.

With proficient management in tow, the company has been rewarding its shareholders with an average dividend yield of 0.4% over the past 5 years, in line with the industry average of 0.5%.

HDFC Bank is all set to be merged with HDFC. The much-anticipated merger has been touted as value accretive.

HDFC will acquire a 41% stake in HDFC Bank, in addition to the 21% stake it already owns. Under the proposed scheme, the shareholders of HDFC will receive a total of 42 shares of the bank for every 25 shares held.

Currently, the company is trading at a Price to Book value (P/BV) of 3.5x, which is a discount to its 10-Yr median P/BV of 4.5x but at a premium to its industry average of 2.2x.

Update: Since 1995, HDFC Bank has delivered sustainable business growth with over 22% CAGR coupled with prudent asset quality across cycles.

With the merger advancing ahead, HDFC Bank aims to double its balance sheet in the next five years, exhibiting growth of 15% CAGR.

If HDFC Bank is able to seize the huge opportunity that lies before it, it could become India's first trillion dollar stock.

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#2 Axis Bank

Next on our list is another private bank - Axis Bank.

The recent sell-off has not spared Axis Bank either. After touching a high of Rs 800 in April 2022, the stock tumbled down by 20% to its 52-week low of Rs 630.8 earlier this week.

However, this is definitely not due to its performance. The bank has improved its provisions and asset quality sharply over the past few years. With stringent due diligence, the lender's net NPAs have fallen precipitously from 2.1% in 2018 to 1.1% in 2021.

A large private lender in the country, Axis Bank has also been a favourite among retail and institutional borrowers with a well-spread network of over 4,500 branches. The company recently absorbed Citibank's retail portfolio, giving a boost to its business.

On a CAGR basis for five years, Axis Bank has generated a net profit of 11% and an average return on equity (ROE) of 6%.

The company's average dividend yield comes to around 0.3% for the past five years, a little below the industry average of 0.5%.

Axis Bank is currently trading at a P/BV of 1.9x, which is at a discount to its 10-Yr year median P/BV of 2.3x and industry P/BV of 2.2x.

Update: Axis Bank has recovered from its 52-week lows and is currently trading at Rs 769. Higher interest rates could be the reason behind Axis Bank's recovery as rising rates means increased income.

Higher interest rates lead to higher margins.

#3 Nestle India

Third on our list is Nestle India.

The country's leading FMCG giant has also fallen prey to this market mayhem, falling 11% from its April 2022 levels to its 52-week low of Rs 16,140 touched last week.

A subsidiary of the Swiss-based Nestle, the company's business is spread across the country with 8 manufacturing and processing units.

The company enjoys an established market position in most of the categories it is present.

A pioneer in the culinary segment, it offers a range of products under the brand name Maggi. It enjoys leadership in milk and milk products, beverages, prepared dishes, and cooking aids, chocolate and confectionery.

Nestle's industry dominance and well-established brands have propelled its margin profile culminating in healthy cashflows.

While the revenues and net profits have grown robustly at a 5-Yr CAGR of 9.8% and 16.3% respectively, the returns have been equally strong. The company's 5-Yr average ROE stands at a whopping 72.1%.

With zero debt on its book and healthy cashflows, the company has been rewarding its shareholders consistently. A dividend paymaster, the company's 5-year average dividend yield has been phenomenal, averaging 5.1%, much higher than the industry average of 2.1%.

Nestle is trading at a P/E of 68.1x. The stock is trading at a small premium to its 10-year historical median P/E of 62.1x, but trading at an exorbitant premium to the industry P/E of 35.2x.

Update: In a big move, Nestle has announced to invest Rs 50 bn in India in the next three years till 2025, on capital expenditure, manufacturing, product development, acquisitions and expansion of its product portfolio.

This investment by the world's largest food company will help the company accelerate its core business in India and leverage new opportunities for growth in well-established and emerging categories.

#4 Wipro

Fourth on our list, is the information technology (IT) giant, Wipro.

Most largecap IT stocks have fallen in line with the selloff in global tech rout and Wipro has followed suit. Wipro currently trades at Rs 493, a tad higher from its 52-week low of Rs 462 touched last week.

A global IT player, Wipro has a wide presence across sectors with clients in banking, financial services, healthcare, energy, natural resources, and manufacturing.

The company has managed to propel its margin profile by successfully venturing into new segments and lowering its employee costs.

With a total employee strength of 231,000, the company's attrition ratio has come down from 16% to a respectable 12% (lower than the industry average of 16%) in the past 5 years.

The revenue and profits have grown at a 5-Yr CAGR of 2.4% and 4.2% respectively, while the 5-Yr ROE average stands tall at 18.3%.

Despite piling up cash on its books, the company has not been very generous to its shareholders. The dividend yield has been in the range of 0.4%, much lower than the industry average of 1.9%.

At present, the company is trading at a P/E of 21.1x, a premium to its 10-year historical median P/E of 16.3x but at a discount to the IT industry P/E of 27x.

Update: Indian tech giants continue to fall this year tracking the tech stocks selloff and Wipro is no exception.

Wipro share price is falling throughout this year on recession fears, attrition concerns, among other reasons.

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#5 Tata Steel

Last on the list is India's steel manufacturing behemoth and Asia's first integrated private steel company, Tata Steel. It operates a capacity of 20 million tonnes (MTPA) per annum.

Falling from its April 2022 levels of Rs 1,350, the stock has tumbled down to Rs 1,188, inching closer to its 52-week low levels.

But the stock performance is not a reflection of the company's business. The company has performed well, largely benefiting from the recent run-up in steel prices.

The company has a strong presence across the entire steel manufacturing value chain, from raw materials (iron ore and coal) to distribution of steel and other value-added products. It's well-poised to grow briskly from the government's spending push on infrastructure.

The company has enjoyed a stellar run over the last 5 years. The revenues and profits have shot up by a 5-Yr CAGR of 11.4% and 70% respectively.

The company's net debt to equity ratio has fallen precipitously from 1.7x to 1x in the past five years and current interest coverage ratio stands at 2.8x.

Rewarding its shareholders well, the company follows a very liberal dividend policy. The dividend yield in the past 5 years has been averaged around 3.4%, a little below the industry average of 5%.

This recent fall in the stock price has the company trading at a P/BV of 1.3x. However, it still trading at a premium to its 10-Yr median P/BV of 1.1x but at a discount to its industry P/BV of 1.6x.

Update: On 23 September 2022, Tata Steel's board approved merging six subsidiaries and an associate company into it, seeking to consolidate the metals and mining business and simplify the holding structure.

A statement by the Tata group company said the consolidation would enhance management efficiency, drive sharper strategic focus and improve agility across businesses.

The merger is likely to be completed by the end of FY24 following shareholder and regulatory approvals.

Interesting thing is there could be such consolidation across various segments of the Tata group.

In conclusion...

When it comes to stock selection, valuations play a key role. However, it is not the only metric. There are various other important factors driving your decision-making process.

So before you choose an investment ensure that you dig deeper. Even if they are bluechip stocks.

Bluechip stocks don't come with a guaranteed stamp. Quality also has an expiry date. There are several bluechip stocks that have fallen drastically and never recovered. Satyam Computers, BHEL, Unitech, and the likes...even the world-renowned Lehman Brothers.

Since bluechip stocks are well-recognised, naive investors invest in them taking their valuation a notch higher.

Thus, investors must be very cautious of the price they are willing to pay. If the stock trades at unrealistic valuations, let's say at a PE of 100 or more, you must stay away from it until it's available at a reasonable valuation.

Bear in mind that investing in stocks comes with inherent risks. Doing thorough research won't eliminate them, but it will surely minimise them. And when it comes to investing in stocks, that is what truly matters.

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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...

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