These Top 10 stocks can provide best returns in next five years
15 Mar 2017
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Are you an investor who believes in holding stocks and reaping the harvest of wealth creation? This can happen only if you give time to your investment and remain patient.

Retail investors who are not able to read the pulse of the market at regular intervals are always in search of stocks that can give higher returns from other asset classes such as real estate, bonds, bank deposits and gold.

In its latest strategy report on India, Morgan Stanley has handpicked 10 stocks that can turn out to be potential winners only if you are willing to give time to your investment. The time horizon the global investment bank has specified for these stocks is five years.

Stocks that fall in the category of potential winners include Asian paints, Eicher Motors, Glenmark Pharma, HCL Technologies, Ipca Laboratories, Kotak Mahindra Bank, Oberoi Realty, Petronet LNG, Sun Pharma and UltraTech Cements.

Why is Morgan Stanley so confident of these stocks? It turns out these stocks scored the highest in 11 out of 22 metrics that mattered most to stock returns over the past five years.

The important metrics studied by the global investment bank include EPS five-year CAGR, dividend five-year CAGR, book value five-year CAGR, return on equity (ROE) changes over five years, ROCE change over five years, change in gross debt/equity ratio over five years, gross debt-equity, FCF in FY2012, EV/Ebitda in FY2012, market-cap size and 52-week trailing beta in FY2012.

Asian Paints: Overweight| Target price Rs 1,280

Morgan Stanley maintains an overweight stance on Asian Paints with a 12-month target price of Rs 1,280. The gross margins expanded in the December quarter amid rising spot input costs.

The key positive for the quarter is 3 per cent volume growth in the domestic decorative business, said the MS note, even though the domestic decorative
business segment affected by demonetisation.

The global investment bank expects 20 per cent earnings CAGR FY2016-18 which is highest in the MS coverage of stocks.

Eicher Motors: Buy | Target price Rs 29,884
EdelweissBSE 0.07 % Securities maintains a buy rating on Eicher Motors post the December quarter results and also raised its 12-month target price to Rs 29,884 from Rs 25,880 earlier. Eicher Motors is one of the companies that have witnessed tremendous growth in market capitalisation since FY11.
The brokerage firm lowered its FY17/18E EPS by 8 per cent each largely due to weaker volume/margin outlook for Volvo Eicher Commercial Vehicles (VECV) post demonetisation.

However, it factors in 35 per cent EPS CAGR over FY17-19E driven by strong demand opportunity in RE and margin improvement, led by scale benefits and vendor consolidation.
Glenmark Pharma: Overweight | Target price Rs 1,009
Morgan Stanley maintains an overweight stance on Glenmark Pharma post-December quarter results with a 12-month target price of Rs 1009.

The global investment bank estimates total market for gSolaraze Gel at $298 mn. It is currently the 5th player market. The global investment bank believes $15-20mn sales to be done at high-profit margins.

HCL Technologies: Buy | Target price Rs 947

HCL Technologies, India's fourth-largest IT services company, is engaged in providing software, business process outsourcing and IT infrastructure services. The company has a wide geographical presence across 32 countries.

The management has retained revenue growth guidance of 12%-14% (CC terms) and EBIT margin guidance of 19.5%-20.5% for FY17. It signed nine transformational deals and added 19 new clients in Q3FY17.

Ipca Laboratories: Buy | Target price Rs 650

The momentum in India business remains strong; however, exports are taking the time to ramp up. India biz is well placed to grow in double digits over next few years with improved therapy mix.

While USFDA resolution will take time, regulatory compliance with other agencies to help capacity utilisation, said the CLSA note.

Oberoi Realty: Buy | Target price Rs 400

The real estate player should benefit from it quality land bank, strong brand in the premium Mumbai market, relatively short-term for NAV liquidation and a strong balance sheet.

The stock valuations appear attractive. The domestic brokerage firm expects the company's operations to scale up in ensuing quarters led by improving affordability and supportive macros, which should translate into sharp earnings ramp up.