Stock picks of the week: 5 stocks with consistent score improvement and upside potential of up to 50%
Stock picks : With domestic markets experiencing corrections and the likelihood of continued volatility in the global market, uncertainty may persist in the near future. However, even during volatile periods, there is a strong possibility that the market may shift towards a focus on individual stocks.
Investors should analyze the broader macroeconomic factors of a sector and its stocks. If the macroeconomic conditions are improving, consider taking a long position and overlooking short-term fluctuations.
In the oil market, there is potential for better-than-expected GDP numbers from China. Keep a close watch on metal prices, not only on domestic exchanges but also on global platforms like the London Metal Exchange. If there are signs of improvement, consider making tactical trades in metal stocks.
Do you have investments in both large- and mid-cap stocks within the same sector? If so, consider reducing exposure to mid-cap stocks and sticking with large-caps. This is because mid-cap stocks, which have experienced significant growth, may face pressure in the event of negative developments.
Certain sectors are currently overvalued, particularly industrial and capital goods, where stocks are priced near perfection. Any issues in global markets or Q3 earnings could lead to corrections in these stocks. Exercise caution and focus on stocks with strong fundamental developments that can drive earnings growth.
Consider adopting a tactical approach, either as a short-term trader for the next few months or as a long-term investor who reviews stock prices after a year or more. We have compiled a list of stocks that have shown improvement in their average scores over a one-month period, utilizing various algorithms for all BSE and NSE stocks.
Moreover, we have conducted an analysis to determine if these stocks have a strong potential for growth in the next 12 months and if they are favored by analysts.
To ensure accuracy, we have selected stocks with an average recommendation rating of “Strong Buy,” “Buy,” or “Hold.” The data used for this screening process was obtained from the latest Refinitiv’s Stock Reports Plus report dated January 11, 2025.
1. Earnings Component Score:
The earnings component score of a stock is calculated as the average of earnings surprises (over the last four quarters), estimate revisions (over the last four weeks), and recommendation changes (over the last 120 days). A higher earnings component score indicates better performance.
2. Price Momentum Component Score:
The price momentum component score of a stock is determined by the weighted average of the relative strength score (70% weight) and seasonality in returns (30% weight). The relative strength score is measured using the RSI of the stock compared to its industry average over the past one month, three months, and six months. Seasonality in returns is measured using the average monthly returns of the stock compared to its industry average over the last 10 years. A higher price momentum component score signifies stronger momentum.
3. Fundamental Component Score:
The fundamental component score of a stock is calculated as the average of profitability metrics (revenue growth, gross margins, return on equity, and net margin), debt levels (current ratio, debt-to-capital ratio, interest funding, and interest coverage), earnings quality (operating cash yield, accruals, days sales in inventory, and days sales in receivables), and dividend ratings (dividend growth, dividend payout, dividend coverage, and current dividend yield). A higher fundamental component score indicates stronger fundamentals.
4. Risk Component Score
The risk component score of a stock is calculated as the simple average of the magnitude of returns (measured using daily returns over the past 90 days and monthly returns over the past 60 months), volatility score (measured using standard deviation over the last 90 days and last 60 months, and intraday swing over the past 90 days), beta score (measured using beta of the stock versus BSE Sensex and its peers), and correlation score (measured using the correlation of the stock versus BSE Sensex and its peers over the past 90 days and past 60 months). A higher risk component score indicates a better performance.
5. Relative Valuation Component Score
The relative valuation component score of a stock is calculated as the weighted average of the price-to-sales score (50% weight), trailing PE ratio (25% weight), and forward PE ratio (25% weight). These metrics are based on the stock’s latest data compared to its historical averages and the BSE Sensex. A higher relative valuation component score indicates a better valuation.
Factors Leading to Improvement in Stock Score:
Atul Limited
The recent increase in the average score for Atul Limited was primarily driven by improvements in price momentum and relative valuation component scores.
Brainbees Solutions Limited
The recent increase in the average score for Brainbees Solutions Limited was primarily due to improvements in price momentum and risk component scores.
CG Power and Industrial Solutions Limited
The recent increase in the average score for CG Power and Industrial Solutions Limited was primarily driven by improvements in price momentum score.
Trent Limited:
The recent increase in the average score was primarily driven by an improvement in the Price Momentum score.
Nestle India Limited:
The recent increase in the average score was mainly due to improvements in both the Price Momentum and Earnings components.
Methodology used to filter the list of stocks:
1) Consistent score improvement over a one-month period:
Only companies with consistent score improvements over a one-month period were considered. This involved comparing the latest average score with the score from one week prior, and then comparing that with the score from one month prior. Companies showing a continuous increase in score across different time frames were selected.
2) Stocks with “Strong Buy,” “Buy,” or “Hold” recommendation ratings:
Recommendation ratings were obtained from the Institutional Brokers Estimate System (I/B/E/S) by Refinitiv. Ratings were based on a five-point scale – Strong Buy, Buy, Hold, Reduce, and Sell. Only stocks with a recommendation rating of “Strong Buy,” “Buy,” or “Hold” were included in the list.
3) Stocks with a minimum upside potential of 27%:
The highest price targets for all stocks were calculated based on analyst target prices for the next 12 months. Stocks with a minimum upside potential of 27% were included in the list.
4) Institutional ownership of at least 14%:
Companies with institutional ownership of at least 14% were considered for the list, as higher institutional interest was seen as a positive factor.
5) Market cap of at least Rs. 20,000 crore
Only companies with a market capitalization exceeding Rs. 20,000 crore are included in this exclusive series of stocks.
About the Companies:
Atul Limited specializes in life science chemicals, performance chemicals, and other chemical products. The company caters to various industries worldwide, including adhesives, agriculture, automotive, construction, cosmetics, defense, electronics, food, pharmaceuticals, and more. Atul Limited operates through three segments: Life Science Chemicals, Performance and Other Chemicals, and Others. The Life Science Chemicals segment offers active pharmaceutical ingredients, fungicides, and herbicides. The Performance and Other Chemicals segment provides adhesion promoters, epoxy resins, textile dyes, and more. The Other segment includes agribiotech and food products.
Brainbees Solutions Limited offers a multi-channel retail platform for mothers, babies, and kids products, based on gross merchandise value. The company sells products through online platforms, company-owned stores, franchisee-owned stores, and general retail distribution. Its segments include India multi-channel, International, Globalbees, and Others. The India multi-channel segment focuses on manufacturing, buying, selling, and promoting products in India. The International segment operates in countries like the United Arab Emirates and the Kingdom of Saudi Arabia.
Globalbees is a direct-to-consumer venture that specializes in aggregating and investing in e-commerce brands to help them scale and enhance their digital presence. The FirstCry platform serves as a multi-channel retail destination for mothers, babies, and kids products.
CG Power and Industrial Solutions Limited is a company that provides comprehensive solutions to utilities, industries, and consumers for managing and utilizing electrical energy. The company offers a range of products, services, and solutions through its Power Systems and Industrial Systems segments. The Power Systems segment includes transformers, switchgear, automation, and turnkey projects, while the Industrial Systems segment includes electric motors, alternators, drives, traction electronics, and supervisory control and data acquisition systems (SCADA).
The company’s product line includes power transformers, medium and high voltage switchgear, motors, drives, automation switchgears, railway traction motors, traction electronics, and railway signaling products. CG Power and Industrial Solutions Limited also has subsidiaries such as CG Power Solutions Limited India, CG-PPI Adhesive Products Limited, CG Power Equipments Limited, and CG International B.V.
Trent Limited is a renowned company specializing in the retail and trade of various merchandise. Their diverse range of products includes apparel, footwear, accessories, toys, and games, among others. Operating under multiple retail formats such as Westside, Landmark, Zudio, Utsa, Star Market, and Booker Wholesale, Trent Limited caters to a wide range of consumer needs.
Their flagship format, Westside, offers a comprehensive selection of apparel, footwear, accessories for men, women, and children, as well as home furnishings and decor. Landmark, their family entertainment format, provides a variety of toys, books, and sports merchandise. Zudio, their value retail format, focuses on apparel and footwear for all ages. Utsa, their modern Indian lifestyle format, offers ethnic apparel, beauty products, and accessories. Additionally, their hypermarket and supermarket chain, Star Market, offers a diverse range of products including staples, beverages, health and beauty items, and fresh produce.
On the other hand, Nestle India Limited is a prominent player in the food industry. Their product groups encompass Milk Products and Nutrition, Prepared Dishes and Cooking Aids, Powdered and Liquid Beverages, and Confectionery. Within these groups, Nestle India offers a wide array of products ranging from dairy whitener, condensed milk, and yogurt to instant coffee, noodles, and confectionery items.
Some of their well-known brands include NESCAFE, MAGGI, MILKYBAR, KIT KAT, BAR-ONE, MILKMAID, and NESTEA. Nestle India also provides everyday essentials like NESTLE Milk, NESTLE SLIM Milk, NESTLE Dahi, and NESTLE Jeera Raita, catering to the daily needs of consumers.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.