The Ones That Vaulted Past
If you are an equity investor, you must have atsome point dreamt of laying your hands on that one stock that could change yourfortunes 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 suchas CORE Projects and Technologies, Manappuram General Finance and Leasing, KwalityDairy, 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 over1000% or 10 times their price in January 2005 (See Stocks That Soared...). Ouranalysis is limited to stocks with current market capitalisation of over Rs1000 crore. The leader of the pack, CORE Projects, gained 1,415 times, which isover 100,000%. From Rs 0.21 in January 2005, it closed at Rs 300 on February28, 2011 Let's assume you had bought 100 shares each of the top 23 companies inour list of stocks, on January 3, 2005. Your investment of Rs 56,916 would havereturned exactly Rs 10,14,775 on February 28 this year. This is an astoundingincrease of 1,683%.
So, how can you identify a stock that could be a money-spinner in the years tocome? Market experts feel that though feasible, it is difficult to home in onsuch stocks. Avinash Nahata, head of fundamental desk at Aditya Birla Moneysays, "A 10x return (1000%) in 10 years is equal to a 27% CAGR. If onegets the stock at approximately 25% discount to the fair value-or the medianvalue of previous 4-5 years-then one can actually grow the money 10x in 8-9years." Nahata also advises identifying turnaround stories. "It islikely that structural changes have happened in an industry. One should pickthe first movers in that industry," he adds. Going forward, Nahata picksPantaloon Retail and Shoppers' Stop from the retail sector, Educomp Solutionsand Everonn Education in the education sector and Jubilant Foodworks from thequick-service restaurant sector, for long-term investment.
Avinash Gupta, vice president, equity research at Bonanza Portfolio also has astock tip for investors, "The price of the share goes up if the earningsper share (EPS) grows or price-earnings ratio (PE) is expanding. If both aregoing up, investors reap windfall gains." According to data from AceEquity, adjusted EPS (adjusted for stock splits, bonus shares and othercorporate actions) and PE figures of a majority of stocks which have givenreturns of more than 1000% have risen consistently (See Stocks That Soared...).From March 2005 to March 2010, EPS of CORE Projects and Technologies surged1,629.6% to Rs 11.34 followed by Manappuram General (1,109.05% to Rs 3.52) and KwalityDairy (717.5% to Rs 0.58).
But that may not be the case always. "Due to lack of information, thesestocks tend to remain off the radars of fund managers, and remain under-pricedfor a long time. Thus, it is quite a task to find them, especially for a retailinvestor," says Jagannadham Thunuguntla, head of research, SMC GlobalSecurities.
Investors need to be careful since the run-up of many multi-baggers has beenout-of-sync with their fundamentals. "There are some stocks such as AdaniEnterprises, BF Utilities, Jai Corp, Kwality Dairy, NMDC and Rajesh Exportswhere profit growth has lagged behind the share price, resulting in expensivevaluations," says Anil Chopra, chief executive officer, Bajaj Capital.
It is interesting to note that four of the stocks in our list are from themetal sector. Between January 2005 and February 2011, JSW Steel, Jindal Steeland 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 fromsectors as diverse as capital goods, realty and agriculture.
"Metal stocks did well due to the integration happening in the industryand the regional premium which played out due to strong infrastructure and realestate growth," explains Aditya Birla Money's Nahata. Bonanza's Gupta,however, strikes a note of caution on investing in the metals sector, "Thepast 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 capitalisationof 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 MahanagarTelephone Nigam Ltd (MTNL) with a downside of about 75%.
Among the others were Alok Industries (68%), Arvind Ltd (59%), HexawareTechnologies (55.6%) and Tata Teleservices (Maharashtra)(55.38%). For the long-term investors, "the future prospects of thecompany and that of the industry in which it operates are important," SudipBandyopadhyay, president, Destimoney Securities says. Riding out marketvolatility 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 mostdevastating years of 2008 and 2009 when the stock markets crashed due to theglobal financial crisis.