These large cap stocks meet the ‘Zulu Principle’ criteria for growth stocks


by 5paisa Research Team Last Updated: 2022-04-13T15:05:37+05:30

British chartered accountant-turned-investment guru Jim Slater, who used to write an investment column in a newspaper, created a classic filter to identify growth stocks. He characterised it as the ‘Zulu Principle’ to pick stocks with positive momentum in both their financials and price.

It combines multiple parameters including price-earnings ratio (PE), price-earnings growth (PEG), earnings per share (EPS), return on capital employed (ROCE) and also couples these metrics with a technical charting parameter of relative strength index (RSI). 

The RSI captures momentum for a stock with a higher value on a scale of 1-100 indicating that it is likely overvalued and could see a reversal while a lower value could be a signal for undervaluation.

If we apply the filter of low PEG (under 0.75) with PE ratio of under 20 for the last twelve months with EPS growth for the last four quarters being over 15% and annual ROCE above 12% and being over 35 in the RSI scale, we get a list of hundreds of stocks.

Focusing on only the large cap space, we get a list of around a dozen stocks with a market value over Rs 20,000 crore that meet the filters combining fundamental and technical metrics.

This list has a mix of companies representing different sectors including metals and mining, oil and gas, telecom infrastructure, financial services, pharma and power. It does have a distinct tilt towards commodities as a theme, in line with the sweet spot of Slater who was an active investor in mining stocks in his heydays.

Indeed, six of the eleven large cap stocks are from the metals and mining industry. Add two from the oil marketing field and the list gets a deep commodity shade.

India’s largest domestic steel producer, JSW Steel, and India’s top steel company by global revenue, Tata Steel, are in the pack as is Vedanta, public sector steel producer Steel Authority of India Ltd and mining firm NMDC. Jindal Steel & Power is another company that is part of this club.

Public sector oil marketers Indian Oil Corp and BPCL figure in the list, too.

The only outliers in the pack are telecom tower group Indus Towers, drugmaker Zydus Lifesciences and Torrent Power.

 

Also read: IIP growth bounces to 1.69% but weakens sequentially


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