Best Midcap Stocks for Long Term? Here are 5 to Watch Out for

However, with this kind of mindset, it’s easy to lose sight of the long-term potential of a stock.

While past results are no guarantee of future returns, long-term investing in stocks generally yields positive results, if given enough time.

But with so many choices available, which stocks are worth your money?

When looking for stocks to buy and hold for the long term, it’s important to consider companies with strong fundamentals and solid growth prospects.

Investing in midcap-sized companies may offer investors the best of both worlds. As per the market regulator, companies that rank from 101 to 250 in terms of market capitalisation are known as midcap companies.

Their marketcap generally tends to range from ₹50 bn to ₹200 bn, which means they’re big enough to be considered institutional investments, but small enough that you don’t need a lot of money to own them.

Here are five you can turn your attention to.

#1 Jubilant FoodWorks

First on our list is Jubilant FoodWorks.

The company is a part of the Jubilant Bhartia Group. It has two strong international brands in its portfolio, Domino’s Pizza and Dunkin’ Donuts.

What makes this a stock with long term potential?

Since 1996, the company has the exclusive rights to develop and operate Domino’s Pizza Restaurants in India. It is the largest franchisee of Domino’s outside the USA. It has also been granted exclusive rights of the brand for Sri Lanka, Bangladesh, and Nepal.

While other QSRs have expanded their store reach, Jubilant has been at the forefront.

As of March 2022, the company had 1,623 stores (1,396 in 2021). The outlet reach is set to increase to 1,898 stores by end of financial year 2023 and to 2,123 by 2024.

A large part of this growth was due to increase in demand during the pandemic. During the pandemic, the preference to stay indoors eventually accelerated the consumer shift towards online food ordering. Jubilant was able to capitalise on the opportunity.

In the last five years, the company’s revenues have grown at a CAGR (compound annual growth rate) of 11% while profit has grown at a CAGR of 45%.

Its return ratios are also strong at above 20%. Despite continuous capex, the company’s debt to equity ratio stands low at 1.1x.

With more Indians eating out and online deliveries also on the rise, Jubilant’s future looks bright. The scope is also huge due to under penetration in the sector and rise in overall income levels of the population.

#2 Marico

Second, on our list is Marico.

The company deals in a diverse range of products, including haircare, skincare, edible oils, male grooming, and healthy foods.

Some of its brands include Parachute, Saffola, Livon, Nihar, and Beardo. The company also has market leadership in most of its product categories.

So, why should Marico be on your watchlist?

Despite being a commodity company at its core, what has helped the company stay relevant all these years is its focus on innovation.

The company has constantly innovated to cater to an increasingly urban India. This is expected to help it outperform its peers in the future as well.

Not all Marico innovations have succeeded but lessons learned from failed experiments went into making subsequent brands a success.

The company has grown inorganically through acquisitions over the past few years and has taken in major brands under its umbrella. The company has spent millions of dollars on these acquisitions. It recently acquired a 54% stake in health foods startup, True Elements.

Keeping up with the times, the company is also making the shift to digital.

Marico aims to accelerate its digital transformation journey by building a portfolio of at least 3 digital brands, either organically or inorganically, to reach a combined turnover of ₹4.5-5 bn by the financial year 2024.

It expects 15% of its overall revenue over the next couple of years to come from its online/ecommerce business from 9% at present.

In the last five years, Marico’s revenue has grown at a CAGR of 10%, driven by growth in all its product categories. The net profit also grew at a CAGR of 10% during the same period.

Complementing the company’s strong market position is the return on capital employed (RoCE) at 42.7% and return on equity (RoE) at 36.6%. It also has minimal debt on its books.

Going forward, with increase in premium product mix, improved profitability of international business and strong pricing power, Marico is expected to continue its strong performance in the years to come.

#3 Polycab

Third on our list is Polycab.

The company is the country’s numero-uno integrated manufacturer and supplier of state-of-the-art wires and cables. It has a 20-22% share in the organised segment.

So why should one consider Polycab for the long term?

In the last couple of years, Polycab has forayed into the switches segment and diversified further into fans and LED lighting segment setting up manufacturing units at Nashik and Roorkee.

Moreover, its strategic presence in engineering, procurement and construction (EPC) backs its core business. The confluence of both paves the way for the company’s long-term growth.

But going forward, the FMEG segment, most of which is still unorganised, may be the big growth driver. Especially for manufacturing components of critical electronic products.

Polycab’s market position is facilitated from its strong distribution network of over 2,800 authorised dealers and its established brand. The company has significant market share in western and southern India, which contribute around 70% to its revenue.

But it is eventually looking at a pan India presence.

The company is also looking to create a passive digital infrastructure for the IT sector ahead of the 5G technology roll-out. Polycab’s network supports high-speed broadband, IoT-connectivity and other newer and emerging applications with the help of fibre cabling.

Riding on the demand for its products, Polycab’s revenue has grown at a CAGR of 17% in the last five years. Net profit has also grown at a CAGR of 31%.

Polycab had its IPO in 2019 and used most of the proceeds to minimise debt on its books. The company currently has negligible debt on books and healthy return ratios with RoCE at 22.5% and RoE at 17.5%.

The stock has bright prospects and if held for long could allow investors to reap the benefits in the fast-moving electrical goods space.

#4 Mindtree

Fourth on the list is Mindtree.

The company is a multinational information technology services and consulting company. It’s a part of the L&T group.

Why is the stock worthy of being held for the long term?

Mindtree has an established market position in the IT sector. It also has a diversified portfolio of services with a significant presence in e-commerce, cloud computing, digital transformation, data analytics, and enterprise resource planning.

This ensures a wider client outreach and helps it offset any negative impact of a single segment from incremental revenue from the other segment.

The company is also of strong strategic importance to L&T with the share of IT and technology business accounting to more than 20% of the total consolidated revenue. And in turn benefits from its strong parentage in securing large deals.

Despite the current slowdown in demand in the IT sector, the company has an over US$ 1 bn orderbook.

Mindtree recently unveiled a three-pronged strategy to sustain revenue growth momentum. The Bengaluru-based IT firm said it plans to accelerate its core portfolio, expand its emerging portfolio, and incubate its new portfolio.

Besides this, the company has strong financials. In the last three years, Mindtree’s revenue has grown at a CAGR of 15%. The net profit also jumped 32% during the same time.

The return ratios have been robust with RoE at 33.8% and RoCE at 41.5%. To add to that, the company has a low debt to equity ratio of 0.1x. leaving enough headroom to borrow.

Going forward, a strong order book is expected to drive the revenue and margins in the medium term.

#5 Aegis Logistics

Last on our list is Aegis Logistics, a leading integrated logistics company.

It is engaged in the business of importing, exporting, storing, and distributing liquified petroleum gas (LPG). The company also handles the distribution of other products such as chemicals, petroleum oils, lubricant (POL) products, and vegetable oils.

What makes this a long-term stock?

Aegis Logistics caters to diverse, strong customer base and has established relationships with them. Some of its clients include BPCL, OMFC, Shell, Reliance, and HUL.

The company enters into yearly fixed price contracts with some (around 50%) of its customers. These are take-or-pay contracts whereby the customer fixes the volumes/storage capacity to be made available to them during the specified period.

This provides revenue visibility for the said capacity in liquid logistics division.

In gas sourcing, it acts as an arranger for its customers and suppliers with whom it has entered into back-to-back contracts with common pricing terms, forex rate and credit period terms.

The company has a joint venture with Itochu, a Japanese company, to help it source LPG at a cheaper rate. It has also formed a joint venture with the world’s leading tank storage company, Royal Vopak, to expand its product storage to other chemicals and explore opportunities in renewable energy.

Aegis Logistics is undertaking capacity expansions at various ports to meet the growing demand for oil and gas.

In the financial year 2022, it secured an international sourcing tender to supply 800 thousand metric tons of LPG. The company also signed a 35 year contract with Shell for petroleum storage.

In the last five years, the company’s revenues have grown at a CAGR of 3%. However, net profit has grown at a healthy 25%.

Aegis Logistics paid off its debt during the year and is a debt-free company. Its return ratios also are strong at above 15%.

Going forward, new orders, capacity expansion and diversification to other products is expected to drive the company’s revenue growth.

Conclusion

Every investment carries a potential of return and risk. The key to investing successfully in any type of company, small or big, is to minimise your risks.

Focus on building a sound investment strategy. If you don’t have one, start working towards it. If you do, check to see if your investments are on track and continue to reflect your investment horizon, financial situation, and risk tolerance.

​​Disclaimer 1: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

​​Disclaimer 2:The promoters of HT Media Ltd, which publishes Mint, and Jubilant Foodworks are closely related. There are, however, no promoter cross-holdings.

This article is syndicated from Equitymaster.com