Do you know that every super investor has their list of checks and balances that any stock must pass to find a place in their portfolios? For instance, the world’s most successful investor, Warren Buffett, had 3 prominent checks – Return on Equity/Capital, Low Debt and Profits. While these are just the beginning, they give a fair insight into the company on a financial front.
We added a few more based on the top criteria most smart investors look into before picking a stock. And we ran a screen on screener.in to look for stocks that pass this test.
The 6-pronged filter for high-quality growth
- Return on Equity (ROE) > 20%: It measures management’s ability to generate high profits on every rupee shareholders have invested, acting as a “quality check” for the business.
- Return on Capital Employed (ROCE) > 30%: This reveals how efficiently a company turns its total available capital—both debt and equity into actual operating profit.
- Compounded Sales Growth (3Y) > 30%: Consistent high-speed revenue growth proves the company is aggressively capturing market share and that its products are in massive demand.
- Debt to Equity < 0.5: A low debt ratio ensures the company is not buried under loans, providing a massive safety cushion and financial freedom during economic downturns.
- P/E < Industry PE: Buying at a lower P/E than the industry average ensures you aren’t overpaying for growth and are likely finding a “hidden gem” at a bargain price.
- Price to Book Value (P/B) < 2: This protects you from overvalued “hype” by ensuring the stock price stays grounded in the company’s real, tangible net worth.
We also added a check for market capitalisation to be over Rs 1,000 cr, to avoid microcaps.
Only two stocks passed this test, and it makes sense for any smart investor to dig into these stocks as they look for picks for their 2026 watchlist.
Now, before we tell you more about these stocks, please note that these are not recommendations. On the contrary, they are the result of a preliminary screening process. So, use this as information to dig into, and nothing more.
#1 Natco Pharma: A value play or a value trap?
Incorporated in 1981, NATCO Pharma Limited (NATCO) is a vertically integrated, research and development focused pharmaceutical company engaged in developing, manufacturing, and marketing complex products for niche therapeutic areas.
With a market cap of Rs 16,042 cr, the company has established its presence in two business segments namely: finished dosage formulations (FDF) and active pharmaceutical ingredients (APIs).
Let us see how Natco fares against the checklist we had to pick stocks.
| Parameter | Current Figure | Industry Median |
| Return on Equity (ROE) | 28% | 13% |
| Return on Capital Employed (ROCE) | 33% | 15% |
| Compound Sales Growth Over 3 Years | 32% | 10% |
| Debt to Equity Ratio | 0.03 | 0.22 |
| PE | 10x | 31x |
| Price to Book Value | 1.9 | 3.1 |
As we can see, the company is beating its peers (the median) in all the 6 parameters.
Let us also look at the company’s core financials for a longer period.
The company’s sales have seen a compound growth of 18% between FY20 and FY25, while the EBITDA (earnings before interest, taxes, depreciation, and amortization) grew at 30% in the same period.
The net profit recorded a compound growth of 139% in the last 3 years and 33% in the last 5 years.
Coming to the price, the share prices of NATCO Pharma Limited have seen quite a bumpy ride as it went from Rs 930 in December 2020 to its all-time high price of Rs 1,639 in September 2024. Since then, it has recorded a downward trajectory and is currently trading at Rs 896 as of closing on 29th December 2025.
At the current price, the stock is trading at a discount of 45% from its all-time high price possibly creating an entry point for investors who missed the last rally.
While its current PE looks like a bargain, there seem to be some red flags. The windfall profits from its blockbuster cancer drug have peaked and are projected to dwindle by FY27.
This could potentially make the net profit drop by over 50%. Investors are now pinning hopes on the company’s next big catalyst – Semaglutide and a proposed Agro-business demerger to unlock value in the interim.
#2 Mangal Electrical: The small-cap catching ‘super investor’ interest
Incorporated in 2008, Mangal Electrical Industries Ltd manufactures and supplies different transformer components.
With a market cap of Rs 1,017 cr, the company manufactures transformers and customized products for the power infrastructure industry and also offers EPC services for setting up electrical substations.
Here is how the company stands when checked against the 6-point test we ran:
| Parameter | Current Figure | Industry Median |
| Return on Equity (ROE) | 34% | 17% |
| Return on Capital Employed (ROCE) | 30% | 20% |
| Compound Sales Growth Over 3 Years | 36% | 26% |
| Debt to Equity Ratio | 0.12 | 0.37 |
| PE | 22x | 31x |
| Price to Book Value | 1.8 | 4.3 |
Looking at the core financials, the sales of the company have grown at a compounded rate of 21% between FY20 and FY25.
EBITDA recorded a compound growth of 42% in the same period, while the net profits logged a compound growth of 98% in the last 3 years and 74% in the last 5 years.
For H1FY26, the company has recorded sales of Rs 244 cr, EBITDA of Rs 32 cr and net profits of Rs 17 cr.
The share price of Mangal Electrical Industries Ltd, at listing in August 2025, was around Rs 535, and as of closing on 29th December 2025, it was Rs 368.
One interesting point that one must know is that ace investor Sunil Singhania’s Abakkus Diversified Alpha Fund bought a 2.9% stake in the company at listing, boosting investor confidence.
The company plans to use the IPO proceeds for repayment of borrowings (About Rs 96 cr) and also put a chunk of it into expanding the facility at Unit IV situated in Reengus, Sikar District, Rajasthan, and civil works at their existing head office, Jaipur, Rajasthan.
Opportunity or trap?
When it comes to picking the right stocks, most investors struggle to find what fits best, especially because it is even more difficult in a market as volatile as the Indian stock market. But a little research goes a long way in saving your portfolio from the volatility.
Both the companies we saw today pass the 6-point test we ran based on the top parameters many known investors use to find good picks. However, the share prices of both have still taken a huge hit, raising many questions. Is this a good opportunity to get in on the stocks or is it a trap waiting in plain sight?
The answer to this question is not something we can get right away. Only time will tell. But for now, it is recommended to add these stocks to your watchlist and follow them closely to ensure you don’t miss any updates.
Note: We have relied on data from www.Screener.in and www.trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.