Fundamentally Strong Midcap Stocks: Untapped Opportunities

Fundamentally strong Midcap stocks are often attractive to intelligent investors. This is because midcap stocks often trade for lower prices than established large-cap stocks. Intelligent investors may be able to take advantage of this undervaluation to buy these stocks at a discount and perhaps profit from their long-term development as the market comes to understand their full worth.

There is a fact associated with Mid- cap stocks. Analysts spend a lot of time researching and monitoring large-cap equities, but they might not pay as much attention to midcap stocks. This may result in pricing inefficiencies and information gaps that smart decision makers might take advantage of by doing their own careful investigation and analysis.

What are Mid-cap stocks?

Midcap stocks are the companies whose market capitalisation ranges between Rs 5,000 crore to less than Rs 20,000 crore. These are typically the companies that have moved beyond their initial startup phase and have demonstrated a certain level of stability. In comparison to large-cap equities, they still have a lot of space to expand.

Midcap stocks can offer a balance between growth potential and stability and ranked from 101 to 250 in terms of market capitalization on the NSE. Midcap equities, particularly those with solid fundamentals, have historically outperformed both large-cap and small-cap stocks in the long run. The capacity to respond to shifting market conditions, market inefficiencies, and growth potential may all contribute to this outperformance.

Fundamentally Strong Midcap Stocks

The fundamentally strong midcap stocks we are talking about are: Ashok Leyland Ltd, Bharat Forge Ltd, Bharat Electronics Ltd, Rites Ltd, Container Corporation Of India Ltd, Dalmia Bharat Ltd, Tips Industries Ltd, KEI Industries Ltd, M&M Financial Services, Deepak Nitrite Ltd.

Let’s discuss about the fundamentals and financials of these stocks.

Ashok Leyland Ltd

52 Week High: 191.05| 52 Week Low: 133.10| PREVIOUS CLOSE: 186.20

The company upholds respectable profitability metrics, with an ROCE of 12.0% and ROE of 15.0%. Its Price to Earning Ratio is 30.9, beneath the sector’s PE ratio of 34.7. The stock’s TTM EPS is 6.06 Rs. per share, reflecting a significant +596.72% YoY surge, signifying earnings growth. There’s cause for concern due to the high debt to equity ratio of 228%. Meanwhile, the dividend yield is modest at 1.39%.

In the previous year, annual revenue surged by 58.7% to reach Rs 41,783.4 Crores. The annual net profit also experienced a substantial increase, rising by 446% to Rs 1,240.8 Crores. The stock price demonstrated a 28.3% increase, outperforming its sector by 1.2% over the same period. The promoter’s stake in the company is notably high at 51.53%, with a pledge of 19.04%. During the June 2023 quarter, FII/FPI holdings grew from 14.85% to 16.59%.

Bharat Forge Ltd

52 Week High: 983.50| 52 Week Low: 677.35| PREVIOUS CLOSE: 950.50

The company’s profitability ratios are positioned at ROCE 7.73% and ROE 6.88%. The stock upholds a P/E ratio of 64.4, exceeding its sector PE ratio of 59.7. TTM EPS records 12.61 Rs per share, showing a -35.69% YoY decline. With a reasonable debt to equity of 26%, the company displays a balanced balance sheet. In the present year, Bharat Forge’s dividend stands at Rs 7, yielding 0.72%.

In the previous year, the annual revenue experienced a rise of 22.8%, reaching Rs 13,083.1 Crores. However, the annual net profit saw a decline of 51.2%, amounting to Rs 528.4 Crores. The stock price increased by 32% but performed less favorably than its sector, trailing by 32.8% over the year. The promoter’s shareholding remained unchanged in the latest quarter at 45.3%. During the June 2023 quarter, FII/FPI holdings decreased from 16.17% to 15.79%.

Also read: Small Cap Index: Opportunities And Risks For Investors

Bharat Electronics Ltd

52 Week High: 133.25| 52 Week Low: 87.00| PREVIOUS CLOSE: 129.40

The stock demonstrates strong profitability with a ROCE of 30.0% and a ROE of 22.8%. Despite maintaining a healthy performance, its P/E ratio is conservative at 30.6, notably lower than the sector’s P/E ratio of 59.7 and also beneath its peer groups. The company’s EPS has surged by an impressive 27.28% Year over Year, reaching 4.09 per share. With a debt-free status and a robust balance sheet, the company is well-equipped to sustain consistent earnings growth across various business cycles. In the present year, Bharat Electronics has declared a dividend of Rs 1.80 per share, yielding a return of 1.36%.

In the previous year, the company’s yearly revenue experienced a growth of 15.5%, reaching a total of Rs 18,015.2 Crores. The annual net profit also increased by 24.4% in the same year, reaching Rs 2,984.4 Crores. The stock price saw a rise of 37.8%, but it performed less well than its sector, lagging behind by 27% over the past year. The company continues to have a significant promoter holding of 51.14%. Additionally, the holdings of Foreign Institutional Investors (FII/FPI) increased from 16.42% to 17.35% during the quarter ending in June 2023.

Read the full story: Bharat Electronics Limited Share Soar To New Heights: The Analysis

Rites Ltd

52 Week High: 509.85| 52 Week Low: 264.45| PREVIOUS CLOSE: 475.20

Moving on to the next stock on the list of fundamentally strong midcap stocks, we have Rites Ltd. This company boasts impressive profitability ratios, maintaining a robust ROCE of 30.5% and a commendable ROE of 21.3%, where higher figures are better. The stock’s P/E ratio stands at 22.2, which is lower than both its sector’s PE ratio of 50.2 and its peer groups’ averages. The stock’s trailing twelve months Earnings per Share (EPS TTM) is at 21.32, which has exhibited varying growth trends over the past five years. With a debt-free status and a solid balance sheet, Rites Ltd. is well-positioned to sustain consistent earnings growth across different business cycles. In the current year, Rites has declared a dividend of Rs 17 per share, offering a yield of 3.49%.

In the previous year, the company’s yearly revenue experienced a slight decline of 0.6%, reaching Rs 2,730 Crores. However, the annual net profit increased by 10.6% in the same year, totaling Rs 571 Crores. The stock price witnessed a significant rise of 77.2%, and it outperformed its sector by an impressive 34.2% over the past year. The company maintains a high promoter holding of 72.20%. Additionally, the holdings of Foreign Institutional Investors (FII/FPI) increased from 3.37% to 3.44% during the quarter ending in June 2023.

Also read: Olectra Greentech Future: Sustainable Solutions Ahead

Container Corporation Of India Ltd

52 Week High: 828.75| 52 Week Low: 555.00| PREVIOUS CLOSE: 696.55

The stock maintains decent profitability ratios, with a ROCE of 13.7% and ROE of 10.7%. Its Price to Earning Ratio is 36.8, which is lower than the sector’s PE ratio of 88.1. Looking at the Earnings per Share, it has shown some significant increases in the past 5 years and now stands at 18.42 per share for the last 12 months, showing a rise of +7.43% compared to the previous year. The company has no debt and a strong balance sheet, which helps it report steady earnings growth across different business cycles. In the current year, Container Corp has announced a dividend of Rs 9 per share, giving a yield of 1.62%.

Last year, the company’s annual revenue went up by a solid 7.4%, reaching Rs 8,482.5 Crores. The annual net profit also saw an increase of 11.3% in the same year, totaling Rs 1,173.9 Crores. However, the stock price dropped by 3.1%, performing less well than its sector by a margin of 21.8% over the past year. The company is largely owned by its promoters, who hold a significant stake of 54.80%. Meanwhile, Foreign Institutional Investors (FII/FPI) reduced their ownership from 22.24% to 21.57% during the quarter ending in June 2023.

Fundamentally Strong Midcap Stocks- Things to keep in Mind

Examine about the mid-cap stocks’ growth prospects, financial stability, and the calibre of its management team while evaluating possible investments. Look for consistent earnings, assess the performance of their industry, and determine whether their stock price is in line with their earnings potential. Consider your long-term objectives and diversify your assets across multiple markets as mid-cap equities might be more volatile. Keep updated of the business’s performance and market developments, and don’t be afraid to ask professionals for help if you need it with any choices.

Facts about Mid cap stocks

Benefits: Mid cap stocks offer growth potential as they’re beyond the early stages but still have room to expand. They can provide higher returns than large caps. However, they’re less volatile than small caps, striking a balance between growth and stability.

Limitations: Despite growth potential, mid caps can be riskier than large caps due to their sensitivity to market changes. They might lack the stability of established companies. Additionally, they could face challenges in accessing capital during economic downturns.

BOTTOM LINE

Wrapping up! These particular balances of stability and growth offered by these not-too-big, not-too-small businesses make them an ideal choice for investors looking to build a well-rounded portfolio. Fundamentally strong midcap stocks have the potential to yield alluring returns because to their high profitability ratios, consistent profits growth, and sometimes undervalued market potential. But because they might fluctuate with market conditions, it’s crucial to manage the associated risks carefully.

Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.