Beaten down stocks with a good track record and great businesses could rally, should there be a turnaround in the economy and a turnaround in sentiments. Some of the good businesses are either hit by promoter related problems or just poor sentiments presently prevailing. Take a look at some such names:
The shares of Zee Entertainment have plunged from levels of Rs 500 to Rs 236. We all know that the company is a leader in the television entertainment business with a solid brand equity.
The business prospects of the company have not changed at all. The problem right now is the debt at the group levels of the promoter Essel Group. The promoters had pledged their shares to mutual funds for debt and some of the mutual fund sold the pledged shares.
The promoters have been given time till March 2020 to repay debt by mutual funds or they could trigger fresh selling of promoter holdings. If things go right for the promoters and if they manage to sell assets to payback their debts, Zee Entertainment shares could rally once again. However, there is an element of risk, if things do not go their way. There maybe changes in the promoters as well, if the existing promoters sell out.
Jagran Prakashan owns India's No 1 read newspaper, Dainik Jagran, apart from Mumbai's No 1 eveninger, Mid-day. It also owns Radio City, a part of Music Broadcast Limited (MBL) which is a leading player in select cities in India.
The shares have plunged to a new 52-week low of Rs 56.75, and is available at half the value that was prevailing in the month of March 2019. The stock is already giving a dividend yield of near 6 per cent and is also available at a p/e of just 7 times.
The company has strong cash reserves and has resorted to attractive share buybacks in the past. There seems to be nothing wrong with the business, as well, as Dainik Jagran is India's No 1 read newspaper. Investors who are patient and can wait till an economic recovery takes place, should benefit from lower share price.
Graphite India shares have fallen from levels of Rs 1034 to the current levels of Rs 285. The company is one of the leading manufacturer of graphite electrodes in the country. Recently, the share price has been hit on account of a drop in net profits as margins have been under pressure.
This is because the price of needle coke has gone-up, which is a key raw material in the manufacturer of electrodes. However, the stock is still trading at a p/e of less than 7 times one year forward earnings. At this price the shares are trading at a dividend yield of 19 per cent. However, we do not expect the company to declare similar dividend as last year on account of a drop in profitability. Even if the dividend is halved the stock at Rs 285 is not a bad bet all.
It is important to remember when you are looking at stocks, to see if the business has undergone a structural change, for example the telecom sector. All of the companies mentioned above has businesses that have reasonably good prospects and have been in the business for decades.