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Wednesday, September 17, 2008

Best Service Sector Stocks for Safe Investments in Bear Markets

A slowing economy does not deter them… nor do rampaging bears. They strive to serve you with a smile. They’re the best stocks in the services sector. The best picks in this sector..

In logistics, the stocks of Container Corporation of India (Concor)and Gateway Distriparks look promising. Concor is in the business of containerised movement of goods on rail. The stock trades at a priceto-earnings (P/E) multiple of 15.1 on a trailing 12-month (TTM) basis. It has historically traded at a P/E of less than 20. The company does not have any competitor in the strict sense. Concor appears to be trading at reasonable valuations, since the average P/E of stocks in the ET Logistics index is 18. The stock looks attractive at current levels, considering the growth potential in its domestic business, entry into cold chain logistics and reasonable valuations.

Gateway Distriparks trades at a TTM P/E of 13.4. This is lower than the average P/E of companies comprising the ET Logistics Index. As of now, only the container freight station (CFS) segment of the company is making profit as the remaining two businesses including cold chain logistics and container rail segments are yet to turn profitable. The stock looks attractive, given the future business potential of these segments.

The IT sector is battling with external economic pressures, including currency volatility and turmoil in the global credit business. So, investors can consider companies that provide niche solutions and have sizeable presence in the domestic market. One such company is Rolta India. The Rs 2,000-crore geo-spatial solutions provider is trading at a P/E of 20.4. It is the single biggest provider in its area of operations and has a significant presence in government and private sector projects. The company (through its international tie-us) is likely to benefit from the nuclear deal. In the IT services space, Infosys Technologiesand Tata Consultancy Services (TCS)look better placed to face macro-economic challenges. Both the companies are keen on inorganic growth to expand their service offerings.

In the healthcare space, Fortis Healthcare has shown a turnaround. With the company’s hospital network reaching a critical mass, its financials may improve in the coming quarters. (For a detailed analysis, refer to Fortis’ stock idea on page 2) .

The telecom space is another service sector, which continues to see buoyancy in subscriber addition despite slowing economic growth. Here, Bharti Airtel, Idea Cellular and Tulip Telecom are our top picks. Despite fierce competition, Bharti Airtel continues to hold the biggest market share in mobile telephony. The company has seen higher momentum in its net monthly subscriber additions. The company has chalked out plans to enter the direct to home (DTH) and internet protocol television (IPTV) services space.

Idea Cellular looks promising, given its recent acquisition of Spice Communications for Rs 2,720 crore. We expect the company’s operations to turn around in the next 2-3 quarters. This can improve Idea’s future performance.

Tulip Telecom provides solutions in the space of corporate data connectivity and network integration. The company has seen phenomenal growth in the past three years. It has undertaken capital expenditure (capex) to strengthen its presence in the virtual private network (VPN) space. Further, it has added two more services in its deliverables, including managed services and value-added services. These developments are expected to keep Tulip’s growth momentum intact.

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