Identifying multibaggers for your portfolio is not easy as they won’t give returns overnight. Hence, for the stocks to become wealth creators investors have to buy them early and give these stocks time to rise and give multi-fold returns.
If you like equities then there is one thing which every investor wants – ‘multibagger’ stocks. Indians have an obsession with equity returns thanks to lack of other investment opportunities.
Too many regulations have actually turned the heat from the realty space, gold has lost its sheen in the last 1-2 years while fixed income is no longer exciting as banks have lowered deposit rates.
Hence, equities remain the sole asset class which can give inflation-beating returns to investors and it did in the year 2017. But, the year 2018 might not have started on the golden note but the recent correction of about 10 percent from highs has given opportunities to investors to buy into quality stocks on declines.
Identifying multibaggers for your portfolio is not easy as they won’t give returns overnight. Hence, for the stocks to become wealth creators investors have to buy them early and give these stocks time to rise and give multi-fold returns.
Over and above that it takes painstaking patience to stay invested in it till the ultimate manifestation of the value unlocking happens converting it to a multibagger, suggest experts.
So, what is a multibagger? A multibagger stock is the one that multiplies say 10x or 100x over a period of time giving astonishing returns to its investors.
“When one starts analysis and invests in the idea, it may not necessarily seem to be a multibagger idea. But, over a period of time as the opportunity grows, the stock being one among the very few players with all the requisite characters would grow into a multibagger, thereby rewarding the investors,” Arun Thukral, MD & CEO, Axis Securities told Moneycontrol.
“Investor must have complete conviction in the business model and patience to hold on to the idea till it reaches the market capitalization it is worth of,” he said.
Thukral outlines four basic mantras for identifying a multibaggers: 1) the first and foremost criterion for the ‘would be’ multibagger stock ought to be growth i.e. it should be operating in the sector,
2) The Company should have what is called moat i.e. an entry barrier that would prevent the competition to encroach upon its turf. It can be in form of any brand image, technology, patent or IP etc.
3) Investment in equities is like partnering in the business; one has to be very choosy and mindful about whom he is partnering with while making an equity investment. Here the emphasis is on the management quality, and lastly
4) Lower entry price vis-à-vis intrinsic value gives an adequate margin of safety for the investor and ensures higher returns. One must ensure that he catches the prospective investment in its infancy before it is noticed by the fellow market participants.
Here is a list of top 8 stocks which could give multibagger returns in the next 2-3 years:
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
InterGlobe Aviation
InterGlobal Aviation Ltd (Indigo) is one of the most efficient low-cost carriers (LCC) with a market share of 40% in Indian aviation sector. Indigo passenger traffic grew by robust 31% CAGR versus industry growth of 15% CAGR, over FY14-FY17.
Going forward, expanding market presence through fleet addition and firming up its regional connectivity plans augurs well. Indigo’s fleet comprises of 15% more fuel efficient models which will cushion its margins and market share even at times of higher oil prices.
In the long term risk related to volatile oil prices is likely to come down. We remain constructive on Indigo gave RoE of 40 percent, efficient operations, and strong balance sheet.
Bharat Electronics
Bharat Electronics Ltd (BEL) is a Navaratna enterprise having 37 percent market share in Indian Defence Electronics. BEL’s core capabilities are in radar & weapons systems, defense communication & electronic warfare.
BEL has limited competition from other private players due to its niche capabilities and strong technological tie-ups. Further, strategic nature of projects, capital-intensive nature & high gestation periods acts as strong barriers to competition.
The current order backlog of Rs40,000cr is 5x FY17 sales, which has significantly improved the earnings outlook. BEL’s valuation has significantly re-rated due to strong order inflow and improvement in earnings profile.
Given its robust order book, GoI focus on indigenization and healthy order pipeline we continue to maintain a strong Buy rating for the stock.
NBCC
NBCC Ltd (NBCC) is a Navaratna Enterprise engaged in Project management consultancy (PMC), Engineering Procurement & construction (EPC) and real estate business. Current order backlog of Rs80,000cr (12x FY17 sales) provides strong visibility for next 5yrs.
We expect execution to ramp up in coming quarters as Rs10,000cr worth redevelopment project started at ground level with an execution period of 2years. NBCC is at sweet spot considering its huge order book, limited competition, and expertise in executing large projects.
Big projects like Pragati maintain (Rs2500cr), an Irrigation project in Maharashtra (Rs1,000cr), redevelopment of Nauroji Nagar (Rs2,500cr) started with an estimated execution period of 24months. Given strong earnings outlook and execution capability, we continue to maintain a Buy rating for the stock.
Analyst: Sanjiv Bhasin, Executive Vice President, IIFL
ITC
ITC is an extremely compelling buy at current levels with a target price of Rs400 in the next 2 years. All its businesses are doing very well which also includes FMCG.
ITC Hariyali, Paper, milk, hotels, and in the apparels with the Wills Lifestyle brand growing should auger well for the stock. The underperformance in the tobacco business should stop and volume growth, as well as pricing, could come back.
The Aashirwad Atta brand itself does over Rs 4000 crore of business; hence, ITC is now a full-fledged giant with tobacco no longer being the only growth driver. The stock trades at 27 times and 1-year forward. IIFL expects to double of market cap in the next 2-3 years.
SAIL
SAIL has seen a very good performance at the balance sheet level with cost controls driving EBIDTA margins to the highest level seen in the last 3 years.
Also, it is the best player on local dynamics as it is least affected by any US protectionist measures. SAIL is an integrated play with captive coal and iron ore seeing synergies play out very well. It is a buy at Rs68 for a target of Rs150 in the next 2 years.
NBCC
NBCC is the best play on the construction sector in the Tier1/2/3 cities in India with company spearheading all Government land banks and having an order book of over Rs 1 lac crore.
The best part about NBCC is that it does business with no capital requirement from the Government & is seeing its project management consultancy (PMC) business expand at the fastest rate since inception.
Also, Government construction and property development are seeing the highest growth rate in recent times. The stock is a buy at Rs185 for a target of Rs 400 in the next 2 years.
REC
REC is a power finance Company where NPA levels are the lowest in the industry. It mostly does 86 percent of its business with state discoms and has had no default even though power has been under stress due to poor linkages with coal, raw materials being under pressure.
The pressure on pricing is another pain point for thermal power Companies as solar power rates hurt competition. However, it is a Navratna Government undertaking and has a dividend yield of over 7 percent at present price of Rs125.
We think the Government will see more relief measures like UDAY & Saubhagya Yojna to do away with stress on Power discoms and provide more funding for power financiers. The stock is a buy at Rs125 for 2 year time period and a target of Rs250.
ICICI Prudential Life Insurance Company
ICICI Prudential Life Insurance Company is the best new listing in the insurance sector with double-digit growth expected at least for the next 5 years.
Also, it will see earnings get a boost from higher bond yields as most investments are linked to benchmark yields.
Growing insurance business coupled with positive dynamics of rising middle incomes will see the stock double from present levels in next 3-years. The stock is a buy at Rs380 for a target of Rs750 which could be achieved in the next 3 years.
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