If you are an equity investor, you must have at some point dreamt of laying your hands on that one stock that could change your fortunes forever. For most, except for a lucky few, it is an endless wait.
You, too, could have hit a jackpot had you invested in shares of companies such as CORE Projects and Technologies, Manappuram General Finance and Leasing, Kwality Dairy, JSW Steel, Anant Raj Industries and Jai Corp over the past six years.
These stocks, along with 17 other scrips, have given super-normal gains of over 1000% or 10 times their price in January 2005 (See Stocks That Soared...). Our analysis is limited to stocks with current market capitalisation of over Rs 1000 crore. The leader of the pack, CORE Projects, gained 1,415 times, which is over 100,000%. From Rs 0.21 in January 2005, it closed at Rs 300 on February 28, 2011 Let's assume you had bought 100 shares each of the top 23 companies in our list of stocks, on January 3, 2005. Your investment of Rs 56,916 would have returned exactly Rs 10,14,775 on February 28 this year. This is an astounding increase of 1,683%. CAN THEY BE SPOTTED?
So, how can you identify a stock that could be a money-spinner in the years to come? Market experts feel that though feasible, it is difficult to home in on such stocks. Avinash Nahata, head of fundamental desk at Aditya Birla Money says, "A 10x return (1000%) in 10 years is equal to a 27% CAGR. If one gets the stock at approximately 25% discount to the fair value-or the median value of previous 4-5 years-then one can actually grow the money 10x in 8-9 years." Nahata also advises identifying turnaround stories. "It is likely that structural changes have happened in an industry. One should pick the first movers in that industry," he adds. Going forward, Nahata picks Pantaloon Retail and Shoppers' Stop from the retail sector, Educomp Solutions and Everonn Education in the education sector and Jubilant Foodworks from the quick-service restaurant sector, for long-term investment.
Avinash Gupta, vice president, equity research at Bonanza Portfolio also has a stock tip for investors, "The price of the share goes up if the earnings per share (EPS) grows or price-earnings ratio (PE) is expanding. If both are going up, investors reap windfall gains." According to data from Ace Equity, adjusted EPS (adjusted for stock splits, bonus shares and other corporate actions) and PE figures of a majority of stocks which have given returns of more than 1000% have risen consistently (See Stocks That Soared...). From March 2005 to March 2010, EPS of CORE Projects and Technologies surged 1,629.6% to Rs 11.34 followed by Manappuram General (1,109.05% to Rs 3.52) and Kwality Dairy (717.5% to Rs 0.58).
But that may not be the case always. "Due to lack of information, these stocks tend to remain off the radars of fund managers, and remain under-priced for a long time. Thus, it is quite a task to find them, especially for a retail investor," says Jagannadham Thunuguntla, head of research, SMC Global Securities.DOES THE PARTY LAST?
Investors need to be careful since the run-up of many multi-baggers has been out-of-sync with their fundamentals. "There are some stocks such as Adani Enterprises, BF Utilities, Jai Corp, Kwality Dairy, NMDC and Rajesh Exports where profit growth has lagged behind the share price, resulting in expensive valuations," says Anil Chopra, chief executive officer, Bajaj Capital.
It is interesting to note that four of the stocks in our list are from the metal sector. Between January 2005 and February 2011, JSW Steel, Jindal Steel and Power, Hindustan Copper and Bhushan Steel zoomed 4,838%, 1,932.75%, 1,288% and 991% respectively. The other companies that we have analysed are from sectors as diverse as capital goods, realty and agriculture.
"Metal stocks did well due to the integration happening in the industry and the regional premium which played out due to strong infrastructure and real estate growth," explains Aditya Birla Money's Nahata. Bonanza's Gupta, however, strikes a note of caution on investing in the metals sector, "The past cannot be extrapolated into the future blindly."
But investors who stick around longer do have better chances of striking gold. Data from Ace Equity reveals that out of the 305 stocks with market capitalisation of over Rs 1000 crore and average daily trading volumes of over 10,000 shares, only 27 dipped between January 2005 and February 2011. The biggest loser was Mahanagar Telephone Nigam Ltd (MTNL) with a downside of about 75%.
Among the others were Alok Industries (68%), Arvind Ltd (59%), Hexaware Technologies (55.6%) and Tata Teleservices (Maharashtra) (55.38%). For the long-term investors, "the future prospects of the company and that of the industry in which it operates are important," Sudip Bandyopadhyay, president, Destimoney Securities says. Riding out market volatility could make your equity investments the best asset in your portfolio. Just to put it in perspective, the period of our analysis saw the two most devastating years of 2008 and 2009 when the stock markets crashed due to the global financial crisis.