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Sunday, November 10, 2019

Ideal Time to Invest in 5 Small Caps with 5-Bagger Potential

Dear Member,

We strongly believe that carnage in stock prices of small and mid caps in 2019 is overdone and is giving once in a decade opportunity to long term investors to invest in equities at mouth watering valuations to get rewarded handsomely. While many retail investors panicked with continuous fall in stock prices over last 12 months, we are excited considering the fact that stock market after a long time have witnessed such a panic selloff due to slowdown in economy and fear of recession, giving once in a decade opportunity to invest in good quality small and mid size companies at dirt cheap valuations. 

We are glad to inform you that our equity analysts have finalized the best investment opportunities from small cap segment which can deliver excellent returns during next 5 years. Our team has released Special Report - 5 Stocks - Potential 5-Baggers in 5 Years on 30th July 2019 and we have shared the report with our Hidden Gems, Value Picks and Wealth-Builder members. The objective of this report is to achieve average annualized returns of 38% each year to achieve 5x returns in period of next 5 years by investing in 5 small caps.

As illustrated in table below, if these 5 companies generate returns on your investment @ 38% annually, your investment will be 5 fold in period of 5 years. Even if we take conservative scenario considering that only one out of five achieve CAGR of 38% and remaining four delivers CAGR of 20%, your investment will be trebled (3 times) in period of 5 years which is also good compared to returns from any other asset classes like Fixed Deposits, Real Estate, Metals – Gold / Silver or even major indices - Sensex and Nifty.

Investment of 5 lakhs in 5 Years at CAGR of 38%
However, our team while selecting these stocks is confident enough to achieve 5 times returns in period of 5 years by monitoring performance of these companies and taking corrective measures in case any of them does not perform up to our expectations. 

Few important parameters which have been looked by our equity analysts while finalizing the stock selection are as under: 
  • Market leader in the business / any one segment in which the company is operating in.
  • Scalable business with significant moat (sustainable competitive advantage)
  • Prudent Management with promoters increasing their shares holding in the company 
  • Low / manageable debt on books with healthy cash flows.
  • CAGR of above 15% with increase in operating and net profit margins in last 5 years.
  • Consistent dividend payment with dividend yield above 1% in last 5 years
  • Growing EPS, low PE ratio with increasing ROE and ROCE over last 5 years.
  • Low share holdings of Institutions (FIIs & DIIs) to get first mover advantage.
Each parameter is equally important and plays a vital role to ensure that you get healthy returns on your investment with limited downside risk in long term. One of the important key to successful investing is to pick the right business at decent valuations. Once you buy shares, you own a part of company’s business.

While determining which stocks to consider as a long term investment opportunity for generating 5-Bagger returns, we looked into below 5 value drivers:

i) Does the company offer a product or service that has broad acceptability in a large, growing market?
ii) Does the company have healthy margins, and are they sustainable over a longer period of time?
iii) Can company generate significant amounts of cash without resorting to expensive debt?
iv) Can company return the cash generated to its shareholders by declaring generous dividends?
v) Is the company’s management honest and competent, with hunger to grow business at a faster pace?

We at Saral Gyan recommend good businesses to buy with long term view and any change in our stock views will be based on strong structural trend and not on any short term movement.

Major indices - Sensex and Nifty are hovering near all-time highs in recent times. However, BSE Small & Mid Cap Index is down by 33% and 22% respectively from their peak levels made in Jan 2018. During last 20 months, most of the small and mid cap companies stock prices have witnessed severe fall giving an opportunity to long term investors to buy good quality companies at significantly lower valuations. Market may correct by another few percentage points in near term. However, if you are a long term investor, you must avoid timing the market and consider ongoing downfall to start accumulating high quality companies with strong fundamentals to get rewarded in big way in long term.

Special Report - 5 Stocks - Potential 5-Baggers in 5 Years
Considering current situation in broader markets as a buying opportunity, we released our next issue of special report 5 Stocks - Potential 5 Baggers in 5 Years.  Our report is released on 30th July 2019 with an objective to achieve average annualized returns of 38% each year to achieve 5-Bagger returns in period of next 5 years. Please note that stocks selection under this report is done on the basis of fundamental analysis considering above mentioned parameters. These 5 Stocks are small cap companies with a market capital of less than 500 crores. Our research team have included our Hidden Gems / Value Picks stocks released in past having potential to multiply your investment by 5 times within 5 years.

We would like to inform our readers that our 1st Special Report titled 5 Hidden Gems stocks - Potential 5-Baggers within 5 Years was released by our research team on 26th July’13, it was similar time like that of today when there was lot of pessimism around the market and we find it as one of the best time to invest in some of the fundamentally strong small cap companies. Later in April 2014, we released update on our 5 Hidden Gems - Potential 5-Baggers within 5 Years report in which we included company’s performance, updates and development in these companies along with our views and recommendation with buy / sell / hold decisions and also the fair price range to accumulate these stocks.

Update on this report was published in April'14 which we shared with all our Hidden Gems and Wealth-Builder members. We are glad to share that all 5 Hidden Gems stocks selected by us gave astonishing returns in the range of 210% to 520% within 2 years and investment made by our members in these stocks have already multiplied by 4.5 times. 
As our objective was almost achieved, we decided to make our report public. This will help our readers to understand the potential of investing in good companies in bad times with a long term view.

Click here to Read/Download our Special Report - 5 Hidden Gems stocks - Potential 5-Baggers within 5 Years update released on 20th April 2014. 

If we find any major change in fundamentals in any of these 5 stocks which can impact their performance going forward, we will inform you to take corrective measures. For Ex: We informed our members to exit Ador Fontech (one of the 5 Hidden Gems stocks covered in Special Report) and replaced it with Atul Auto which was offering better investment opportunity at that point of time as mentioned in the report. This proved to a great move for our members as Atul Auto has given much better returns compared to Ador Fontech during next 12 months.

Note: If you wish to receive our Special Report 5 Stocks : Potential 5-Baggers in 5 Years (released on 30th July 2019), simply subscribe to Hidden GemsWealth-BuilderValue Picks or any of our combo packs and we will send you the report without any extra charges! We have shared this report with all our existing subscribers of Hidden GemsWealth-Builder and Value Picks without any extra cost. Simply subscribe to our services and grab our Special Report - Potential 5-Baggers in 5 Years for Free!

Avail attractive discounts by subscribing to our combo packs. Below are the details of our annual subscription charges, simply click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
ANNUAL SUBSCRIPTION
PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden Gems
Rs. 10,000
Value Picks
Rs. 6,000
15% @ 90 Days
Rs. 4,000
Wealth-Builder
Rs. 20,000
Combo 1: HG + VP + WB + 15%
Rs. 32,000
Combo 2: HG + VP + 15%
Rs. 16,000
Combo 3: HG + VP
Rs. 14,000
Combo 4: HG + 15%
Rs. 12,000
Combo 5: VP + 15%
Rs. 9,000

In case if you are not comfortable in subscribing online, you can make the payment through cheque / cash deposit / NEFT transfer in any of our bank and writing back to us sharing transaction details. Click here for bank details.

Do contact us in case of any queries, we will be delighted to assist you.

Also Read: Multibagger Stocks which gave upto 64X Returns in 9 Years


Wish you happy & safe Investing. 


Regards, 
Team - Saral Gyan

Tuesday, November 5, 2019

Spend Less Save More & Be Greedy to Buy Small Cap Stocks!

Dear Reader,

If you are the one who was investing in small cap stocks in the year like 2016 and 2017 and stopped investing now due to recent carnage in broader markets, believe us you are making a bigger mistake. Do not allow your emotions to take control of your equity investment decisions, instead inculcate habit of investing in discipline manner.

While major indices Sensex & Nifty is hovering near to at all time high delivering returns of 17%  and 12% respectively since 1st Jan 2018, BSE Mid Cap and Small Cap index is down delivering negative returns of -18% and -30% respectively during the same period. With divergence of ~47% since Jan 2018 between small caps and Sensex large cap stocks, its very likely that we can see strong out performance from small and mid-caps delivering significantly higher returns over next 12 to 24 months compared to large caps.

Economic Revival will lead to Outperformance of Mid & Small Caps in FY 2020-21

With GDP growth falling to 6 years low of 5% in the June quarter, equity funds continue to shift their preference towards selected large / mega caps where there is certainty of earnings & growth, also termed as quality by market experts.

Fund flows in equity market over last 2 years have taken risk off mode where certainty matters the most irrespective of expensive valuations of these companies. Hence, we have seen Nifty / Sensex touching new highs this year (due to the rise in stock prices of handful of companies having high contribution in index) where as broader indices i.e. BSE Mid & Small Cap Index sliding down further making new 52 week lows this year.

Due to fear and extreme pessimism in the stock market, we have seen money chasing quality stocks since Jan 2018. However, once we see the economic revival, market will turn quickly to risk on mode and we will see funds flowing back to mid and small caps available at historically low valuations. We believe underpriced moderate growth stocks will deliver far superior returns than overvalued high growth stocks in coming years. Current undervaluation of many of our recommended stocks give us further comfort to keep on holding & accumulating them during these painful period.

Investors participation in broader market is expected to improve significantly with initial signs of revival in GDP growth. That spells opportunity, as many good stocks from the mid and small cap segments are still ruling at multi-year low valuations, offering buying opportunities. Hence, this is the best time to build up equity portfolio gradually by investing in high quality small and mid caps backed by strong business fundamentals.

Small caps being most volatile tend to offer best investing opportunities during turbulent times. Retail investors usually make mistake by buying stocks at higher levels due to greed factor and later exit due to panic and fear of further erosion of capital. This phase has happened earlier also and good quality small and mid caps have always bounced back, not only recovering all losses but also delivering much higher returns from previous highs. Good sentiments as well as bad sentiments do not last forever.

If you analyse BSE Small Cap Index YoY returns, you will realise that small cap index not only recovered but also delivered astonishing returns in short span of time once tide turns favourable. In last 16 years, small cap index delivered significantly higher returns in single year every four years. In past, we experienced fierce rally in small caps in years like 2007, 2009, 2014 and 2017. During good times when overall economy is doing well, small cap stocks use to deliver mind boggling returns turning multibaggers in period of 12 to 24 months.
BSE Small Cap Index went up by 69% in 2014 and during the same year numerous small and mid cap stocks turned multi-bagger. Scenario was similar in 2017 when BSE Small Cap Index rallied by 58%, since Jan 2018 broader market went into bear grip with significant sell off in many small and mid caps due to expensive valuations and series of negatives developments followed by slowdown in economy.

Coming back to the current situation, the small cap index is down by 35% from its peak made in January 2018. The liquidity crisis in NBFCs, the DHFL and IL&FS defaults, series of rating downgrades by rating agencies, lenders dumping stocks of debt laden companies and recent slowdown in economic growth have not only taken the steam out of small caps but also made companies available at significantly discounted valuations compared to large caps. Fear and misinformation has shattered investor’s confidence and hence quality businesses are back to cheap valuations after a long time. Post steep fall in stock prices over last 20 months, many small caps are now offering once in a decade investment opportunity!

However, the greed to get multibagger returns by investing in small and mid caps in year like 2016 & 2017 turned out to fear in 2019. Inspite of attractive valuations of many small and mid size companies backed by sound business fundamentals, no body wish to look at this space now. Investors who were willing to pay much higher price for small and mid cap stocks in 2017 are shying away to invest in these stocks which are now available at lower than halve the prices of 2017.

The reason is the carnage in stock prices of many well-known small and mid cap companies. Individual small and mid cap stocks are touching 52-week lows every other day and individual damage to most of the stocks in this category is to the tune of 50-60%, some even more than that. Such severe and fast erosion of capital in small and mid caps have butchered investors interest towards this category. Retail investors have taken the back foot and lost their faith and conviction towards investing in small and mid caps due to existing pain in their portfolios.

However, we are quite excited about opportunities emerging in small and mid cap space during this year. The fall in stock prices of many small and mid caps by more than 50% from their peaks has not happened for the first time. This has happened in past in years like 2008-2009 and 2011-2012 and companies with good business fundamentals have always bounced back strongly later delivering multi-bagger returns. When overall market sentiments are negative like we are witnessing now, quality businesses also face the heat. As bad stocks go down, good stocks go down with them too. But good companies make a stronger come back with earning revival once economy cycle starts its upturn.

We have been saying this time and again - don’t try to time the market. We firmly believe that to get the best returns in the long term, investors should invest in a staggered and disciplined manner irrespective of market conditions. Investing through ups and downs of the market lets your investment grow and averages the purchasing cost. Equity investment is a serious business meant for long term investors. Trying to get in when the market goes up and getting out when there is a correction does not help you to create wealth.

Let us share some valuable insights to make you understand why we believe buying the right set of small and mid caps now can be a massive wealth creating once in a decade opportunity. To make our readers understand bull as well as bear phase of markets, we have covered long term monthly charts of some of our own small and mid cap stocks recommendations (released under Hidden Gems and Value Picks) over last 9 years which at one point of time were down by 50% to 70% from their peak but turned out to be mega multibagger stocks in longer run delivering upto 64X returns.

Below are the Monthly Chart (since Jan'10) of 8 Multibagger Small Cap Stocks released under Hidden Gems service. 

1. Camlin Fine Sciences (Hidden Gem released on 27th Mar'11) - Read Old Report

Multibagger Small Cap Stock 1

Above is the monthly chart of Camlin Fine Sciences which we recommended as Hidden Gem on 27 Mar’11 at 6.05*. The stock made life time high of 155 in Jan 2018 and later crashed to lows of 36.70. At current price of around 60, it is still a 10-Bagger for investors who bought it during lows of 2011 or 2013 but those who invested later during 2015 – 2017 period are bearing losses as of now. Current situation is more or less similar like that of 2013. Investors who bought Camlin Fine Science stock at highs of 2011 were holding it bearing losses till 2013. However, initial pain of 2 years rewarded the investors of 2011 later in year 2014-2015.

2. Kovai Medical (Hidden Gem released on 27th Oct'11) - Read Old Report

Multibagger Small Cap Stock 2
Now look at monthly chart of KMCH since Jan 2010, Kovai Medical stock price made a high of Rs. 176 in Feb 2010 and low of Rs. 89.50 in 2012 when overall market sentiments were negatives. It witnessed correction of nearly 50% over next 2 years. Later in 2014, stock rallied more than 400% in matter of 12 months. Kovai Medical price fell by 56% from high of 1480 in Jan 2018, a 8-Bagger stock even after severe fall in stock price for those who invested in the company in 2012.

3. Roto Pumps (Hidden Gem released on 05th Aug'12) - Read Old Report

Multibagger Small Cap Stock 3
Let us look at monthly chart of Roto Pumps since Jan 2010, stock which turned 10-Bagger in matter of 16 months. Roto Pumps which witnessed correction of 60% in stock price in 2011 from high of 2010, rallied by more than 900% later in 2014. At current levels, Roto Pumps is a 13-Bagger stock for investors who bought it at lows of 2011.

4. Acrysil (Hidden Gem released on 25th Nov'12) - Read Old Report

Multibagger Small Cap Stock 4
Above is the monthly chart of Acrysil  from Jan 2010. Acrysil stock price fell by 48% over 2 years from its peak of 2010. With improvement in fundamentals and start of bull cycle, stock delivered 588% returns within one year. It is still a 9-Bagger stock for investors who bought it in 2012 or 2013 and a 4-Bagger for those who invested at high in Jan 2010 and later experienced negative returns for nearly 4 years.

5. TCPL Packaging (Hidden Gem released on 31st Jan'13) - Read Old Report

Multibagger Small Cap Stock 5
Above is the monthly chart of TCPL Packaging since Jan 2010. In 2014 with start of bull cycle in broader market, stock delivered 1100% returns in 2 years, turning 12-Bagger stock from initial high of Nov 2010 and 22-Bagger from lows of 2011. TCPL Packaging is down by 60% from its all time high but it is still a 5-Bagger stock for investors who bought it at highs of 2010 and still holding it.

6. Rane Brake Lining (Hidden Gem released on 31st May'14) - Read Old Report

Multibagger Small Cap Stock 6
Rane Brake Lining is our Hidden Gem stock recommended on 31 May 2014. During recent melt down in broader markets, stock witnessed price correction of 67% over last 2 years. Even when stock is down from all time high of 1450 hitting recent lows of 505, it is a 4-Bagger stock from highs of Nov 2010. Those who invested at high of Nov’10 were sitting on losses in the same stock for more than 3 years.

7. Visaka Industries (Hidden Gem released on 05th Jul'15) - Read Old Report

Multibagger Small Cap Stock 7



Above is the monthly chart of Visaka Industries since Jan 2010. Between Feb’16 to Jan’18, stock turned 9-Bagger delivering 853% returns in 2 years. Since then stock price has corrected by 68% making recent lows of 265 but is still a 5-Bagger stock for investors who invested in the same company 7 to 8 years back during 2011 – 2012 and a 2-Bagger for those who invested in 2015 - 2016.

8. Stylam Industries (Hidden Gem released on 08th May'16) - Read Old Report

Multibagger Small Cap Stock 8
Stylam Industries has delivered maximum returns of 6304% in last 9 years. A mind boggling mega 64-Bagger stock which moved from lows of 13.35 (Nov 2011) to high of 855 (July 2017). We recommended Stylam Industries as Hidden Gem on 08 May 2016 and advised to book full profits around 800 levels considering expensive valuations of the company. Its interesting to note that the stock which turned out to be a mega multi-bagger delivering maximum returns of 64 times over last 9 years was down by more than 70% by Nov 2011 from its peak of July 2010.

Below are the Monthly Chart (since Jan'10) of 5 Multibagger Mid Cap Stocks released under Value Picks service.

1. Aurobindo Pharma (Value Pick released on 27th Jan'13) - Read Old Report

Multibagger Mid Cap Stock 1



Aurobindo Pharma, a well known company from pharma sector, was recommended as our Value Pick stock on 27 Jan 2013. Stock which made low of 41.52* witnessing fall of 70% from its peak of Jan 2011 later delivered 1200% returns in matter of 2.5 years. Aurobindo Pharma is still a 15-Bagger stock for investors who invested in the company during lows of 2011.

2. Mindtree (Value Pick released on 23rd Mar'14) - Read Old Report

Multibagger Mid Cap Stock 2

Let us look at monthly chart of our another Value Pick stock – Mindtree recommended on 23 Mar 2014. Mindtree also witnessed severe correction of 61% from its peak of Jan 2010 and tested patience of investors for nearly 4 years. Those who stay invested and sit patiently on the stock were rewarded over next 2 years as stock rallied from 195* to 795* delivering more than 300% returns.

3. Heritage Foods (Value Pick released on 03rd Jan'16)

Multibagger Mid Cap Stock 3

Above is the monthly chart of Heritage Food of last 9 years. During bear phase of 2011 – 2012, stock price fell by 52% from its peak price of 2010. However,  the same company delivered 525% during bull phase in matter of 30 months. Stock made all time high of 884 in Oct 2017 turning mega 28-Bagger stock from lows of Jun 2012.

4. Can Fin Homes (Value Pick released on 29th Feb'16) - Read Old Report

Multibagger Mid Cap Stock 4
Can Fin Homes witnessed severe correction of 67% from its peak during last year. However, the same stock created significant wealth for investors who invested in the company during beginning of this decade. Even after severe correction in stock price over last 2 years, stock is a 12-Bagger for investors who invested in the company at high of 2010 and a 20-Bagger who invested at lows of 2012.

5. Sonata Software (Value Pick released on 10th Jul'16) - Read Old Report

Multibagger Mid Cap Stock 5
Above is the monthly chart of Sonata Software since Jan 2010. The stock price fell by 76% in 2 years from high of 69 made in April 2010. Investors who bought at highs of Apr 2010 were in losses for almost 5 years but those who held it tightly were rewarded handsomely over next 4 years. Sonata Software made all time high of 428.40 in Sept 2018 turning 7-Bagger for those who entered at highs of 2010.

Looking at long term charts of most of the companies with good businesses, you will realise that investors who entered in market by investing in small and mid caps during last 2 to 3 years have pain in their portfolio however those who invested in bad phase of market in 2011 - 2013 like that of today are still holding plenty of multibaggers in their portfolio. That is why its important to invest in equities keeping a real long term view. In fact, during turbulent times, we must increase investments / equity allocation in small / mid size companies which have good business fundamentals with better earning visibility and robust cash flows from their operations to get rewarded in big way in long run.

Best Selling Subscription Service
We also take this as an opportunity to inform our readers that our Combo - 1 (Annual subscription of Hidden Gems, Value Picks, 15% @ 90 Days & Wealth-Builder) is the best selling subscription service at Saral Gyan, we have registered maximum subscription of Combo 1 since beginning of this year followed by Wealth-Builder and Combo 3 subscription. We keep on updating our members on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Below are the details of our services:

1. Hidden Gems (Unexplored Multibagger Small Cap Stocks): Based on fundamental analysis, our equity analysts release one Hidden Gem research report every month with buy recommendation and share it with all Hidden Gems members. Stock finalized as Hidden Gem belongs to small / micro caps space with market cap of less than 500 Crores, expected returns from Hidden Gems is above 100% in period of 12 - 24 months. Once target is achieved, we inform our members whether they should continue to hold the stock or need to do partial / full profit booking. If fundamentals are intact and valuations are reasonable, we suggest to continue to hold the stock for long term for multibagger returns. Annual subscription charge of Hidden Gems is INR 10,000 under which you will receive total 12 Hidden Gems research reports (one on monthly basis). Click here to read more about Hidden Gems.

2. Value Picks (Mid Caps with Plenty of Upside Potential): Our equity analysts team consider Warren Buffet approach to short list stocks from mid cap segment as Value Picks. Market cap of Value Pick will range from 1000 crores to 10,000 crores. Holding period of Value Picks is 12 - 24 months and one can expect returns of 40-50%. Annual subscription charge of Value Picks is INR 6,000 under which you will receive total 12 Value Picks research reports (one on monthly basis). Click here to read more about Value Picks.

3. 15% @ 90 Days (Buy to Sell Stocks for Short Term Gain): Based on technical analysis, our team recommends one stock every month to our members. It’s a short term call under which you can expect returns of 15% within period of 90 Days. Annual subscription charge of 15% @ 90 Days is INR 4,000 under which you will receive 12 stock recommendations. We suggest lower allocation in 15% @ 90 Days stocks and higher allocation in Hidden Gems and Value Picks which are our portfolio stocks based on fundamental analysis.​ 15% @ 90 Days stocks recommendations are based on buy to sell and gain strategy, hence we suggest our members to book complete profits once target is achieved and exit in case target is not achieved or stock has broken its 2nd support level as per report. Click here to read more about 15% @ 90 Days.

4. Wealth-Builder (An Offline Portfolio Management Service): Wealth-Builder is our model portfolio of Rs. 10 lakhs and currently we are holding 16 stocks in our portfolio. We suggest higher allocation in our Wealth-Builder stocks which includes best of our Hidden Gems and Value Picks released during last couple of years. Our team suggest all our Wealth-Builder members to invest in the stocks which are part of our Wealth-Builder portfolio. Every month our team updates our Wealth-Builder members which stocks they need to buy / sell / hold with % allocation of these stocks in their portfolio, the suggested changes need to be replicated in the same proportion. Annual subscription charge of Wealth-Builder is INR 20,000 under which you will receive total 12-18 portfolio updates. We also review existing equity portfolio of our members and advise them which stocks to hold and which to exit based of fundamental analysis. Moreover, we do look at sector wise / stock wise allocation in the portfolio and advise in case of any corrective measure needs to be taken by increasing or decreasing the stock specific allocation. Our Wealth-Builder service is suitable for those investors who have an existing portfolio of at least 2 to 3 lakhs or planning to invest similar amount or more in equity market. Click here to read more about Wealth-Builder.

Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Monday, November 4, 2019

Peter Lynch: Making Money by Investing in "Fast Growers"

“The investor of today does not profit from yesterday’s growth.” Warren Buffett

Most of us have relatives who like to fashion themselves as ‘stock-gurus’, with their stories revolving around how they ‘could have been’ millionaires now, if only they had held their nerves. The stock that comes up frequently in these conversations is Infosys. If you had invested Rs. 9,500 to buy 100 shares of Infosys in the IPO (that went undersubscribed in 1993), 1,02,400 shares (adjusted for bonus issues) worth sum of Rs. 6,52,74,880 would be in your kitty.

Infy has given CAGR returns of whopping 38.7% to investors during last 27 years (that too after keeping dividend payouts aside). Infosys got listed in June 1993 at price of Rs. 145 per share and investment of Rs. 9,500 in June 1993 is valued at ~6.53 crores today. But, is Infosys still the key to riches? As often repeated, past performance is no guarantee of future results. So, how does one find out the next ‘Infy’?

A Fast Grower is a small yet aggressive & nimble firm, which grows roughly at 20-25% a year. This is an investment category which can give investors a return of 10 to as much as 200 times the investment made by them. No doubt, it remains a favourite of Peter Lynch!

In 1950s, the Utility & Power Sector were the fast growers with twice the growth rates to that of the US GDP. As people got more power-hungry gadgets for themselves, the power bills ran through the roof & the power sector surged with booming demand. Post the Oil Shock in 70’s, cost of power generation became high with power tariffs going up; people learnt to conserve electricity. Demand, thus, fell and power sector witnessed a slowdown. Prior to it, similar decline was observed in the Steel Sector & Railroads. First, it was the Automobile Sector, and then the Steel, followed by Chemicals & Power Utility & now the IT Sector is showing signs of slowing down. Every time, people thought, rally in the fast growers of the age would never end, but it did end, with people losing money as well as their jobs. Those who thought differently like Walter Chrysler (founder of Chrysler Corporation), who took a pay cut and left the railroads to build new cars in the turn of the last century, became the next millionaires.

Three phases involved in their life cycles, are:

1. The Start-Up Phase: Majority of the companies either burn up all the cash or run out of ideas by the end of this phase. Maximum casualties have been observed here, making it one of the riskiest phases. However, maximum returns can be made from them, if one enters near the end of this phase.

2. Rapid Expansion Phase: The Company’s core proposition has worked now, with the strategy being replicated by expansion of product/service portfolio or consumer touch points.

3. Mature Phase: Growth slows down, either due to high debt or low cash, owing to the massive expansion witnessed in early stage. Fall in demand or legal restrictions might also contribute to faltering growth.

The trick is to track, which phase the organization is in, at the moment. If the firm is in late start-up phase with possibility of moving to rapid expansion phase, buy the stock when it is still cheap. Once firm’s earnings start falling with its products witnessing poor demand, it’s time to bid goodbye to the stock.

The key parameters involved in Peter Lynch’s ‘two minute drill’ are:

1. P/E Ratio: avoid stocks with excessively high P/E
2. Debt/Equity Ratio: should be low
3. Net Cash per Share: should be high
4. Dividend & Payout Ratio: should be adequate
5. Inventory levels: lower the better

Stay away from companies which are being actively tracked, followed & invested in by large institutional investors. News about buy back of shares or internal stakeholders increasing their stakes should be construed as positive.

Checks specific to Fast Growers:

1. The star product forms a majority of the company’s business.
2. Company’s success in more than one places to prove that expansion will work.
3. Still opportunity for penetration.
4. Stock is selling at its P/E ratio or near the growth rate.
5. Expansion is speeding up Or stable

One must judiciously walk the tightrope between the unquestioning belief that made the stock to be held for so long and the fear of the end from nose-diving prices due to a one-off bad year. The key is to always keep revisiting the story & ask some pertinent questions like ‘What would really keep them growing?’, ‘What is their next offering? or ‘Are their products & services still in vogue?’ It is here, that one must track the point of time when the phase 2 of the firm’s expansion comes to an end. This is usually the dead-end for organizations as success is difficult to be replicated. Unless, innovation happens, downfall is imminent & thus, an exit is necessary. P/E of these stocks is drummed up to unrealistically high levels by the madness of crowd towards the end. One must keep one’s eyes & ears open to signs, which mark the end of the road for these fast growers. A great case in point is Polaroid which had its P/E bid up to 50, only to be rendered obsolete later by new technologies.

A sure shot sign of a decline is a company which is everywhere! Such a company would simply find no place to expand any further. Sooner, rather than later, such a company would see its ‘Manhattans’ of earnings reduced to ‘plateaus’ of little or no growth, simply because no space is left to expand further.

1.The quarterly sales decline for existing stores.
2. New stores opening, though results are disappointing: weakening demand, over supply.
3. High level of attrition at the top level.
4. Company pitching heavily to institutional investors talking about what Peter Lynch calls ‘diversification’.
5. Stock trading at a P/E of 30 or more, when most optimistic estimates of earning growth are lower than 15-20%, thus, unable to justify the high price.

Fast Growers, which pay, are ephemeral & one misses them more often than not. It is a High Risk & High Gain Category of Stocks. One must remember along the classic risk & return principle, that when one loses, one loses big! So, if you are in the quest for magnificent returns, a Fast Grower can be your bet provided you know when to bid Goodbye!

If you feel its difficult for you to identify Fast Growers stocks at early stage, you can subscribe to our Hidden Gems and Value Picks subscription services. We put best of our efforts to identify companies having potential to give exponential returns in medium to long term. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns.

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden GemsValue PicksWealth-Builder annual subscription services. Avail attractive discounts by subscribing to our combo packs. Below are the details of our annual subscription charges, simply click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
ANNUAL SUBSCRIPTION
PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden Gems
Rs. 10,000
Value Picks
Rs. 6,000
15% @ 90 Days
Rs. 4,000
Wealth-Builder
Rs. 20,000
Combo 1: HG + VP + WB + 15%
Rs. 32,000
Combo 2: HG + VP + 15%
Rs. 16,000
Combo 3: HG + VP
Rs. 14,000
Combo 4: HG + 15%
Rs. 12,000
Combo 5: VP + 15%
Rs. 9,000

In case if you are not comfortable in subscribing online, you can make the payment through cheque / cash deposit / NEFT transfer in any of our bank and writing back to us sharing transaction details. Click here for bank details.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Sunday, November 3, 2019

Investing in Secular Growth Stock with 5-Bagger Potential

Dear Reader,

Wealth Creation
The small and mid cap rally ended in Jan 2018 amid concerns over high valuations, waning domestic flows after re-categorisation of mutual fund schemes by SEBI, liquidity crunch and corporate governance issues followed by extreme pessimism in market due to IL&FS default, squeeze of liquidity, NBFC crisis and collapse of well known companies like DHFL, Cox & King, Sintex Plastics, ADAG companies etc due to excessive over leveraging & high debt on books. From peak levels of Jan 2018, mid cap and small cap stocks have witnessed severe correction over the past 20 months in spite of many small and mid size companies delivering better bottom line compared to large caps.

While major index Sensex hits life time high and Nifty is just few percentage away from its peak delivered returns of 19% (33,813 to 40,248) and 15% (10,435 to 11,917) respectively since 1st Jan 2018, BSE Mid Cap and Small Cap index is still down delivering negative returns of -17% (17,836 to 14,724) and -30% (19,280 to 13,310) respectively during the same period. With divergence of ~49% since Jan 2018 between small caps and Sensex large cap stocks, its very likely that we can see strong out performance from small and mid-caps delivering significantly higher returns over next 12 to 24 months compared to large caps.

Economic Revival will lead to Outperformance of Mid & Small Caps in FY 2020-21

With GDP growth falling to 6 years low of 5% in the June quarter, equity funds continue to shift their preference towards selected large / mega caps where there is certainty of earnings & growth, also termed as quality by market experts.

Fund flows in equity market over last 2 years have taken risk off mode where certainty matters the most irrespective of expensive valuations of these companies. Hence, we have seen Nifty / Sensex touching new highs this year (due to the rise in stock prices of handful of companies having high contribution in index) where as broader indices i.e. BSE Mid & Small Cap Index sliding down further making new 52 week lows this year.

Due to fear and extreme pessimism in the stock market, we have seen money chasing quality stocks since Jan 2018. However, once we see the economic revival, market will turn quickly to risk on mode and we will see funds flowing back to mid and small caps available at historically low valuations. We believe underpriced moderate growth stocks will deliver far superior returns than overvalued high growth stocks in coming years. Current undervaluation of many of our recommended stocks give us further comfort to keep on holding & accumulating them during these painful period.

Investors participation in broader market is expected to improve significantly with initial signs of revival in GDP growth. That spells opportunity, as many good stocks from the mid and small cap segments are still ruling at multi-year low valuations, offering buying opportunities. Hence, this is the best time to build up equity portfolio gradually by investing in high quality small and mid caps backed by strong business fundamentals.

Small Size Company - A Secular Growth Stock with 5-Bagger Potential

We are pleased to inform you that during these opportune times, we picked one of a small cap company which offers unique investment opportunity with potential of delivering 5-Bagger returns over period of next 5 years. Below are some of the reasons considering which we believe the company offers multibagger investment opportunity currently available at attractive valuations with huge upside potential.

1. The company operates in non-cyclical business, has a moat with well established brands, and strong growth potential with rising demand of its products. Being in B2C business, rising disposable income and consumer preference shifting towards premium products will support company to achieve robust revenue growth and profitability over next 3 to 5 years.

2. Favourable developments in the sector, recession proof business catering to domestic demand, significant capacity addition in past, thrust on becoming a pan India player from regional player and launch of new products with focus on end consumer are some of the reasons which make this company a right investment opportunity for medium to long term investors.

3. The company has made significant investments increasing its capacity over last couple of years and continue to do so during this year as well. By end of FY19-20, the company will have nearly 3 times capacity of its FY18-19 annual sales with current debt to equity ratio of 0.5.

4. The company has robust fundamentals as it enjoys strong cash flow from operationIts revenue and profitability has grown by more than 15% in the last 3 years, company’s bottom line is expected to grow well above 25% in coming years considering recent capacity addition and ongoing expansion with entry into new geographies. It has strong financials with ROE and ROCE of more than 15%. The balance sheet is strong with comfortable debt to equity ratio to support future growth.

5. The company is a small cap company with market capital to sales ratio below 1, where as other mid size players are commanding market cap to sales ratio of ~3. In last 8 years, the company used to command market cap to sales ratio of 2.5 to 3 with higher price to book and PE ratio but due to severe correction over last 20 months, the company is now available at decade low valuations. 

6. The company is paying dividend every year and dividend yield is maximum at current price compared to all other listed players in the Industry. The company has recently paid dividend for FY18-19. Moreover, possibility of higher dividend payout for current financial year cannot be ruled out considering increase in earning estimates compared to previous years.

Also, while looking at trading volumes and shareholding patterns, we find that stock is getting accumulated since last couple of quarters and is on the verge of giving strong upside in short to medium term with positive news flow / quarterly results.

1. The company has registered lowest trading volume in NSE over last few months in past two years, similarly volumes are significantly low in BSE also. In last few months, the company recorded lowest daily volumes in past 2 years. This indicates that buyers are waiting for lower prices to buy however there is no seller also to sell the stock at current price.

2. Some of the Institution / big investors have invested in the stock during last 12 months keeping a long-term view considering improved business fundamentals and higher earning visibility, hence availability of shares in market is decreased. In such a case, any positive news flow from company / management can bring significant upside in stock price in near term.

3 Total no. of shareholders continue to reduce over last few quarters indicating that weak hands (small retail investors) continue to exit selling their shares to strong hands (HNIs / Institutions) confirming accumulation of stock at current levels. 

To sum up, our recent recommendation under Potential 5-Bagger stock in 5 Years report is a great buy at current valuation and we presume it to be a wealth creator for our subscribers over next couple of years. The company not only offers significant upside in short term considering attractive valuations but also has the potential to create significant wealth by delivering upto 5x returns over next 3 to 5 years.

To receive our potential 5-Bagger stock along with the detailed research notes and relevant follow-up updates, you can subscribe to our Hidden Gems, Value Picks or Wealth-Builder service.

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook. Wealth-Builder is our offline portfolio management service under which we suggest higher investment allocation in selective small & mid caps having strong fundamentals to build a robust and diversified portfolio.

Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden GemsValue PicksWealth-Builder annual subscription services. Avail attractive discounts by subscribing to our combo packs. Below are the details of our annual subscription charges, simply click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
ANNUAL SUBSCRIPTION
PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden Gems
Rs. 10,000
Value Picks
Rs. 6,000
15% @ 90 Days
Rs. 4,000
Wealth-Builder
Rs. 20,000
Combo 1: HG + VP + WB + 15%
Rs. 32,000
Combo 2: HG + VP + 15%
Rs. 16,000
Combo 3: HG + VP
Rs. 14,000
Combo 4: HG + 15%
Rs. 12,000
Combo 5: VP + 15%
Rs. 9,000

In case if you are not comfortable in subscribing online, you can make the payment through cheque / cash deposit / NEFT transfer in any of our bank and writing back to us sharing transaction details. Click here for bank details.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan