Taking cues from Morgan Stanley’s ‘Connecting the Dots’ (June 2012), we decided to shortlist our own set of dependable stocks. For this we used following filters –
Filter 1: Is the Sales growth faster than nominal GDP growth?
This can be achieved by either being a part of a fast growing industry and/or gaining market share within the industry.
Filter 2: Is Profit growth faster than Sales growth?
This signifies a combination of several dimensions like market dominance, pricing power, better cost management, judicious investments and right mix of debt and equity.
Filter 3: Is Earnings per Share (EPS) growth broadly in line with Profit growth?
This signifies that growth and capital efficiency are linked. This also indicates whether an individual shareholder participates proportionately in company’s growth or not.
After shortlisting stocks by using the 3 filters, we added information about Return on Equity (RoE), Debt/Equity (D/E) & Dividend Yield (DY) as these are information which should be looked into before taking a final call to buy any stock.
We started with a universe of 50 safe large cap stocks which form the Nifty50. After putting Filter 1, we were left with 35 stocks. On putting Filter 2, we were left with 19 stocks. Final filter resulted in shortlisting of 13 stocks, which met all three criterias.
During last 3 years, average sales growth of these 13 stocks was 22.10%, which was much above the nominal GDP growth rate of 13 percent. Average Profit growth for these stocks was 31.40% & EPS grew at an astounding CAGR of 33.40%.
So, without much delay, we present the 13 rock solid and dependable stocks of Indian markets…
- HDFC Bank
- Power Grid
- Bajaj Auto
- Kotak Mahindra Bank
- Axis Bank
- Hero Motocorp
- Asian Paints
- Bank of Baroda
How these 13 stocks fared on 3 criterias is detailed in table below –
During the last 3 years, an investment made in portfolio of these 13 stocks would have given a market beating return of 17.90% (CAGR)
Only one stock, BHEL, gave negative returns (-17.34%) in this period. Overall market returned a meager 3.73%. This portfolio outperformed the market by 14% + (!!).
A snapshot & analysis of all 50 stocks can be found below. Please click the image to enlarge.
|Click to enlarge|
Caution – This is not a recommendationto BUY any of these stocks. We have not considered valuations of these stocks in the post. So do your due diligence before buying any of these stocks. Also, past performance is no guarantee of future results.
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