Guide To Finding Multibagger Stocks For 2017

Multibagger Stocks Meaning

Peter Lynch, the highly respected manager of Fidelity Investments Mutual Fund, coined the word “multibagger stock” in his books One Up on Wall Street and Beating the Street.

The term became very popular amongst investors because Peter Lynch gave practical examples of how companies that we use in the daily life like McDonalds, Dunkin Donut, Walt Disney, Ford Motor Co etc are great investment opportunities and give huge gains to shareholders.

The reference by Peter Lynch was to stocks which can give a return which is several times the investment made in them.

So, a stock which gives a gain of 200% and returns 300% of the investment becomes a 3-bagger. A stock which gives 10 times the investment is called a 10-bagger.




Meaning Of 100-Baggers

The concept of 100-baggers was made popular by Thomas Phelps in his book “100 to 1 In The Stock Market”.

Thomas Phelps referred to stocks which the potential to give 100x the investment made in them. Phelps gave several examples of such stocks and also gave a detailed explanation on the process that should be adopted by investors to find such stocks.

Penny Stocks, Micro-Cap & Small-Cap stocks

Generally, multibagger stocks are to be found in penny, micro and small-cap stocks. The reason for this is simple. These stocks have a smaller market capitalisation and find it easier to double and triple their net worth in a short while.

For, example a stock with a market capitalisation of only Rs. 100 crore can easily grow to a market capitalisation of Rs. 500 crore and give investors a 500% return.

In contrast, large-cap companies will find it very difficult, if not impossible to give multibagger returns to their shareholders.

Examples of multibagger stocks in India

There are several stocks in India which have given 10x and even 100x returns. Most of these stocks belong to the penny and small-cap space.

Caplin Point Laboratories is one example of a stock which has given a 10x return in a short period of time. Caplin Point manufactures pharmaceutical products and exports them to Venezuala and other Latin American countries.

Another example of a multibagger stock is Uniply Industries. The stock has attracted marquee investors like Radhakishan Damani, Ramesh Damani and Vallabh Bhanshali and has given a return of 1400%.

There are several other examples of stocks which have become multibagger and created huge wealth for investors. Stocks like Ajanta Pharma, Alembic Pharma, Mangalam Drugs, Intrasoft Technologies, Lanco Industries (Srikalahasthi Pipes), Shreyas Shipping, Page Industries, Hawkins Cooker, PI Industries etc are examples of such stocks.

How To Find Multibagger Stocks

Generally speaking, one has to hunt for such stocks in the penny, micro and small-cap space. Such stocks have a low market capitalisation which makes it easier for them to grow exponentially.

Moat

One has to find stocks that enjoy a moat from the competition. The moat can be in the form of a technological advantage or a marketing advantage. Basically, the company must be able to fend off competitors from laying stake to the market.

High RoE Companies

It is a common feature of penny and small-cap stocks which are growing fast that they will enjoy high rates of RoE. The RoE must be in excess of 20% to be attractive. The high RoE shows that the Company is growing in a profitable manner and that the growth is not coming at the cost of profits.

It is elementary that if a company does not make profit and instead suffers a loss, it will soon run out of capital and will have to go for liquidation and be wound up.

In fact, several companies in the e-commerce space have chased high growth at the cost of profits. Such a strategy is not sustainable in the long run and has resulted in the closure of these companies.

Examples of such companies are Local Banya, Tiny Owl, Grofers, Hola Chef etc.

Characteristics of multibagger stocks

The following are the salient features that all potential multibagger stocks display

(i) The Company offers a product or a service that is unique or innovative and for which there is a lot of demand and not much competition;

(ii) The size of the opportunity should be huge in relation to the size of the Company;

(iii) The Company should enjoy high profitability which will be reflected in the RoE levels;

(iv) The promoters should be highly committed and able to steer the Company to new heights through hard work and perseverance;

(v) The promoters must have the honesty and integrity to want to share the gains of the Company with the shareholders;

(vi) The Company should have low debt or be debt-free.

Multibagger Stocks 2017




The following five stocks are small-cap stocks with excellent quality of management and high RoEs. They have a huge scale of opportunity ahead of them. These stocks have the potential to give multibagger returns in the future as well.

(i) Caplin Point Laboratories;
(ii) Shaily Engineering Plastics;
(iii) Vidhi Dyestuffs;
(iv) Apcotex Industries;
(v) Oriental Carbon;
(vi) Adi Finechem;
(vii) Astec Life;
(viii) Prima Plastics;
(ix) Heritage Foods;
(x) Capital First.

Multibagger Stocks 2016

The following stocks have already given huge returns in 2015 and 2016. However, they are of such good quality of management and have such a dominant command over the market that they can be expected to give excellent returns in the future as well.

(i) Pricol
(ii) LIC Housing Finance
(iii) Repco Home Finance
(iv) VST Tillers Tractors
(v) Bharat Electronics

Experts in multibagger stocks

There are a number of experts who have mastered the subject and are able to find stocks that give huge gains. Their names are as follows:

(i) Rakesh Jhunjhunwala and Radhakishan Damani

Rakesh Jhunjhunwala and Radhakishan Damani became billionaires by buying small-cap stocks which became large-cap stocks. The present size of the portfolio of Rakesh Jhunjhunwala and Radhakishan Damani is so great that they can no longer invest in penny or micro-cap stocks. Even small-cap stocks are out of bounds for these investors. They can invest only in large-cap stocks.

(ii) Dolly Khanna/ Rajiv Khanna

Dolly Khanna and Rajiv Khanna have made a large number of investments that have become very big success stories. Dolly Khanna has made a lot of money in stocks like Cera Sanitaryware, Hawkins Cooker, Avanti Feeds etc.

(iii) Vijay Kedia

Vijay Kedia has also made a large number of investments which have proved to be big winners. Vijay Kedia is famous for stocks like Atul Auto, Sundaram Chemicals, Repro, etc where he has made a fortune.

(iv) Porinju Veliyath

Porinju Veliyath has a Portfolio Management Service called Equity Intelligence. He has made a lot of money by buying penny and small-cap stocks.

Porinju Veliyath has recently recommended stocks like Future Consumer, DCM Shriram, Tata Global Beverages, Biocon, Jubilant Life Sciences, Emkay, NIIT, HSIL, Transport Corporation etc.

(v) Basant Maheshwari

Basant Maheshwari is a well-known stock advisor. He runs a Portfolio Management Service called Basant Maheshwari Financial Services. His favourite stocks are Granules India, Ujjivan Financial, Equitas Holding, Repco Home Finance etc.

(vi) Mudar Pathreya

Mudar Pathreya writes a column in Business Standard where he recommends penny, micro and small-cap stocks for investment. Some of Mudar Pathreya’s recent stock recommendations include Mercator, Sumeet Industries, Lakshmi Foods, Alphageo, Caplin Point Labs, Indo Count Industries etc.

Several other experts who have made a fortune from buying penny, micro and small-cap companies include Ramesh Damani, Kenneth Andrade, Kalpraj Dharamshi, Madhusudan Kela, Shyam Sekar, Sunil Singhania, Ambareesh Baliga, S. P. Tulsian etc

Download Multibagger stock research reports

The research reports prepared by leading brokerages like Sharekhan, ICICI-Direct, Motilal Oswal, Religare, Kotak Securities etc are available for download.

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Comments (29)

  1. Pramod

    Is Karnataka Bank a good stock to buy now? It has opened a rights issue.

    Reply
  2. tejas

    l want too multibagger stock next five year

    Reply
    1. MAK

      Go for VRL Logistics.A Cash rich logistic company with high ROI in the coming years.

      Reply
  3. rn singh

    Please guide me for 5 stocks as multibagger for 2017

    Reply
    1. AXVV

      LIC Housing Finance Limited(Watch)
      Repco home finance
      Caplin point laboratories
      VST Tillers Tractors
      Bharat Electronics

      Reply
    2. Alok

      Buy #peeceecosma, #zeemedia, #walchadnagar, #rcf, #hcc & #sterlitetech

      Reply
  4. Praveen

    Pls give your views on GTL infra

    Reply
  5. jaimin

    i want to invest 200000 lack ropees for 2017. which is best stocks for me?

    Reply
  6. Pravin

    I have invest 500000 rupees which one is the best penny stocks

    Reply
  7. Mahesh P.Parekh

    Please suggest two / three Multibagger shares I want to invest . I can hold for long time.

    Reply
  8. TANUJ SINGH

    Mahesh P. Parikh ji….
    You can go for MOSCHIP,
    DUCON
    MANGALAM DRUGS
    TVS ELECTRONICS

    Reply
  9. Mukesh

    These are good stocks for the stock market

    Reply
  10. Kiran

    Very good article

    Reply
  11. Naresh Panchal

    Hi Basant Maheshwari, I have Granules bought at Rs. 123/- in Oct 2015, currently it is down to 106. What should I do? Should I hold? if yes up to what price I should hold? if exit then what price?

    Reply
    1. michael (Post author)

      The stock is down because of regulatory problems with the FDA of Portugal. However these problems are temporary and the stock will spring back. Continue to hold.

      Reply
  12. RAKESH SUTAR

    Please give me TGT for following Stocks I will Hold such stocks for next 2 years
    FIEM INDUSTRIES
    MARICO
    HERITAGE FOOD
    GARWARE WALL ROPE
    JK PAPER
    BHARAT FINANCIAL INCLUSIONS
    WEST COST PAPER
    PHILLIPS CARBONS

    Reply
    1. michael (Post author)

      FIEM is a very good portfolio stock. It is a good buy. Stock should give at least 60 – 80% gain over two years.

      Reply
  13. KALAI

    Please suggest three penny stocks time frame 3 years
    I hold 300 shares of Rattan power @ 45 IPO stock .How long should i hold that

    Reply
    1. michael (Post author)

      Rattan Power is looking very weak. Not sure about its prospects. I suggest a shift to micro-cap stocks like Prima Plastics, Vidhi Dyestuffs, ADF Foods, Panama Petrochem. These are good stocks with good management.

      Reply
      1. KALAI

        Thank you sir
        Any penny stocks you suggest
        Thanks

        Reply
        1. michael (Post author)

          It is better to avoid penny stocks because of risks of corporate governance. It is better to invest in small-cap stocks. These have a proven track record. The capital is safe and there is also a possibility of good growth in such stocks.

          Reply
  14. Pawan patil

    Hi an new in share market and I want to invest for next 5 year.please suggest me witch stock should I purchase in this year for get more profit.

    Reply
  15. Pawan patil

    Hi an new in share market and I want to invest for next 5 year.please suggest me witch stock should I purchase in this year for get more profit

    Reply
    1. michael (Post author)

      It is best to buy blue chip small-cap and mid-cap shares with a good track record of profitability and growth. You can look at Prima Plastics, Balaji Amines, Kuyoko Camlin, Linc Pen, ADF Foods, Vidhi Dyestuffs etc.

      Reply
  16. Prakash

    Hi am new investor holding TCS SHARES @Rs2299 59 share its getting down hold or sell with loss

    Reply
    1. michael (Post author)

      TCS is a blue chip mega cap with market capitalisation of 450,725 crore. Over two years the stock has lost 8.49%. Over one year, the stock is flat. It is unlikely that the stock will see much upside in the near future due to macro economic challenges. It is better to shift to a small-cap or mid-cap stock like Persistent, Tata Elxsi etc.

      Reply
  17. Prakash

    Hi am new investor holding TCS SHARES @Rs2299 59 share its getting down hold or sell with loss

    Reply
  18. Jose Abraham

    Can Ester industries be a multibagger

    Reply
    1. michael (Post author)

      Ester Industries is a good stock for investment. Ashish Kacholia has invested in 1,503,121 shares in December 2016 quarter.

      Ester Industries plans to spend Rs 50 cr for new R&D centre in Gurgaon. It is engaged in the manufacturer of polyester films & engineering plastic compounds. Ester Industries markets its engineering plastics under the brand name Estoplast and production capacity of 16,500 MTPA.

      However, the Company has poor return ratios. It has made a loss. If the operations turn profitable it can be a multibagger.

      Reply

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