We identify multibagger stocks. Stocks that give returns that are several times their costs are called multibaggers.
There are two types of multibaggers that we recommend –
A. Golden Cub Multibagger
These are small-cap stocks with potential to grow many times in next 3-5 years. They have just started their growth journey, so the valuations are extremely low. They have huge potential to grow and transition into a strong tiger from a baby cub.
We use following strategies for identifying Golden Cub Multibagger stocks –
- Identify cyclical stocks near bottom of the cycle
- Identify small companies with unique competitive advantage (patents, any type of monopoly or entry barrier, deep research) coupled with long term growth opportunities
- Identify small and low valued companies that have managerial and technical capabilities to grow in a sunrise industry near its starting phase.
B. The Tiger Multibagger
In this category, we select companies which are already well established and highly profitable, in mid-cap or large-cap. They are amongst the top leaders in their industry and are financially safe and stable. These already large companies can grow even bigger, many more times, if they tap a NEW growth opportunity. Compared to small or new companies, they have significantly more advantages to grab and profit from new opportunities. Leaders will have more resources, lower cost of funding, can raise funds easily, can acquire small competitors… the benefits are many. The bigger a company, the easier it is to tap a new opportunity.
For such large companies, a dramatic boost can take place if –
- Either their industry enters into a long-term boom phase, or,
- The company enters into a new sunrise industry which has just started growing.
Both cases will cause a double benefit – a positive rerating of the stock, plus, faster earnings growth. This combo impact will push stock price into a new orbit.
We look for following strengths to identify The Tiger Multibagger stocks –
- Companies that have already proven themselves to be a leader in their industry
- Companies whose industries are at the start of a secular long-term growth
- Companies that have diversified into a more lucrative field and scalable business, and have capability to succeed in that new business
- Companies that have unique competitive advantage (patents, any type of monopoly or entry barrier, deep research)
- Have strong financials metrics
- Low debt, preferred debt to equity ratio is 0.5
- Strong management integrity, ethics, capability, and proven performance track record.
- Available at reasonable valuations
We keep regular track of company announcements, results, calls and investor presentations.
Benefits of Multibaggers:
- Very low churning, buy once and forget for years.
- Fewer transactions means lower transaction costs and peace of mind. Time tested approach of holding on to the winners!
- Stocks are selected at very low valuation. The idea is to lose small if the pick is wrong, but gain big if the conviction is right!
As a safe approach, do not allocate more than 5-10% of your investible funds in a single stock. We suggest investing in ALL our multibagger stocks, because that will then build a diversified portfolio – safest way to invest in equities.
Most of our recommendations are based on these themes which are the main drivers of India’s growth engine.
You can read about these topics in our free weekly newsletter Trikaal Macros.