Thematic investing is a way to invest into stocks based on broader themes and trends. An interesting theme is government spending on infrastructure.

In this Marketsmojo Professional Exclusive, we try and find the 3 best investment ideas based on this theme.

How did we select these three stocks?

• As mentioned we have used a thematic approach to select these stocks. Why this theme? The government been putting in a lot of emphasis on Infrastructure spend. For example, there is a lot of news on Road and Power sector of late. With elections coming up in 2019, this activity will only increase.
• If this theme plays out, Stocks that are a play on this theme could see good earnings growth and a positive financial trend, at least over the next 12-24 months. We have seen that Financial Trend is a big determinant of short term price movement of a stock.
• What is the best way to play this? We believe Capital Goods companies who will help create this infrastructure will be the biggest gainers. Using our MojoLogic screener we’ve identified 3 such stocks.
• To find stocks that are good for short term we have focussed mainly on the short-term drivers. Thus we have chosen companies in the Capital Goods industry for which:
  • Financial Trend has to be positive, very positive or outstanding
  • Technicals are mildly bullish or bullish
• To be on the safe side we have added an additional condition that the Quality of the company has to be Good or Excellent.
• We also have found that Valuation does not play a significant role in short term stock performance and hence have not looked at that parameter.

The output is as follows:

It is interesting that the 3 stocks that come out exactly match the 3 stocks that have seen the highest growth in winning NHAI orders!

A brief synopsis of the three stocks

Ashoka Buildcon

This Small Cap company, having MCap of Rs 4,938cr, is in the business of civil construction. They currently operate one of the highest number of toll-based Build, Operate & Transfer (BOT) projects in India.

The institutional holding of the company is high at 35.85%

Growth: Over the last 5 years, the company has shown a Sales growth of 10.1%. In the last 9 months, the Sales has grown faster 22.8%, and PAT has grown at 23.2%

Profitability: The Average ROCE of the company has been 11.8% and the ROE is 10.6%. This can improve if the order book leads to profitable growth.

Stock Performance: The stock has beaten the index in last 1 year and 3-year period. The stock is up 26.5% over the last 1 year.

Valuation: The stock is expensive at EV/EBITDA of 18.3 and P/B of 2.6

Dilip Buildcon

This Mid Cap company, having MCap of Rs 15,673cr, is in the business of development of infrastructure facilities on engineering, procurement, and construction (EPC) basis in India; including the maintenance of road infrastructure facilities and toll operations.

The institutional holding of the company is at 16.63%

Growth: Over the last 5 years, the company has shown a Sales growth of 24.80%. In the last 9 months, the Sales has grown faster at above 55.1%, and PAT has grown at 144%

Profitability: The Average ROCE of the company has been 17.7% and the ROE is 20.1%. This can improve if the order book leads to profitable growth.

Stock Performance: The stock has beaten the index in last 1 year and 3-year period. The stock is up 186.9% over the last 1 year.

Valuation: The stock is expensive at EV/EBITDA of 18.8x and P/B of 7.6x

KNR Construction

This Small Cap company, having MCap of Rs 4,391cr, is in the business of infrastructure project development providing engineering, procurement, and construction (EPC) across various sectors such as highways, irrigation and water infrastructure management.

The institutional holding of the company is high at 31.84%

Growth: Over the last 5 years, the company has shown a Sales growth of 23.5%. In the last 9 months, the Sales has grown marginally faster at 24.6%, and PAT has grown at 83.5%

Profitability: The Average ROCE of the company has been 13.2% and the ROE is 16.9%. This can improve if the order book leads to profitable growth.

Stock Performance: The stock has beaten the index in last 1 year and 3-year period. The stock is up 57.6% over the last 1 year.

Valuation: The stock is fair at EV/EBITDA of 13.2 and P/B of 4.3

Note to investors:

With more than 4000+ listed companies and the plethora of news and tips it can be very confusing. Where should one even begin? One of tool that we offer our subscribers is a family of stock screeners. The above investment ideas have been chosen using the MojoLogic Screener.

A Screener is far more efficient than digesting every piece of available information. Screeners can analyze thousands of stocks in seconds a process which would otherwise require a lot of time and a large team of analysts.

To add to this, stock screens take away the biases and emotions that all of us face hindering our stock selection process. Once you have designed a stock screen model that works for you, you can regularly check which stocks meet the criteria, with a single click.