Midcap stocks have been on a roll in 2017, while in the latter half of 2018 and in 2019, they have seen a very big downside. You would have to be very selective or run the risk of losses. The markets are still not very cheap with the Sensex trailing p/e at 27 times. Here are a list of midcap stocks that could be good bets from a long term view.
1. Jagran Prakashan
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 115, is very close to its 52-week low of Rs 102. 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
In fact, the general elections that concluded recently, may also boost earnings of the company for the period ending June 30, 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 good set of numbers for the period ending March 31, 2019. Upward revision in DAVP rates by 25% along with higher Government Ads Pre-election pushed the growth further. The radio business continues to do higher than the industry average with a growth of 9 per cent.
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 109. A 40 per cent appreciation in 2-years time is a possibility.
This company runs some of the prestigious news channels in the country including the likes of Aaj Tak and India Today.
Over the last few quarters, we have seen a very subdued performance, but, things are looking up for the company once again. However, there remains optimism that TV Today would report good numbers in the forthcoming quarters.
The bank is trading at a p/e of just 12 times one year forward earnings. A good bet at the current levels.
Rural Electrification Corporation (REC) is an excellent play on dividend yields. In fact, when you have the Sensex trading at levels of 39,400 points, 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 Dec 31, 2018, the company reported an EPS of Rs 6.45. Rural Electrification Corporation can normally end the year 2019-20 with an EPS of Rs 20, leaving the stock valued at just 7 times.
REC: Great on dividend yields
The shares of REC are currently trading at Rs 120. 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 7.8 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 high levels, 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
3. 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 14 by 2019-20. If you value the p/e at 10 times this EPS, the stock should trade at Rs 140 at the very least. The stock has the potential for an upside of 30 per cent from the current levels, if one can hold for 2 years. A decent midcap stock to bet in 2019.
The worst of the NPA mess may now be behind us and banking stocks are set to rally.
4. Federal Bank
Federal Bank reported a good set of quarterly numbers and based on these numbers, the stock could be a good pick. The bank saw its non performing assets for the quarter ending March 31, 2019 decline to 2.92 per cent from 3.14 per cent.
The bank also reported a decrease in the Net NPAs. Overall, provisions too came down and the bank seems to be on the right path to strengthen all round growth.
Federal Bank reported an EPS of Rs 1.92 for the quarter ending March 31, 2019. If the same momentum continues. the bank can report an EPS of Rs 8 for FY 2020-21. The stock at Rs 97, is not very expensive at a discounting of 12 times. From a long term perspective this makes the shares of Federal Bank a good midcap pick at the current levels.
We believe that the worst for the banking sector is now over. Most of the banks are likely to report good numbers going forward.
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.