Hunting for ‘growth’ at a reasonable price? Consider these 10 stocks

Markets can stay irrational longer than you can stay solvent. The old adage by celebrated economist John Maynard Keynes stays valid even today, across geographies. There are times when factors such as concentration of institutional flows and behavioural biases, such as unpopularity of a theme or industry, could lead to value-creating growth stocks trading at pessimistic prices.
identified 10 stocks, which fall into ‘value-creating growth’ category, where there is a hint of outperformance in the recent past, earnings momentum stays intact, estimated FY24 return on equity (RoE) is greater than their ‘cost of equity’ and where operating cash flow generation is robust.

They included

, Chola Investment, , Bharat Electron and . Larsen & Toubro, Dr Reddy’s Labs, and are the remaining shares which ICICI Securities sees as value-creating ideas. The brokerage has a ‘buy’ recommendation on eight of these stocks and ‘add’ call on the remaining two.

Using its proprietary ‘MILTGV’ framework for reverse engineering stock prices, ICICIdirect said the market is attributing less than or equal to 70 per cent of the current market value to earnings growth in these 10 companies beyond FY24E, adding that the usually such quality stocks derive most of their valuations from growth beyond the explicit period, which in this case is beyond FY24.

ICICI Securities said its criteria for value creation was satisfied by these stocks as they are expected to have FY24 return on equity (RoE) that is greater than their ‘cost of equity’. Also, there is no material expected dip in RoE profile over FY22 to FY24. Earnings growth over FY22-24E in the 10 stocks should exceed nominal GDP growth (over 12 per cent) supported by sales CAGR of around 10 per cent and more, the brokerage said.

The Keynes’ adage is a critical risk factor in a GARP (growth at reasonable price) strategy as markets can continue to ignore a stock for various reasons and it can continue to look attractive on GARP parameters for extended periods of time without showing any performance.

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