In the backdrop of sustained economic uncertainty due to geopolitical instability, wars, high inflation and high interest rates, the task of finding good investment opportunities with reasonable margin of safety is becoming more and more difficult.
Amid the buzz around popular sectors and well-known stocks, some of the most lucrative opportunities may lie in the less-travelled paths of contrarian investments.
These are stocks that go against the grain, often overlooked or misunderstood by the broader market.
However, as history has shown, the most surprising and profitable market movements can come from companies that are off the radar.
In this article, we highlight five contrarian stocks to add to your watchlist—companies that have the potential to surprise the market and deliver strong returns in 2025.
They may not be in the spotlight today, but their unique value propositions could position them for unexpected success in the year ahead.
ITC Ltd
Established in 1910, ITC is the largest cigarette manufacturer and seller in the country. The company operates in five business segments: FMCG, cigarettes, hotels, paper and packaging and agriculture.
ITC is the leader in the organized domestic cigarette market with a market share of over 80%. The cigarette business contributes to 40% of revenues but almost 81% of the earnings before interest and taxes (Ebit).
In the FMCG business, which contributes 23% of revenues, the company owns more than 25 brands such as Sunfeast, Aashirvad, Bingo, Savlon, Fiama, Classmate, etc.
The hotel business was established in 1975 and contributes 3% of revenues. ITC operates the second-largest hotel chain in India with 108 hotels across 70 locations in the country.
The agriculture business of ITC contributes 23% to revenues. ITC is the second-largest exporter of agriculture products from India. It trades in food grains, marine products, processed fruits, and coffee.
The company is the market leader in the value-added paperboard segment. This segment contributes 11% to revenues.
In August 2023, the company approved the demerger of its hotel business into a new entity—ITC Hotels Ltd. ITC will continue to have a 40% shareholding in the new entity, and the balance 60% will be held by ITC’s existing shareholders.
The management said ITC Hotels will be listed on stock exchanges within 60 days after obtaining the National Company Law Tribunal (NCLT) order dated 16 December 2024. The NCLT approved the demerger of ITC’s hotel operations into ITC Hotels, which took effect on 1 January 2025.
Coming to the financials, ITC reported revenue growth of 11.7% while the profits were up by 0.8% for H1FY25. Ebitda (earnings before interest, taxes, depreciation, and amortization) margins deteriorated from 34.6% in H1FY24 to 31.9% in H1FY25 due to raw material price hikes and subdued demand.
Going ahead, prospects of a normal monsoon and green shoots visible in rural demand, management guides for a revival of consumption in the coming quarters.
ITC stock is down 4% in the last one year on the back of subdued financial performance.
Hindustan Unilever Ltd
HUL is in the fast-moving consumer business. It caters to categories such as home care, personal care, beauty, and the foods and refreshments segments.
The company earns 42% of its revenues from the beauty and personal care segment, 29% revenues from the home care segment and the balance 29% revenues from the foods and refreshments segment.
HUL’s brands are available in more than 8 million stores across India, and around 90% of all households in the country use one or more of the company’s products.
The company owns prominent brands in the Indian consumer space like Dove, Pepsodent, Lux, Tresseme, Pond’s, Lakme, Surf Excel, Vim, Knorr, Kissan, Horlicks, Kwality Walls, etc.
Coming to the financials, HUL reported a muted revenue growth at 2% in H1FY25 as demand remained slow and there was competition from local peers.
Ebitda margin also came 20 basis points lower on a year-on-year basis due to increased spending on advertising and promotion, higher employee benefits, and increased royalty expense.
Going forward, the management has guided for a gradual improvement in top line growth, but sluggish volume expansion continues to pose a challenge.
The management anticipates a favourable monsoon and improving macro-economic indicators that will bode well for the demand recovery.
The stock is down 8% in the last one year due to weak operational performance.
State Bank of India
SBI is a Fortune 500 company. It is an Indian multinational, public sector banking and financial services company headquartered in Mumbai.
It is the largest and oldest bank in India with over 200 years of history.
Presently, the bank operates a network of 22,219 branches and about 62,617 ATMs across India. It also operates about 71,968 business correspondent outlets across the country.
The bank has a global footprint with a network of 233 branches/offices in 32 countries. It has presence in the US, Canada, Brazil, Russia, Germany, France, Turkey, Australia, Bangladesh, Nepal, Sri Lanka, and other countries.
Presently, the overseas business accounts for 3% of total deposits and 13% of total advances.
SBI has a market share of 22.84% in deposits and 19.69% share in advances in India. It has a strong customer base of about 450 million customers.
Retail loans account for 39% of the loan book, followed by corporate (37%), SME (14%), and agriculture (10%).
Coming to the financials, SBI reported a 14.6% growth in its net interest income in H1FY25 and profit after tax grew by 13.6%.
Going ahead, the management guides for credit growth to come in the range of 14-16% for FY25. To achieve this, the management is focussing on prioritizing deposit growth to support incremental credit growth.
The stock price has returned 24% over the past one year, while in the last month, it is down by 5.2%.
Hero Motocorp Ltd
Hero MotoCorp, earlier also known as “Hero Honda”, is one of India’s first motorcycle manufacturers. The company started in 1984 as a technological collaboration with Honda, Japan. Before this collaboration, Hero was selling cycles under the brand name, Hero Cycles.
In 2011, Honda group sold its 26% stake in the company to the Munjals (promoters) and ended the joint venture. Post the termination of joint venture, the name of the company was changed to Hero Motocorp Ltd.
The company is the world’s largest manufacturer of two-wheelers, in terms of unit volumes sold by a single company in a calendar year, for more than two decades.
The overall market share of the company in the Indian motorcycle market is 48% and in the two-wheeler segment, it stands at 34%.
The company’s distribution channel boasts of a whopping 39,000+ retailers across India, focussing on untapped markets.
In the electric vehicle space, the company has a network in 100+ cities with 850+ stations and 2,000+ charging points. Hero has the largest charging network in the country for two-wheelers.
Hero Motocorp derives only 7% of its revenues from international markets, with the bulk of the revenues (93%) coming from the domestic market.
The company has eight manufacturing units, six in India and one each in Columbia and Bangladesh. These units have a combined capacity of 9.5 million units.
Coming to the financials, Hero reported a 12.6% jump in its consolidated revenues for H1FY25. Ebitda also grew by 16.6% on the back of improvement in Ebitda margins, which came in at 14.5% for H1FY25 versus 14% for H1FY24.
Going ahead, the management is expecting sustained demand due to auspicious events like weddings and the positive monsoon impact on rural incomes.
Hero Motocorp’s share price is up 5% in the past one year on the back of an average financial performance.
Tata Steel Ltd
Tata Steel is Asia’s first integrated private steel company, established in 1907. The company is present across the entire value chain of steel manufacturing, from mining and processing iron ore and coal to producing and distributing finished products.
The company’s product mix includes flat products such as hot rolled coils, cold rolled coils and galvanised steel, and long products such as wire rods, rebar, ferroalloys, tubes, bearings and wires.
The product segments cater to agriculture, automotive, construction, consumer goods, energy and power, engineering and material handling.
The company has a strong network of 250+ distributors and 20,400+ dealers. 100% of its fleet is covered by vehicle tracking and about 95% districts of India are covered.
Tata Steel derives 92% of its revenues from the Indian market and the balance 8% from exports.
The company owns and operates a steel plant in Jamshedpur (Jharkhand) and a sponge iron plant in Keonjhar (Odisha). The capacities of Tata Steel are: one million tonnes per annum of crude steel, 2.5 million tonnes per annum of iron ore, and 160 megawatts of captive power capacity.
Coming to the financials, Tata Steel reported a degrowth in revenue to the tune of 5.6% for half year ended September 2024.
Ebitda, however, grew for the half year by 35.9% as margins improved significantly coming in at 11.8% in H1FY25 versus 8.2% in H1FY24.
Going ahead, the management says that there is subdued economic activity as inflation, and geopolitical tensions are impacting the steel market.
However strong domestic steel demand is anticipated in the second half of FY25, with construction activity expected to improve.
The share price of Tata Steel is down around 3% over the last one year on the back of subdued operational performance.
Conclusion
In conclusion, as we move into 2025, the landscape for investors remains unpredictable, and the need for a strategic approach is more crucial than ever.
While the market’s focus often gravitates toward well-established sectors and high-profile stocks, the contrarian opportunities highlighted in this article could offer substantial potential for surprising returns.
While these stocks may not currently dominate the headlines, their unique business models, market leadership, and growth prospects could position them for unexpected success in the coming year.
As with any investment strategy, due diligence and a long-term perspective are key, but these contrarian picks may just be the hidden gems that outperform the market in 2025.
However, investors should remain vigilant, conducting thorough research and due diligence on the fundamentals, corporate governance, and market trends to ensure they make informed decisions.
Remember the challenges before diving headfirst.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
