Risky bets? Dilip Bhat on 3 stocks that can be 2x or 3x in five years

‘As far as the hotel industry is concerned, none of the stocks look all that compelling, all that cheap because over the last two years and prior to that also in a five-year period, none of these companies have really done anything which is exciting,” says Dilip Bhat, Joint MD, Prabhudas Lilladher.

Do you think the worst is already priced in for IT or do you think there is going to be further weakness in the IT counters, especially the midcap space?
As far as the IT sector is concerned, on a macro basis, the rupee depreciation is a phenomenal tailwind and taken together with the kind of valuations that have been shaved off, makes the entire sector look very interesting without any doubt.

Of course, there is bound to be an impact of whatever is happening worldwide. There is going to be disruption in some revenues and some volatility in the cross currencies that we are seeing. But all said and done, a lot of it is there in the price and maybe on the risk return basis, the IT sector looks like one such sector where the risk seems to be limited.

But the returns seem so be very much in favour. Having said that, one should still stick to the frontline names like Infosys and even TCS. Tech M also looks pretty interesting from the current levels and one should still look at it. In the midcap space, Coforge also looks pretty interesting, MindTree looks very good.

Some of the stocks look pretty interesting and one must have a look at it slightly on a medium to long term basis.

Diagnostics was the go-to sector – whether it was Thyrocare or Metropolis or Dr Lal with PE multiples which were higher than consumer companies at the peak of Covid. But now stocks have corrected 50%. Is this a case of over-optimism and over-pessimism? Will the stocks settle somewhere in between?
One way of looking at the things would be that it went up so high and then has fallen so much but in reality, I would try to be a little more objective in the sense that they are still not trading at a reasonably attractive valuations in terms of buying.

I do not think that they can give any phenomenal returns from here on a longer term basis. The competition, if at all, is only going to intensify. We are seeing a lot of players still entering this segment and a lot of small players, One or two of them are really nibbling at the overall markets. So this space will continue to be a little more competitive. Maybe the frontlines will continue to attract attention but one can think that it will be very difficult to make at least a reasonable return over the medium to long term.

I would prefer to wait and watch from the current levels for this particular sector. I will still wait for the prices to be much more reasonable. Maybe I am wrong but I would prefer to wait.

One has to prepare the portfolio for not beating the Nifty which is the objective of a mutual fund but to get absolute returns and take a little bit of chance with one or two or maybe three, four risky bets and potentially bet on companies which could be multi baggers. How would you make a list of such high risk, high return stocks which potentially could be 2x or 3x in five years?
One of the stocks that would come into my mind right now is Mahindra Finance. It is quite a beaten down stock. For the last three, four years, it has done nothing and possibly the volatility of the earnings of this particular company has overshadowed its overall performance and has never given any consistent confidence.

Mahindra Finance appears to be a good potential candidate for giving reasonable returns over the next two to three years. One should look at it from current levels. As far as the other stocks are concerned, I would even look at Vedanta, maybe the corporate governance has always been under scrutiny and is always a debatable issue as far as Vedanta goes. But considering the basket of products and verticals that they are into, there is every chance that this particular company can bounce back in a reasonably good way in the medium to longer term basis. So Vedanta would be another company.

The third is ITC. It is one of the companies which can give a very stellar performance because the secular growth can be quite good. There could be potential threats of a duty hike here and there especially at the time of the budgets. But this is a company with such high ROEs and is throwing up such huge amounts of free cash that it is still grossly undervalued. It has a good potential. These are a couple of stocks which come to my mind at the moment.

Is there merit in buying anything which has got to do with trade, travel, tourism and hospitality?
Most certainly without any doubt. The entire industry is having a phenomenal tailwind in terms of revenge spending that we are seeing and the kind of push that this particular industry is getting at the moment. There are not too many choices within this particular space that we are seeing. There is Thomas Cook which looks pretty interesting because that is one of the few known companies which have really survived and is surging ahead with innovative strategies. So Thomas Cook looks good.

As far as the hotel industry is concerned, none of the stocks look all that compelling, all that cheap because over the last two years and prior to that also in a five-year period, none of these companies have really done anything which is exciting whether it is in terms of ROCE returns, profitability and capital intensity has always been pretty high.

The sector looks pretty interesting but there are very few things to choose from as far as this particular industry goes.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)