The Big Bulls of BSE - These 30 multibaggers will fetch you money in long-term
These multibaggers are companies which will fetch you money in your kitty in long-term, even if there is twist and turns in Dalal Street.
A stock that makes you rich, is a stock worth staying invested for! These stocks should be selected in such a way that they can bear every hindrance of market. The concept of safe haven is such that investors globally practice it for investment in order to remain safe and see rise in their stocks, even in market volatility or downturns. Such should be an exercise of every investor when it comes to have hunger for equities. But, the question remains the same which stocks will be your safe haven on stock exchanges. The answer is not too difficult, because after carrying out an intensive calculation, the analysts at Ambit Capital have arrived at 30 multibaggers who are greater than market itself. These multibaggers are companies which will fetch you money in your kitty in long-term, even if there is twist and turns in Dalal Street. These multibaggers in fact can be best described as ‘The Big Bulls of BSE’.
Before knowing the names of these 30 money-making stocks, first you need to understand how they were qualified. The approach to identify these great stocks were based on six formulas namely - incremental capex, conversion to sales, efficiency in capital employed, pricing discipline, balance sheet discipline, cash generation and profit improvement.
Ambit ranked the entire universe of firms with market cap greater than Rs 100 crore (excluding financial services firm) on this score to arrive at the this year’s rankings on this measure of improvement in company’s RoCE or profitability.
With this calculation, some 407 firms from the BSE 500 and 1009 firms from the sub-BSE 500 universe were ranked based on greatness scores.
In BSE 500, the cut-off for greatness was kept at 67% and only 72 firms which accounted 18% of total population of 407 firms could manage to score above the cut-off.
“Of the great firms from BSE 500 index, we identify ones that perform on our accounting and corporate governance filters, which leads to our final list of 30 great companies,” said Ambit.
Since January 2012, these 30 companies have managed to outperform the BSE 500 index by a massive 10% point per annum on a cumulative basis. Even, they have outrun BSE Small-cap index by a whopping 19% per annum.
On the top of the list would be seven companies namely Advance Enzyme, Johnson Controls, CCL Products, Venkys India, PVR, Sudarshan Cements and Natco Pharma who have each 92% of score. Meanwhile, 83% score was on stocks like Jyothy Lab, Timken India, Avenue Supermart, Avanti Feeds, Heidelberg Cement, Sheela Foam, Sundaram Finance, Britannia Industries and La Opala RG.
Stocks like Nilkamal Ltd, Wabco India, Dhanuka Agritech, JB Chem & Pharma, Godrej Agrovet, Dr Lal Pathlabs, Somany Ceramics, Torrent Pharma, Kansai Nerolac, Maruti Suzuki, Kajaria Ceramics, 3M India, Whirlpool and Atul who had a 75% greatness score each.
In Ambit’s view, whilst valuation do matter on a tactical basis, how the underlying fundamentals evolve for the firm over long period plays a more important role in determining returns than the beginning-of-the-period valuation itself.
Parameters for great stock!
There are few ratios which explains the worth of buying a stock. Let’s understand them!
Price-to-earning (P/E) ratios - This indicator helps an investor for knowing the market value of a stock in comparison to the company’s earnings. This simply shows, the willingness of market to pay today for a stock-based on its past or future earnings. If the P/E ratio is high, this means the stock is overvalued because its price is relatively higher to earnings. If the P/E is low, then the stock is undervalued. In case of overvalued, it is not a wise thing to invest in the company, because gains are minimum.
Price-to-Book Ratio - This indicator also helps in identifying the worth of a stock whether they are over or undervalued. However, they are calculated by comparing net assets of a firm to the price of all outstanding shares. This ratio is accumulated by dividing a stock with its net assets or total assets minus total liabilities. Reason behind having this ratio is that, an investor understands the difference between market value of a company’s stock and their book value. Market value is the price which an investor is generally looking to invest in a company to gain a future value.
Debt-to-equity ratio - It is used to know how a company finances its assets. If this ratio is low, this means a company uses less of debt for financing their assets versus equity held by shareholders. If the ratio is high this means, that a company uses major money from debt to finance versus equities. Too much usage of debt can pose a risk for a company in future course, if they do not have enough cash flow to fund their debt obligations. Hence, one generally avoids a stock with major chunk of debt.
Free cash flow - This one is a very important tool, as it shows a company’s behaviour of carrying out a business. The net cash which is with company is derived after deducting every expense in a particular quarter. The free cash flow reveals the efficiency of a company in generating cash, after funding operations and capital expenditures. This also helps in restoring the faith of an investor to know the value of a company in future, as typically higher cash flow means increased earnings ahead.
According to Ambit, the free cash conversion, RoE, RoCE, debt-to-equity ratio of these 30 companies cumulatively stand at 67%, 21%, 27% and 0.0 respectively in 2018. This is way higher than the benchmark BSE 500 which had cash conversion of 6%, RoE of 15%, RoCE of 20% and debt-to-equity ratio of 0.6 in the same year.
On the other hand, the P/E and P/B ratio for FY19 is seen ranging from 1 times to 89 times for these stocks. On individual basis, even debt-to-equity ratio, CAGR has been stable.
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Ambit says, In effect, what our model has shown time and again is that once you screen rigorously for high quality, there is little value-add in further screening through a demanding valuation filter.”
Over long periods, Ambit says, “it is how the underlying fundamentals evolve for the firm that plays a more important role in determining returns rather than the beginning period valuation itself. Put another way, over long periods how a business fundamentally performs is overwhelmingly the most important drive of investment returns (so much so that the price at that time of entering the stock becomes almost irrelevant.”
Thereby, in next ten years, the above mentioned multibaggers will be make you rich heavily, some investors may even become crorepati. The key to stock exchanges is identifying a longer goal, then cry over short term turbulence. Currently, both benchmark indices Sensex and Nifty have witnessed price correction, and are trading near 37,000-level and 11,000-mark. Above mentioned stocks have also seen correction, and hence, there is massive buying opportunity right now.
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