Midcap stocks have been on a roll in 2017 and in 2018, they might not be big drivers. You would have to be very selective or run the risk of losses. This is because the Sensex is now at 37,800 points mark, which is at peak levels. Here are a list of midcap stocks that could be good bets from a long term view and could be bought in 2018.
Jagran Prakashan publishes India's No 1 daily "Jagran Prakashan" and also owns "Radio City", which is the leading radio player in cities like Bangalore. The eveninger "Mid-Day" is the No 1 read evening newspaper in Mumbai and the company's digital business of newsprint and in education places it among the top digital players in the country.
It is not only the leading player that makes the company's stocks a good pick, but, several other reasons. The first being the fact that the shares of Jagran Prakashan at Rs 120, is very close to its 52-week low of Rs 116. The second is the fact that at these prices, the dividend yield itself is a decent 2.5 per cent.
The company also frequently resorts to buyback of shares at a much higher price than the market price, which is a good way of rewarding the shareholders. In fact, the company has distributed Rs 1,115 crores in the form of buyback and dividends in the last 5 years.
Jagran Prakashan: Earnings may get a boost from elections
One thing is certain, that the elections to key states in Madhya Pradesh and Rajasthan, which are also markets for Dainik Jagran are going to be fiercely contested. This means higher advertisement spends, which could boost revenues and profits of players like Jagran Prakashan in the coming years, until national elections in 2019.
Digital earnings too are likely too get a boost as the company's digital print media has been growing at a frantic pace. In fact, the company now has a very healthy revenue mix, with new generation business (radio, digital outdoor and events), contributing substantially to revenues and profits.
The digital business now attracts a huge 40.6 million unique visitors every month. This part of the business too is likely to grow substantially.
Jagran Prakashan had a decent set of quarter numbers for the period ending June 30, 2018. Net profits grew to Rs 75.83 crores from Rs 49.06 crores in the previous period ending March 31, 2018. The EPS for the period was Rs 2.44. We believe that the company will be able to achieve an EPS of Rs 12 for 2019-20, as capital will reduce due to the buyback and election revenues would get a boost.
If we value the stock at 15 times, there's no reason why the stock should trade at Rs 180, as against the current market price of Rs 120. A 50 per cent appreciation in 2-years time is a possibility.
Rural Electrification Corporation (REC) is an excellent play on dividend yields. In fact, when you have the Sensex trading at a near peak of 37,800 point, it's time to move money into stocks, which are great defensive players.
REC cannot be strictly considered a midcap, but, is more in a sense a large cap stock. The company is a government owned company and is a navratna company, which finances various projects in the power sector.
Despite funding power projects, its non performing assets have been under control. In fact, REC shares are often undervalued. For example, for the quarter ending March 31, 2018, the company reported an EPS of Rs 4.23. Rural Electrification Corporation can normally end the year with an EPS of Rs 18, leaving the stock valued at just 7 times 2018-19 earnings.
REC: Great on dividend yields
The shares of REC are currently trading at Rs 114. This year in 2018, the company has already declared a dividend of Rs 9.15 per share (Rs 7.4 in Feb) and Rs 1.75 now. If you work the annualized dividend that itself works close to 8 per cent at the current market price.
This means if there is a sudden collapse in the market, the stock price could be protected, because of the substantial dividend yield. With elections round the corner and the markets trading at a peak, this would not be a bad stock to buy at the current levels, as downside risks are capped on account of the dividends. Check stock of REC here
Also read: Best largecap stocks to buy
Karnataka Bank: Cheap on the valuations front
Karnataka Bank is a stock that is not very expensive on the valuations front and is one of the cheapest when it comes to private sector banking stocks. The share also gives a good dividend yield of near 3 per cent. In fact, if the bank hikes the dividend for 2018-19, the yield could improve even further.
We believe the bank can report an EPS of Rs 15 by 2018-19. If you value the p/e at 10 times this EPS, the stock should trade at Rs 150 at the very least. The stock has the potential for an upside of 40 per cent from the current levels, if one can hold for 2 years. A decent midcap stock to bet in 2018.
Also read: Best smallcap stocks to buy
Chennai Petroleum uses crude oil to refine the same into petrol, diesel and other petroleum products. It is a subsidiary of Indian Oil Corporation.
The first thing we need to state is that since the company uses crude oil to manufacture petroleum products, much of its profitability depends on how crude oil behaves. So, let us begin by predicting how crude oil could behave. We believe that crude oil is unlikely to dip for some time now. This is because there is more than adequate supply of crude.
Now, let us take a look at the fundamentals of Chennai Petroleum reported. The company for FY 2017-18 reported an EPS of Rs 61. Based on the same, the p/e is exactly 5-6 times at the current market price of Rs 321.
This is a low p/e stock and a good bet for another reason and that is the solid dividend yield. Chennai Petroleum declared a good dividend of Rs 21 per share. This gives you a yield of 6.5 per cent tax free dividend yield on a price the current share price of Rs 321.
However, if crude oil continues to rally, this stock could fall. In that case, the dividends would surely be lowered.
How are midcap stocks taxed?
Midcap stocks are taxed in the same way as all other shares. If there is a short term capital gains, you are taxed at the rate of 15 per cent. Short term capital gains here is defined if you sell the shares before one year at a profit. On the other hand if you have stocks that are sold after one year, there is a capital gains that is applicable at the rate of 10 per cent, if your profits are over and above Rs 1 lakh.
This has been introduced by Finance Minister Arun Jaitley in this year's Union Budget 2018. This will ensure that you start paying long term capital gains that is payable.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author and his family do not own any shares in the above mentioned stocks.