Stock Picks of the Week

Welcome back to the second edition of Stock Picks of the Week. Like I said before, this is a weekly stock roundup, which will be a list of my long term stock picks based on fundamentals, intrinsic value and future growth outlooks. The ones that make the cut have a high chance of strengthening and growing your portfolio. Without much wait, here are my stock picks of the week:


My first stock pick of the week is Mphasis. This pick, like in the previous SPOTW edition, is me trying to capitalize on poor results and growth (read more here.) The mid tier IT Solutions company released their quarter and year-end results a week back, and to much disappointment, announced a dip in revenue in constant currency terms. Mphasis have been struggling this financial year, and that has shown in the stock, which has been battered since reaching its 52 week high. However, this is where we must use second level thinking (you can learn more about second level thinking through this great book by Howard Marks). Rather than just skimming through the surface level observations, one has to realise what is going on behind the scenes. More than 50% of Mphasis’ business comes through banking, insurance and other financial institutions. With the current banking crisis going on in the world, SVB and Credit Suisse at its center, the BFSI sector is at a low, and is a direct reason as to why Mphasis is not performing great. Although analysts suspect this downward slide could continue, I feel that with the BFSI situation around the world calming down, US interest rates potentially relaxing and with the company’s great board of directors, Mphasis will positively surprise investors, and its stock price will rise. Future outlook aside, Mphasis has great fundamentals for a mid tier IT company, and is consistently making money with great returns on its capital, assets and equity. It is also remarkably financially strong with relatively less debt, and good financial leverage and current ratios. Most importantly, the stock shows an extremely strong intrinsic value discount, thanks in part to its major stock price slide, and hence solidifies my opinion that Mphasis is a STRONG BUY.

Hindustan Unilever

My second stock pick for this week, is Hindustan Unilever. As I stated in my investment strategy blog, (which you can find here) Hindustan Unilever has an extremely solid business. To reiterate: “As a member of India’s vast middle class family sector, my household buys, let’s say 5 products each of Vaseline, Dove and Lifebuoy a year. These are product lines which through the years have edged the rest to become industry leaders, and my family will, likely not stop buying and using them for decades to come. Now, if my family is heavily dependant on these products, it is likely that so are most, if not all middle class families. Such families comprise of 33% of India’s total population, and that number set to double in 25 years. This means that Hindustan Unilever, if maintains its competitive advantages, uses proper accounting practices and uses their money wisely, will likely continue to generate and increase cash flow, and maintain good fundamentals, and hence be a great stock to invest in.” Along with great competitive advantages, HUL also has good fundamentals, with a good EPS and sales growth rate, and decent returns on invested and employed capital. Financially, HUL is top notch, with a strong balance sheet and great debt/leverage related ratios. Its annual results also mirror the same: financial strength of the highest mark, with thanks to great management. Also, Hindustan Unilever has a major discount to intrinsic value, almost 50% (I will talk about my strategy to calculate intrinsic value in a later blog). However, HUL is a stock that has been on quite a high recently, which, if you read my previous blogs, you would know is not my desired situation, as I prefer to invest in stocks on major lows. Still, HUL’s competitive advantages are too good to ignore. Therefore, I feel it is a BUY.

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