
Stocks to buy: Jefferies has identified three consumer firms as promising contra bets in light of recent market challenges. The brokerage has pointed out that several companies have struggled due to issues such as growth, competition, and margins, which have negatively affected their share prices. However, Jefferies believes that these stocks present a meaningful upside potential with limited downside risk in the near future.
"Jefferies said several consumer firms have faced severe issues in the past few qtrs ongrowth, competition & margins which weighed on the share prices," the brokerage remarked. Among the three highlighted stocks are Varun Beverages, Asian Paints, and Hindustan Unilever, which are seen as having the potential to turn around in the upcoming months.
Varun Beverages target price: Rs 560
Varun Beverages is facing increased competition from Reliance's Campa Cola and a weak summer season, leading to an estimated 9-10% EPS cut. Despite these setbacks, Jefferies rates the stock as a 'Buy', with a revised target price of Rs 560, noting that it trades attractively at 27x EV/Ebitda and 43x P/E.
Asian Paints target price: Rs 2,830
Asian Paints has been affected by competitive pressures from Grasim's Birla Opus, along with industry growth rate slowdowns and management changes. However, Jefferies expects a gradual recovery in earnings starting FY26 and has upgraded the stock to 'Buy' with a target price of Rs 2,830.
HUL target price: Rs 2,950
Hindustan Unilever has faced several challenges, including a weak earnings trend over the past five years. The company's recent management shift towards prioritising growth over margins, coupled with the parent's focus on India, indicates potential recovery. Jefferies retains a 'Buy' stance, keeping the target price unchanged at Rs 2,950.
"Jefferies said Consumer-facing categories, have been grappling with subdued demand overthe past few quarters," the brokerage noted. While urban demand showed resilience post-Covid, recent moderation suggests that these stocks may gain from a cyclical upturn as demand stabilises.
Jefferies further commented on the impact of pricing and mix, stating, "Price/mix impact: Another challenge, said Jefferies, has been the lack of adequate product price hikewhich also impacted the industry revenue growth." This was a result of input cost corrections and an increase in low-priced SKUs, affecting industry revenue.
Despite the current challenges, Jefferies remains optimistic about these stocks' future, citing that none of them are cheap but hold potential for a fundamental recovery that could drive share price upward. "We do highlight that none of the above names are cheap by any stretch of imagination, butwe see a potential for a cyclical upturn in the fundamentals, which should drive up share price," Jefferies concluded.
Risk-reward attractive
The analysis suggests that while the stocks have experienced significant declines, they still possess potential for recovery and growth, providing an attractive risk-reward scenario for investors looking for opportunities in the consumer sector. With a strategic focus on these companies, investors might find substantial gains as the market conditions improve and these firms adapt to changing dynamics.