7 stocks Goldman Sachs finds attractively priced, with quality and stable earnings

Stock ideas: ICICI Bank Ltd, Hindustan Unilever Ltd, Kotak Mahindra Bank Ltd, Hindustan Aeronautics Ltd (HAL), Nestle India Ltd, Britannia Industries Ltd and Dabur India Ltd are seven stocks that Goldman Sachs said look attractively-valued. The stock picks are based on sectors Goldman Sachs is 'over-weight' on within the BSE200 universe. 

Goldman Sachs said it derived earnings stability based on volatility of earnings growth of these companies in the last 10 years. The balance sheet strength, it said, is based on net debt-to-equity and interest coverage ratios for companies, ex-financials. Attractive pricing is based on either 200-DMA or on 10-year valuations z-score. 

Based on March 24 prices, Goldman Sachs said ICICI Bank was trading below its 200-DMA of Rs 1,389. Similarly, HUL was quoting below its 200-DMA of Rs 2,399, Kotak below its 200-DMA of Rs 417 and HAL below its 200DMA of Rs 4,512. FMCG stocks Nestle India, Britannia and Dabur also traded below its 200-DMA. 

"Stylistically, with slowing economic growth and risks of earnings downgrades, we think quality companies with stable earnings growth and strong balance sheets are likely to outperform over the next 3-6 months. Since the start of the Mideast conflict, quality factors like strong balance sheet and stable growth have been among the top performing factors," it said.

Tactically, Goldman Sachs said it sees alpha opportunity in banks and consumer staples. Both financials and staples screen favourably as pockets that tend to be relatively insulated from global energy supply shocks in the past, and are currently trading at historically low valuations. 

"Banks stand to benefit from a higher rate environment and are well-positioned with strong balance sheets. Staples are likely to see better revenue stability given low price elasticity of demand," it said.

Goldman Sachs said its retains its constructive view on energy security and defense. Energy Security, it said, is one of the key strategic priorities of the government, through transition into renewable energy and developing energy storage infrastructure.

"Growing power demand from data centers over the coming years highlights the need for sustained investment in power generation. The Mideast war further underscores the importance of energy security, and will likely lead to policy makers intensifying focus on improving resilience," it said. 

In defense, there is increasing emphasis by the government on indigenisation, as has been the case over the years. 

"Even as procurement proposals from the government grow, they are weighed in favour of the domestic industry, while the share of foreign procurement has been declining structurally. The Mideast war will likely reinforce this," Goldman Sachs said.