ICICI Direct’s stock filtration model is flashing a buy call for for these stocks; check target price

Domestic brokerage and research firm ICICI Direct, though its three-factor model for stock filtration has picked two insurance company stocks that could see as much as 19% upside in the next three months. The qualitative analysis, done by ICICI Direct filters stocks based on their delivery Z-score, frequency distribution of the stock returns, and historical volatility pattern. “When historical stock returns follow a uniformly distributed pattern that shows accumulation in the stock where the frequency of sharp stock downsides is lower and it has been in a narrow range scenario for most of the time,” ICICI Direct said in the report. 

HDFC Life Insurance Co

Target Rs 670 per share (3 months)

The life insurance firm is the first among the two picks, although it has remained under pressure despite the performance seen in the broader markets recently. Buying was seen in HDFC Life stocks in the range of Rs 560-570 recently. “The price distribution is also suggesting limited downside movements in the stock. The lowest reading for the stock is in the -1% to -2% range,” analysts at ICICI Direct said. 

From the delivery standpoint, ICICI Direct noted that the last couple of weeks saw below average delivery as shares of HDFC Life have been consolidating in a range. “However, the Z score witnessed a sharp up move recently indicating fresh accumulation in it suggesting strong hands are accumulating the stock,” they said. Volatility has also remained low for the stock and is expected to come down further. A stop loss of Rs 520 per share has been advised.

LIC Housing Finance

Target Rs 345 per share (3 months)

The stock has seen significant accumulation in its price distribution pattern, according to ICICI Direct, despite the relative underperformance. In the last one month, the shares of LIC Housing Finance are down 7%. “Stock daily returns are largely distributed from 0-2%. However, considering the volatility, the right tail is significantly longer than the left tail indicating buying at every decline in the stock,” the report said. 

In terms of delivery, despite profit booking seen in early September, no major delivery activity was seen among LIC Housing Finance shares. The Z-score, turned positive after a brief consolidation suggesting that buyers are accumulating the stock at lower levels. A surge in Z-score suggests fresh buying. The 60-day and 30-day volatility now suggest stability in the stock and limited downside. “We expect the stock to continue its upward bias while momentum is likely to be seen,” ICICI Direct said while advising a stop loss of Rs 258 per share.