Stocks to buy: 2 stocks with strong fundamentals, technical support; may rally as much as 15%

Sensex and Nifty have emerged from their lows in the last few trading sessions, reversing some losses suffered during the previous month.

stocks to buy
Analysts at ICICI Direct have picked two stocks that they believe have a strong pattern on the chart and are supported by good fundamentals for as much as 15% upside. (Image: REUTERS)

Sensex and Nifty have emerged from their lows in the last few trading sessions, reversing some losses suffered during the previous month. Despite the up-move the Nifty 50 index has not crossed its short-term crucial resistance in the 17500-17600 range. Stock specific activity has been advised for investors by various analysts, spotting opportunities across the market. Analysts at ICICI Direct have picked two stocks that they believe have a strong pattern on the chart and are supported by good fundamentals for as much as 15% upside in the next three months. 

Shoppers Stop – Buy
Target price – Rs 425
Stop-loss – Rs 320

So far this year Shoppers Stop has zoomed close to 80%, outperforming benchmark indices. However, in the last one month the stock is down more than 3%. “Currently, the higher base formation above 50 days EMA coincided with pre-Covid level highs signifies inherent strength that augurs well for resumption of primary up trend,” ICICI Direct said. The brokerage firm added that the current chart formation has set the stage to challenge the recent highs of Rs 409 and gradually head towards Rs 425 per share. “Structurally, the stock has formed a higher high-low (on the yearly chart) after three years’ corrective move, indicating the conclusion of a corrective phase that bodes well for acceleration of upward momentum,” they added.

On the fundamental side, Shoppers Stop’s liquidity position remains fairly stable with cash & investments worth Rs 151 crore. “Over the next 18 months, the company is planning to add 20 departmental and 20 beauty stores. The total store area is expected to increase from 4.2 million square feet to 4.8 million sq ft,” the brokerage firm said while adding that it expects the firm to revive its revenue trajectory and margin profile. The target price pimples an upside of close to 15%.

Tech Mahindra – Buy
Target price – Rs 1850
Stop-loss – Rs 1,475

The information technology index has seen some consolidation recently after having outperformed over the calendar year. “Within the IT space we remain constructive on Tech Mahindra as it has been relatively outperforming its peers while sustaining well above its 50 days-EMA which has been held since May 2020 and is currently consolidating at all time high,” ICICI Direct said. The brokerage firm added that the stock may resolve higher and gradually head towards Rs 1,850 as it is 138.2% extension of mid October rally. Support is at Rs 1,475 apiece. 

Tech Mahindra is among the leading IT companies in the country. The firm reported a net profit of Rs 4,428 crore in the previous financial year, which is expected to rise to Rs 5,711 crore and Rs 6,583 crore over the next two years. Analysts at ICICI Direct have a positive view on the stock, valuing it at Rs 1,860 per share or 25x P/E on FY23E EPS. Currently Tech Mahindra trades at Rs 1,595 per share, which implies a 15.9% upside from current levels.

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