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 has now crossed the 34,000 points mark, which is a new peak. Here are a list of midcap stocks that could be good bets from a long term view and could be bought in 2018.
Sadbhav Engineering Ltd (SEL) is one of the top EPC contractors for transport, mining and irrigation. By the end of Sept the company had a sizeable order book position of Rs 7,715 crores. The order book to sales ratio at 2.7 times provides good revenue visibility for the next two years at the very least.
There are huge opportunities coming up in the road sector post the Bharatmala project announcement. It want be a surprise to see the order book from roads itself jumping to Rs 8,000 crores in 2018.
Interestingly, despite being in a capital intensive business the company has been regularly making profits since inception and paying dividends.
The company has implemented over 7,551 lane kms since inception.
Financial performance of Sadbhav
The company has reported a good set of numbers all along. The company is looking at systematically reducing debt. In fact, the debt to equity which was 1.08 by the end of March has come down to 0.87 by Sept end.
For the quarter ending Sept 20, 2017 the company reported a profit after tax of Rs 89 crores. This translates into an EPS of Rs 5.19. If you annualize the EPS, we get an EPS of Rs 21 for FY 2017-18. However, we believe that in 2018-19 the company can report an even better performance pushing the EPS to as high as Rs 25. If we discount the same by 25 times, given the high p/e multiples accorded to infra companies, the stock should trade at Rs 625 at the very least. A good bet for the long term. Check stock quote of Sadbhav here
Karnataka Bank is a mid-sized private sector bank, whose shares have always been a little undervalued. In fact, the stock at Rs 153 is quoting even below the book value of Rs 182.
For the quarter ending Sept 30, 2017 the company performed very well on most parameters including loan growth, fee income and improving margins.
The bank is targeting a business turnover of Rs 1 lakh crores by 2020. The management has guided for business growth of 17 per cent by the Financial Year 2018 to Rs.1,10,000 crores with a focus largely on the back of growth in the retail sector. Slippages and asset quality are also showing signs of improvement.
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 2.58 per cent. In fact, if the bank hikes the dividend for 2017-18, the yield could improve even further.
We believe the bank can report an EPS of Rs 27 by 2018-19. If you value the p/e at times this EPS, the stock should trade at Rs 250 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
Apollo Hospitals could be a good midcap stock to buy for investors who have the patience to hold for at least 2-3 years.
One of the big reasons to recommend this stock is the expansion that is likely to be completed by FY 2019. The company has and will complete the addition of 50 per cent more beds that were prevailing almost three years back.
There has been a substantial addition of 2,400 beds in the last few years. This means the entire expansion will fructify in the next two years and this will boost revenues and profitability in the coming years.
The Navi Mumbai facility is expected to break-even in the next one year, which should also augur well for the company.
Decent valuations of Apollo Hospitals
The pharmacy business has also been growing exponentially and in the last quarter grew by a whopping 19 per cent.
On the financial front the profitability has been pretty much flat in the last few years. However, this is likely to change by FY 2019. We believe the company can report an EPS of Rs 30, which takes the p/e to around 40 times.
One important thing to remember about Apollo Hospitals that the shares have always commanded a heavy premium. The nature of business is not volatile and healthcare is a very stable business. Gestation too is very high. This stock is a good midcap pick for 2018 at the current levels of Rs 1,192.
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 20176-17 reported an EPS of Rs 70.57. Based on the same, the p/e is exactly 7 times at the current market price of Rs 471.
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 5 per cent tax free dividend yield on a price the current share price of Rs 425.
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 as if you sell before one year. On the other hand if you have stocks that are sold after one year, there is no capital gains that is applicable on these stocks. It is always a good idea to hold onto midcap stocks and sell the same after one year. This will ensure that you avoid any 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.