£1 for 60p. Is this the top stock to buy in March?

ICG Company Believe it (LSE:ICGT) is one of the longest-standing constituents in the listed private equity sector. I strongly believe in this investment because it aims to generate consistent total returns and withstand economic cycles. 14 consecutive years of double-digit underlying portfolio growth confirms this. Frankly, I really like this consistency in my portfolio amidst the ups and downs of the market. It helps that it looks as cheap as chips, too. It’s definitely worth checking out if it’s the number one stock for me to buy this month.

It’s bargaining season

I distinguish whether a stock is a bargain by looking at its relative value and future earnings growth potential. Signals are bullish on both counts for ICGT.

First, with a price-to-earnings ratio of 12 times, ICGT is lower than the peer average (14 times). It also has a lower price than the FTSE All Share (14.5 times). Second, portfolio earnings will grow 35.4% annually. This is a fairly high growth projection. So I’m scratching my head as to why the trust has a price discount that’s bigger than its assets.

Discount

In fact, the entire listed private equity sector is trading at a historical discount. It is at odds with the strong returns the sector has delivered over the years. ICGT could be one of the worst-hit victims.

Michel Degosciu, founder of specialist research and advisory firm LPX AG, believes that the stock is trading at a “significant undervaluation based on the current discount rate”. Finally, the stock is trading at a 40% discount to assets. This is despite the bullish projected performance of the underlying portfolio.

As a bargain hunter I obviously find this attractive. But I know all too well that discounting can be a poisonous chalice. The fact that the demand for the stock is somewhat low is not an endorsement in my eyes. The stock price has been in freefall since February after a strong start. Degosciu attributed this to investors pricing in the impact of higher interest rates on their portfolios.

Indeed, the trust has a level of gearing (borrowing). This can limit the scope of discount narrowing, especially if the underlying asset declines.

Long-term outperformance

Regardless, the historical outperformance of stocks in the UK equity market is stark. Intermediate Capital is a big player in the direct private mezzanine sector. “The historical track record in the mezzanine sector is excellent”, according to Degosciu.

Additionally, the trust bias towards defensive growth companies is a positive for me. I think this has contributed to the resilient NAV performance with the company able to increase earnings in the current difficult situation.

All in all, I see the firm as a highly discounted growth company that pays a healthy dividend. In addition to earnings, the company has a long-term share buyback program.

It is a generous mix and suggests to me that the company’s steering has a bullish outlook. I am also bullish, and the stock is currently on my watch list. It is very cheap not to be. I just need to keep an eye on the discount. If it continues to expand, the less I will buy. The opposite is true if it is narrow.