Brokerage firm ICICI Direct has picked two stocks that could outperform in the next three months, using its three-factor model to filter stocks. ICICI Direct picks stocks from the F&O universe, filtering them based on delivery pick up in the preceding two weeks supported by Z-score of the stock. Further the stocks are filtered based on their 30D and 60D historic volatility and finally through a filter that checks if the historical stock returns have similarity with uniform distribution patterns before picking the stocks.
Target price: Rs 5,570
Time frame: 3 months
After having surged during the lockdown period earlier this year, shares of pharmaceutical firms have consolidated in recent months providing a good entry opportunity. “Stocks like Dr Reddy’s provide a good risk reward opportunity from current levels. The price distribution is also suggesting limited downsides movements in the stock. The majority of the reading for stock is in the -1% to 1% range,” ICICI Direct said. Recently the stock has seen improvement in the Z-score.
The 30 day volatility continued to remain lower and now 60 Day HV is also coming down. With further decline in volatility the stock might go up. Shares of Dr Reddy’s have corrected over 9% since the middle of September. Year-to-date the stock is still trading with 68% gains. A buying range of Rs 4,640-4,720 per share has been advised.
Target price: Rs 365
Time Frame: 3 months
Shares of Torrent Power are down 13% since August. However, the stock has shown significant accumulation in its price distribution pattern. ICICI Direct said that the daily returns for Torrent Power are largely distributed from 0% to 2%. “From a delivery perspective, despite range bound move seen in the last couple of weeks and underperformance vis-à-vis index, delivery activity is clearly visible and it seems like ongoing accumulation in the stock at lower levels,” they said.
Improving Z-score suggests fresh buying activity in the stock. Volatility has slipped which suggested limited downside, according to ICICI Direct. “We expect the stock to continue its upward bias with momentum likely to be seen,” the brokerage firm said. It suggests a buying range of Rs 300-310 per share.