MOSL: INDIA STRATEGY | Contrarian Investing-Consensus Upgrade Analysis-Stocks with ratings upgrade beyond a threshold deliver spectacular returns
INDIA Strategy | Contrarian Investing: Consensus Upgrade Analysis; Stocks with ratings upgrade beyond a threshold deliver spectacular returns
Contrarian Investing is a time-tested investment tool, which involves buying/selling stocks against the prevailing sentiment of the crowd or the market. In our thematic report, Contrarian Investing, dated 22 June 2017, we had covered two major themes based on consensus ratings (stock popularity) and valuation multiples, and had demonstrated the success of contrarian investing in India. In the sequel, Contrarian Investing: Digging Deeper, we extended our work on valuation multiples by providing evidence that out-of-favor low P/CF stocks had outperformed in-favor high P/CF stocks over the last decade and that margin of outperformance was higher on trailing multiple than on forward multiple.
Contrarian investing focuses on buying stocks dumped into the bargain basement. Some of the contrarian strategies highlighted in our notes are:
- Buying neutral-to-moderately-popular stocks (popularity based on consensus ratings)
- Buying stocks with low relative valuation multiples (P/E, P/B, P/CF)
- Buying stocks with consensus upgrade from “net sell to net buy”
In this note, we further analyze the last theme of Consensus Upgrade. We highlight that a simple strategy of investing in stocks wherein analyst consensus has changed from “net sell to net buy” can deliver returns of 22.4% over the next one year. We address the general case of consensus upgrade and how stock prices react when a stock is upgraded.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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