Top 5 long

Jun 29, 2023

The volatility in the stock market can be your best friend, as the swinging markets offer a plethora of great long-term opportunities.

With careful analysis, one can potentially capitalize on these market fluctuations.

First understand this. Every investment entails a certain level of uncertainty. There is potential to earn profits or experience losses, whether you're investing in stocks, real estate, bonds, commodities, currencies, or cryptocurrencies.

If you don’t like uncertainty, then long term stocks are your best bet. They stabilize your portfolio with good returns.

The following five stocks boast strong fundamentals and business acumen.

Operating in diverse sectors, these companies offer exposure to different industries and markets and exhibit promising potential for long-term growth.

Have a look…

First on the list of long term companies is soft-drink giant Varun Beverages.

Varun Beverages manufactures, sells and distributes soft drink products under trademarks and brands owned by PepsiCo.

These include both; carbonated and non-carbonated beverages. The company functions on a franchisee model and has a license for 17 states and two union territories in India along with certain international markets.

Offering end-to-end execution capabilities from manufacturing, distribution and warehousing, customer management, and in-market execution, Varun Beverages covers everything, whereas PepsiCo offers brands, concentrates, and marketing support.

The business has enjoyed a great run over the past five years. While the revenue has doubled in value in the last 5 years, the profitability has shot up by 74.8% on a 5-Yr CAGR (compounded annual growth rate) basis.

This has expanded the return on equity (RoE) from 15.9% in the financial year 2018 to 33.7% in 2022.

This stellar performance of the business comes from market share gains and an improvement in the contribution of non-carbonated drinks and has allowed the company maintain a healthy balance sheet.

The company's debt-to-equity ratio has fallen from 1.5x to 0.82x in the past five years and the current interest coverage ratio stands at 3.2x.

Despite being in the industry for more than three decades, the company is constantly expanding its capacities to meet higher demand expectations. This includes greenfield expansion in the states of Rajasthan and Madhya Pradesh, as well as brownfield expansion at six plants in India.

Going forward, the company plans to drive growth by expanding its market share across categories through various customer push strategies in licensed territories.

The promoter holding stands high at 63.9%, as on March 2023.

The stock of Varun Beverages is available at a price-to-earnings (PE) of 62x, a modest premium of 12% to its 10-year PE of 55x.

Next on this list is Divi's Laboratories.

Divi's Laboratories is a leading manufacturer of APIs, intermediaries and registered starting materials. It enjoys a strong presence in diverse markets across developed, emerging, and developing countries, exporting products to over 95 countries.

The pharma giant boasts a broad portfolio of over 160 products spanning therapeutic areas, including anti-inflammatory, analgesic, and antidepressant medications. It operates six multipurpose manufacturing facilities and three R&D centres with an aim to expand them further.

The plan is to invest over ₹10 bn in constructing a new manufacturing facility which is likely to commence operations in the next three years.

Apart from this, Divi’s Laboratories also plans to invest in new technologies such as vapour-phased chemistry, continuous flow chemistry, photochemistry, gadolinium compounds, and peptides.

It's also extending the scope of its API and venturing into something called contrast media API, which helps make the structures and fluids in the body clearer during scans.

Over the past five years, Divi's Laboratories' sales and net profit has doubled and tripled, respectively. The strong demand for bulk drugs and expansion in export markets has helped the company expand its business.

This robust growth has extended the return metrics over the years. The RoE has propelled from 14.8% in the financial year 2018 to 25.2% in 2022.

The API manufacturing segment is the cash cow of the business, which has allowed it to reward its shareholders with consistent dividends. It has also helped keep the balance sheet pristine, despite the heavy investments.

The promoter holding is comfortable at 51.9% as of March 2023.

The stock is available at a PE of 34.3x, close to its 10-year median PE of 31.7x.

Third on the list is SRF.

SRF is a chemicals conglomerate that manufactures industrial and speciality intermediates.

Leading the market in most of the segments, its portfolio spans fluorochemicals, speciality chemicals, packaging films, technical textiles, and coated and laminated fabrics.

Due to its extensive experience in fluorine, it is the sole producer of some key refrigerants in India.

These features bode well for the business, allowing it to grow exponentially in the last ten years.

The sales and net profits have grown at a 10-year CAGR of 12% and 17.4%, respectively. The RoE has also improved dramatically from 13% in the financial year 2018 to 24% in 2022.

This robust growth in the business comes on the back of strong domestic demand, rising import substitution opportunities, and strong growth in exports.

Now, the government's proactive support under the 'Make in India' initiative also augurs well for the chemical business.

SRF has been expanding its capacity continuously, spending over ₹15 bn per annum on capex to meet the growing demand. And now, it plans to spend over 30 bn in the financial year 2023-24.

Recently, the company approved a capex of ₹6 bn for four new plants in the agrochemical space and capacity enhancement of an existing plant at Dahej, India.

These projects are a part of the company's overall expansion strategy in the speciality chemicals segment and will likely be completed in the next 10-12 months.

As of March 2023, the promoter holding in SRF stands at a satisfactory level of 50.5%.

The stock of SRF has been volatile in the past, yet it trades at 33x, a 50% premium to its 10-year median PE of 22x.

Fourth on our list is Tube Investment.

Tube Investment, a part of the Murugappa group, is one of India’s leading manufacturers of precision-engineered (64% of revenues in the financial year 2022) and metal-formed products (22%).

It's also a leading manufacturer of bicycles (14%) in India, with a range of iconic brands and a strong market presence.

Tube Investments has been enlarging its ambit of operations with acquisitions, expanding its global footprint with innovative product streams and exploring new frontiers in emerging technologies.

In 2020, it acquired a 50.2% stake in CG Power and Industrial Solutions Limited, a major manufacturer of Motors, Transformers, Switch Gears and Railway parts.

This acquisition marked an important step for the company, amplifying its scale and scope of operations.

To address the growing demand, Tube Investments will continue to expand its business across business segments.

Recently, the company approved a capacity expansion plan at its large-diameter precision steel tube manufacturing plant near Chennai.

The project is expected to go on-stream in 2024 and will enhance the plant's capacity from 4,125 metric tonnes/month (MT/month) to 5,950 MT/month. The total capital outlay comes to around Rs. 1.4 bn, fully funded via internal accruals.

The business has been growing in the past five years, expanding organically and inorganically. While the sales have grown at a CAGR of 21%, the net profits have registered a growth of 41%.

This phenomenal growth in the business has helped the company boost its return metrics, with the RoE jumping from 13% in the financial year 2018 to 32% in 2022.

The balance sheet remains strong, with the current debt-to-equity of 0.1x.

The promoter holding in Tube Investments is slightly below the ideal 50% threshold, standing at 46.2% as of March 2023.

Tube Investment is currently available at a premium of 36% to its 10-year median PE of 46x.

Last on the list is Astral Poly Technik.

Astral Poly Technik is the fourth-largest pipe manufacturer in India. It operates at a total installed capacity of 282, 338 metric tonnes per annum and is present across the north, west, and south markets.

Apart from manufacturing pipes, the company also has an adhesive and sealant segment, which contributes 21% to the top line.

The company has expanded its pipes capacity at 22% CAGR and as it entered and acquired various companies under its adhesive business.

In the past 5 years, the company has clocked in a 15.6% revenue CAGR, and a net profit growth of 27.1%. The 5-year average RoE stands at 24.7%.

The robust growth comes on the back of its extensive capacity additions combined with a robust distribution network.

Moreover, the industry's transition from plastic to chlorinated polyvinyl chloride (CPVC) pipes has also contributed, putting the company in a sweet spot.

It has turned Astral into the fastest-growing plastic pipe producer in the country, with a 25% (largest) market share in the CPVC segment.

The company has been expanding its presence in the last 2 years. It has spent over ₹2 bn in expanding capacity and decentralising it operations. While part of the newly added capacity is already operational, most of it will fully commence operations over the next 6 months.

The promoter holding stands at healthy level of 55.9% as of March 2023.

The stock of Astral currently trades at a PE of 99.6x, a premium of 30% to its 10-year median PE of 76.3x.

Snapshot of Long Term Stocks on Equitymaster's Indian Stock Screener

Here's a quick view of the above companies based on their financials.

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.

Investing in stable, fundamentally sound companies can sometimes allow investors to generate outsized returns.

All of this comes from the ability of fundamentally strong companies to weather short-term market volatility. But the key is to do your own research, despite the positive odds.

While conducting thorough research is crucial, these 5 long-term stocks can serve as a great starting point for your investment radar.

But there is no reason to believe that the long-term winners of the past will remain long-term winners in the future.

So, monitoring their performance, analysing industry trends and studying significant developments is crucial. Avoid it if it's at a crazy multiple of earnings.

It can help you stay informed and seize potential investment opportunities at the right price to generate substantial long-term wealth.

Happy Investing!

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com