All investors and traders have a common ambition, namely, that they should be able to buy penny stocks that will become multibaggers and make them enormously rich.
They are looking for multibagger penny stocks to buy in 2017 which can be held till 2020 for enormous gains.
This ambition to find multibagger penny stocks is not unreasonable because it is a fact that a select few penny stocks have become mega multibaggers and created huge amount of wealth for investors and traders.
Penny stock recommendations of Porinju Veliyath
Porinju Veliyath is known to be an expert in finding penny stocks which have become huge multibaggers.
In August 2015, Porinju Veliyath issued a list of penny stocks that he had bought for his portfolio which are/ were industry leaders.
Don’t trust the 'experts' advising you, ’never buy penny stocks & bad companies’ – many of them are Industry leaders: pic.twitter.com/9UqMOjZz3R
— Porinju Veliyath (@porinju) August 5, 2015
Some of these stocks are well-known names like Kitex Garments, Amrutanjan, Forbes Gokak, Munjal Showa, Jyothy Labs etc.
He said “Don’t trust the ‘experts’ advising you, ’never buy penny stocks & bad companies’ – many of them are Industry leaders”.
Some stocks that came up in the discussion with Porinju included stocks like Murudeshwar Ceramic, Fresh fruit Trop, yantra natural ( sree ghanesh spinners, Nitin Spinners, MIC Electronics, Sterlight Technologies, Patel Engineering, Anik Industries, Marksans Pharma, Orient Cement, Aadhar Ventures India ltd and other penny stocks.
Porinju Veliyath has also directly recommended a buy of five stocks on the basis that they are looking like penny stocks but are not penny businesses.
Balaji Telefilms@31, Orient Paper@5, Orient Cement@32, KRBL@23, Mirza Intl@20 – all looking penny stocks, but not penny business. BUY
— Porinju Veliyath (@porinju) August 29, 2013
After the stocks because huge multibaggers, Porinju called it a “billion dollar ‘penny stocks’ idea”.
Billion Dollar 'penny stocks' idea ? https://t.co/raAxAumF8p
— Porinju Veliyath (@porinju) January 24, 2017
(Penny Stock Tips, Stock Market, Stock Tips, share Market India, which can make you at top)
Some investors have the misconception that penny stocks mean that the Companies are not well managed and that there are corporate governance issues.
They believe that these aspects create risk and that it is better to avoid investing in penny stocks.
However, Porinju Veliyath has clarified that this perception is not correct. There are many micro-cap and small-cap companies which are actually well managed and quality companies.
This is what he said in his interview to Economic Times:
“What does quality mean? You can find bad quality stocks which then get transformed into the quality league, and that is where we make big money. In India, fortunately, we have a large number of such companies in the midcap and smallcap segments. We always used to discuss about turnarounds happening in various aspects of a business and in most cases the changing attitude of the promoter, which is how some of these so-called penny stocks have come into the quality league. They become multibaggers and they change the space where they belong to. That is why we have many penny stocks becoming smallcaps, many smallcaps becoming midcaps and many midcaps getting into the league of largecaps. That transformation is very special to India. It is very special to India considering the number of stocks getting into that league and we do not see many smart investors are money in this space. Unfortunately, it is not getting widespread among larger, millions and crores of investors in India, potential investors. We have always used to talk about domestic potential of fund flow into the market. The domestic money is going to rule the market in the coming years. FIIs may or may not invest. I am very confident the kind of things happening in the market like SIPs are going to change the game. Today, people are not taking it seriously, looking at maybe Rs 1,000-1,500 crore monthly collection under SIPs. The most important thing about SIPs is that they offer stable growth and that can be stabile even in a too volatile market. We always said cribbed about lack of depth of the market. SIPs will change all that. This Rs 1,500 crore per month collection – it can go up to Rs 3,000 crore or Rs 4,000 crore very soon and who knows it can go up to Rs 20,000 and Rs 10,000 crore in next two-three years – can be a big story. The Indian economy, our demographics and our middle class are most suitable for SIP investors.”
Penny stock recommendations of SP Tulsian
SP Tulsian is also well known for recommending penny stocks which have high degree of potential to give multibagger gains.
He recommended a buy of Indiabulls Securities on the basis that though Indiabulls Securities is a penny stock, it has multibagger potential and price target of Rs 15 in the next twelve months or so.
SP Tulsian explained that Indiabulls Securities has a good business model of broking and selling of insurance products and real estate. The profitability in Indiabulls Securities has primarily come because of selling of these two products.
The financial parameters of Indiabulls Securities in the form of EPS, profitability, P/E and dividend track record are also impressive was the opinion of SP Tulsian.
Examples of penny stocks that became multibaggers
There are several examples of stocks that have given manifold returns and made investors enormously rich.
Some real life examples are stocks like Indo Count Industries, Ram Minerals, Greencrest Finance, Arrow Coated, Marksans Pharma, Cupid Ltd, Kesar Petro, Uniply Industries, Pressman Advertising, NGL Fine Chemicals etc.
Penny stocks can be quality stocks
(Penny Stocks with high trading | Midcap Bazaar)
Rules for investing in penny stocks
Because of the risks involved in penny stocks, investors have to take care to ensure that they pay attention to several safeguards before investing in such stocks.
Company must have free cash flows
Free cash flow is an essential criteria to ensure that the profitability shown by the Company is real and not illusory. It represents the cash that the company generates after meeting all expenditure on revenue and capital account.
Investors must avoid investing in any stock which is not generating free cash flows.
Because penny stocks are a high-risk and high-reward game, investors should ensure that they diversify extensively and invest in a basket of stocks.
This diversification will ensure that the risks are properly divided and the loss of one or two penny stocks will not have a material impact on the finances of the investor.
Penny stocks are small businesses which take time to mature. Also, the businesses can see a lot of volatility in the financial performance.
If investors panic during the bad periods for the Company and sell the stock, they may miss out on multibagger gains.
Instead, if they remain patient and hold the stock for a number of years, they can become very rich indeed.
Keep a stock loss
Being patient with the stock does not mean that the investor can completely go to sleep and not monitor the affairs of the Company.
Instead, the investor has to keep a vigilant watch over the affairs of the Company and decide whether the fundamentals of the Company are deteriorating or not. If there is an adverse impact on the financials of the Company, it is better for the investor to keep a stop loss and to sell the stock if the stop loss is triggered.
High Quality small-cap stocks to buy now
It is better for investors to focus on high quality micro-cap and small-cap stocks instead of focusing solely on penny stocks.
Micro-cap and small-cap stocks have a better chance of becoming multibaggers because their business model is superior and they have a better ability to withstand the vagaries of the market and the economy.
A few good quality micro and small-cap stocks that investors can look at are the following:
Unichem Laboratories is likely to show positive changes in prospects due to (a) a ramp up in US sales, (b) multiple growth drivers for Indian dosage business, (c) turnaround in Brazilian business and (d) strong earnings growth led by margin expansion.
Ventura has launched coverage with a BUY rating and a price target of Rs. 400. This works out to 20X multiple to the EPS of Rs. 19.8 for the year ending December 18. The PAT is expected to grow at 47% in FY18 followed by 24% in FY19. Unichem will be re-rated to 20X from the current 18X.
Redington India has shown a scorching growth rate in sales and profits. The growth strategy is pinned on the development of IT and usage of smartphones. The imminent increase in the usage of smart phones penetration in India will increase the sales and profits of Redington.
Redington is also venturing into logistics management and e-commerce solutions. It has a 17 per cent market share in the Rs. 45,000 crore IT distribution market.
VST Tillers Tractors
VST Tillers Tractors is a market leader in the tractors and tillers segment. It will do well because of the Government’s focus on improving farm productivity through greater thrust on farm mechanization.
It is debt-free and has strong return ratios.