Multibagger stocks are those that multiply the investment manifold times in a short period of a couple of years.
In the BSE itself, more than 400 stocks have given more than 100% gain and doubled investors’ wealth in just the last one year.
Some of the stocks which have given big gains include Tata Metaliks, Jindal Stainless, KM Sugar Mills, Escorts, Aptech, Future Lifestyle, etc.
Presently, the stock markets are trading at high valuations. So, it is difficult but not impossible to find multibagger stocks.
There are a number of small and midcap stocks which still have the capacity to give high gains.
It is better to trust only established companies which have strong earnings visibility, good pricing power, stable management, unique product portfolio. These companies not only have the potential to give multibagger gains but also have a margin of safety.
Multibagger stock recommendations
The top stocks which could be potential multibaggers include names like Jamna Auto, PNC Infratech, J Kumar Infraprojects, Repco Home, and TeamLease, Tata Motors, ICICI Bank, SBI, ITC, Britannia, Hindalco, Colgate Palmolive India, Crompton Consumer, IOC, RBL Bank, Manpasand Beverages, Ultratech Cements and JK Cement.
Avoid penny stocks
At this stage of the market, penny stocks which are not liquid can be dangerous. If there is any bad news relating to the stock or the market in general, investors may not be able to penny stocks because the volume of shares that are traded is low.
P/E valuations of the stock market
Presently, the valuation of the Nifty and the Sensex is a P/E of 18.1x. This valuation is above the long-period average P/E of 17.2x.
From the PBV perspective, the Sensex is at 2.7x. This is also above the historical average. The return on equity (RoE) of the Nifty and Sensex is at 15.2%. This is below the long-term average.
The stock market offers a low margin of safety. On earnings basis, the valuation is a bit stretched. However, the longer-term structural strength of the economy continues. Accordingly, corrections in the stock market offer opportunities to invest and buy stocks.
Recommendations of Dipen Sheth of HDFC Securities and Gautam Duggad of Motilal Oswal
Dipen Sheth of HDFC Securities and Gautam Duggad of Motilal Oswal have recommended that investors buy the following stocks which have a strong earnings visibility, good pricing power, capable management, strong product portfolio and are quoting at reasonable valuations. These stocks have a high margin of safety.