Which FMCG Stock: ITC or Dabur, is Worth Buying at the Current Market Price?
When making decisions about investing in Fast-Moving Consumer Goods (FMCG) stocks such as ITC and Dabur, it’s crucial to evaluate both the market conditions and the underlying fundamentals of each company. Although both may appear strong from a fundamental standpoint, they might not be the best choices for higher returns based on current market prices. This article aims to provide insights into the current performance and future potential of ITC and Dabur, helping investors make informed decisions.
Initial Purchase Considerations
It is often recommended to buy stocks when they are traded at relatively lower levels. Both ITC and Dabur should, at least, have been bought at 525 and 2320 levels respectively, for at least a short-term gain. Buying these stocks at their current interim peak values is unlikely to yield significant profits. Therefore, patience and waiting for a correction in both stocks is necessary to buy them at a reasonable price.
Trade-Based Recommendation for Tata Consumer
Even though both Tata Consumer and ITC are strong, Tata Consumer may present a more reliable and attractive opportunity. As a result of its clear business perspective and strong financials, it might be more suitable for short-term trades. However, reliance on long-term investments in Tata Consumer may not be advisable.
Reasons to Invest in Tata Consumer
Strong Financial Numbers: Tata Consumer boasts substantial reserves, with no long-term borrowings and ample cash in hand or bank. Fresh Entry into Nifty 50: This recent addition to the Nifty 50 index could indicate a promising future for the company. Upcoming Approval of a Major Deal: The company has signed a significant buy deal with a major partner and is awaiting approval, which could positively impact its performance. Consolidation Phase: Historically, Tata Consumer undergoes a consolidation phase of about two years before delivering considerable returns.Why I Dislike ITC
ITC faces issues due to its excessive diversification. Having a diverse portfolio is necessary, but it becomes challenging to excel in every sector. ITC has ventured into various sectors where its subsidiaries, bought at premium valuations, did not perform well. This strategy might not be profitable, and the company risks spreading its financial resources too thin.
Comparing ITC and Dabur Performance
Financially, ITC is quite strong, but its ongoing efforts to transition out of the tobacco sector have not translated into positive performance. Despite ITC's potential, Dabur is superior. However, currently, Dabur is trading at its interim high. Therefore, it’s essential to wait for the market to cool down before entering the stock.
My Recommendation
While Dabur is a better choice than ITC, it is currently overvalued. If you had bought Dabur at around 536 levels, it would have been reasonable to hold the position at current levels. However, for a potential future investment, it might be wise to wait for a sufficient correction in the stock price.
Conclusion: Making a decision to invest in ITC or Dabur requires considering the current market conditions, the fundamental strength of the companies, and the potential for future growth. While ITC is a strong player, its diversification strategy poses challenges, and Dabur, despite its superiority, is currently at an interim high. Investing wisely involves waiting for the right opportunity to enter the market with a well-thought-out strategy.