Amidst rising inflation and economic unpredictability, everyone seeks to invest in multibagger stocks. According to market research, approximately 15 million Americans actively utilized trading applications during the COVID-19 outbreak. The majority of them were young, inexperienced traders. In addition to Europe, India, and the Philippines, hyperactivity among retail investors has been noted in Europe, India, and the Philippines, where purchasers have doubled their regular trading volume.
In the realm of investing, multi baggers are the most coveted, but finding one early enough is difficult. If you are investing in stocks, you may like to invest in the highest-yielding stocks. Multibagger stocks are stocks that increase in value. The term “Multibagger Stocks” is widely used by stockbrokers. Nevertheless, spotting such Multibagger stocks for the medium to long term is difficult. What are Multibagger stocks? How may such multibagger stocks be identified? Can money be multiplied by investing in these Multibagger stocks?
What is a multibagger stock?
In 1988, the word Multibagger was first coined. In his best-selling book One Up On Wall Street, the term was coined by the brilliant Peter Lynch. The concept underlying this word was adopted from baseball. In this game, the number of bases or bags a runner collects will determine the outcome. Lynch attempted to apply this notion to the stock market by designating some stocks of Multibaggers. It indicates that these stocks are equity shares of a company that delivers returns multiple times more than the initial purchase price within a short period of time.
A ten-bagger, for instance, is a stock that returns ten times the initial investment.
Multibagger stocks are only issued by corporations with large fortieth potential, highly efficient production methods, and trustworthy management. All of these aspects indicate the company’s development expertise and research, which helps them to generate skyrocketing sales. Due to the concept’s extreme idealism, some academics refer to it as a “stock market unicorn.”
For the uninitiated, a multi-bagger is a stock that yields returns that are multiples of the initial investment. For instance, if you purchase a share of stock at a market price of Rs. 50, your cost basis is Rs. And if it increases to Rs.700 in a short period of time, it is said to be a multibagger stock. These companies typically exhibit distinctive qualities, such as solid financial performance, dependable and competent management, efficient capital allocation strategy, and substantial free cash flows.
Companies such as Eicher Motors, MRF Ltd, Asian Paints, Pidilite Industries, and Bajaj Finance are examples of multibagger stocks that have experienced extraordinary development throughout the years. All of these stocks have generated substantial returns throughout the years and are therefore included in the list of multibaggers. If you had invested Rs 10,000 in these stocks in 2010, you would now be worth lakhs.
It is essential to note that these names did not appear out of thin air. It took these companies decades to become acknowledged names and pioneers in their respective industries. Even when they were not household names, these enterprises showed tremendous promise and growth potential. Those who were able to recognize them and choose to remain invested were rewarded.
Then, what causes a stock to generate such enormous returns, and how can one find multibagger stocks?
There is no assurance of profits once you enter the stock market, but there are key indicators that can help you identify a multibagger.
Features of multibagger stocks
A substantial potential market
The surest method for a corporation to become extremely large is to control a market early on, followed by the market’s rapid expansion. Amazon and Google both achieved market dominance shortly before their respective niches exploded in size.
A deep moat
If a business has a wide moat, it has something that stops rivals from gaining market share. This would enable the organization to maintain market share and high-profit margins despite a growing market.
Product market compatibility
If a product is well-suited to a market, clients will instantly see its value, and it will be simple to sell. If there is a solid product-market fit, additional obstacles are typically surmountable. There is a good likelihood that a competitor will develop a superior solution if none exists.
Strong “get to market” strategy.
For a company to experience rapid expansion, it must have the proper distribution plan and sufficient finance. If a company enjoys network effects, this can potentially accelerate its growth.
Rapidly expanding businesses typically have visionary CEOs who can keep employees and investors motivated during difficult times.
Once upon a time, capital-intensive companies such as railways and mines yielded exponential returns. Many of the strongest growth stocks today own minimal assets. This indicates that their operating margin increases as their business expands. Also, cash flows are not required to be reinvested.
What you should know about multibagger stocks
Before you begin investigating multi-bagger stocks, you should be aware of the following:
Multi-baggers are companies having a strong financial position and a robust business plan that can be scaled rapidly.
“Time plus continuous increase” is what makes a stock truly multibagger. If a company sustains steady growth over an extended period of time, it will likely become a multibagger in the future.
It takes these stocks between 5 and 15 years to become multibaggers. Therefore, a significant degree of patience is required while investing in these stocks. If you expect to realize a profit of 60 to 70 percent after 10 to 12 months, you may never be able to acquire stock with multiple-bagger potential. Perhaps you will find it, but you will not be able to maximize your profit from it.
To hold multibagger stocks, you must understand the underlying business.
Only then will you have the self-assurance and patience to hold the stock for several years.
Small and mid-cap companies have historically produced the greatest number of multibagger stocks. However, this does not exclude large-cap stocks from becoming multibaggers.
If you have missed a few multi-baggers in the past, do not feel bad. Even if you are only able to find and keep a single multibagger stock, your entire portfolio returns will be astounding.
Consider what the market has to offer
The first and most important thing to comprehend is not the stock itself but the industry to which it belongs. Comprehend the next trends and which industries stand to gain the most from them. For instance, there is a growing push to electrify the automobile industry. So it appears that electric mobility will acquire traction (not that we endorse it!). Ensure that the company you are betting on operates in one of the following industries.
Consider the company’s product portfolio
The next step is to examine a company’s stock and product portfolio in further detail. The objective is to determine whether or not they possess a possible competitive advantage based on their core capabilities. Look for the most recent advancements in the sectors you are interested in, and then search for the companies that appear to be the strongest contenders for growth and expansion.
Examine the debt levels
The debt ratio represents the proportion of an organization’s operating capital that is composed of debt. Typically, a ratio of 0.5 or below indicates less debt in the capital structure of a corporation. The greater the debt, the greater the likelihood that the company’s cash flow will be unstable. A good and free-flowing cash flow indicates the potential for growth.
Consider the earnings and market value.
The next stage is to analyze its most current financial statements and determine its earnings growth. A rising EPS is a superb indicator of the growth of wealth. Determine thereafter which stocks are undervalued. If the company’s shares are undervalued, there is a strong possibility that they will become a multibagger stock.
Consider future possibility
Past financial statements are indicative of current performance, but they do not necessarily predict the future. It is not an IPL auction, and you are not required to wager just on prior performance. To find a company’s genuine potential, examine its management and promoter holdings. It is more likely that a competent management team will promote growth and bring about success. Additionally, seek out organizations with substantial promoter holdings, as this is an indication of their confidence in what they are attempting to develop. The promoter holding filter on Ticker Tape allows you to determine the proportion of the company’s common stock held by promoters.
Are Multibagger Stocks an Appropriate Investment for You?
Multibagger stocks are the optimal investment for any individual or business. The improved profits on these stocks will raise your wealth by one hundred percent. No other stock will provide such big returns in such a short period of time. To ensure that your returns are multiplied multiple times, you must hold the multibagger stock for a minimum period of time. From the turnover of cash to the final product sold on the market, it will assist you in gaining substantial profits.
Risks of investing in multibagger stocks
Here are some of the possible dangers associated with investing in multibagger stocks.
It necessitates mass purchases, exposing the investor to significant risk if the stock crashes. When investing in penny stocks, investors adhere to the maxim, “the bigger the risk, the greater the return.” However, it can quickly become a burden if the stock begins to decline.
Due to the strong transitory demand for the underlying product or service, many individuals invest in a value trap or economic bubble. It is frequently the result of institutional investors creating a false bull situation and then pulling the trigger through short selling.
The investment is secured for an extended period. The majority of multibaggers require more than two decades to mature. Therefore you should avoid selling them in the coming years. It also causes you to have a capital blockage.
Trick trades, such as false inflation generated by others’ investments, are possible. The majority of these are small-cap stocks with minimal market capitalization, making them susceptible to manipulation.
In their first days of trading, many stocks suffer from low liquidity and performance concerns. This means that every rumor about them has the potential to cause a price decline. Such stocks may require months to recover.
Best multibagger stocks to watch
1. Devon Energy Corporation (NYSE: DVN)
Devon Energy Corporation (NYSE: DVN) is an American energy exploration corporation focusing on hydrocarbons. Devon Energy Corporation (NYSE: DVN) is involved in the petroleum, natural gas, and natural gas liquids industries.
On December 8, Devon Energy Corporation (NYSE: DVN) declared a $0.74 per share quarterly dividend, payable on December 30 to shareholders of record as of December 10. The $0.74 per share dividend is a 71.4% increase over the prior quarter’s $0.49 per share payout.
Devon Energy Corporation (NYSE: DVN) stated on November 2 that its third-quarter earnings per share (EPS) of $1.08 exceeded expectations by $0.15. The revenue for the quarter was $3.47 billion, an increase of 224.84 percent from the previous quarter and $546.05 million above projections.
On November 30, Mizuho analyst Silvio Micheloto increased Devon Energy Corporation’s (NYSE: DVN) price objective from $59 to $61 and maintained a Buy rating on the stock. He anticipates that the rise of unconventional oil in the United States would “continuously lag behind the demand on supplies required to balance global markets.”
In Q3 2021, 48 hedge funds tracked by Insider Monkey were bullish on Devon Energy Corporation (NYSE: DVN), a decline of 10% from the previous quarter when 50 hedge funds were bullish. GQG Partners, the largest shareholder in Devon Energy Corporation (NYSE: DVN), boosted its holdings by 87103 percent in the third quarter. GQG Partners controls roughly $494 million worth of 13.9 million Devon Energy Corporation (NYSE: DVN) shares.
2. Grindrod Shipping Holdings Ltd. (NASDAQ: GRIN)
Grindrod Shipping Holdings Ltd. (NASDAQ: GRIN) offers a return of 293.28 percent in 2021, making it one of the top multibagger stocks to acquire. Grindrod Shipping Holdings Ltd. (NASDAQ: GRIN) is a freight logistics and shipping company headquartered in South Africa.
Grindrod Shipping Holdings Ltd. (NASDAQ: GRIN) reported earnings per share of $2.28 for the third quarter, topping analyst projections by $0.19. The period’s revenue was $135.14 million, exceeding projections by $19.06 million.
Randy Givens of Jefferies began coverage of Grindrod Shipping Holdings Ltd. (NASDAQ: GRIN) on October 28 with a Buy rating and a $20 price target. The analyst expects a bright future for dry bulk shipping and describes the company’s finances as “ironclad.”
According to data compiled by Insider Monkey during the third quarter, ten hedge funds reported holding interests in Grindrod Shipping Holdings Ltd. (NASDAQ: GRIN), up from two funds in the previous quarter.
3. LendingClub Corporation (NYSE:LC)
LendingClub Corporation (NYSE: LC) is a peer-to-peer lending firm established in California that offers a business strategy that allows consumers to borrow unsecured personal loans of up to $40,000.
According to data compiled by Insider Monkey for the third quarter, 25 hedge funds reported ownership in LendingClub Corporation (NYSE: LC) worth $437,3 million, up from 23 funds in the preceding quarter that held shares worth approximately $375 million.
LendingClub Corporation (NYSE: LC) posted earnings per share of $0.26 for the third quarter, above expectations by $0.13. These results were reported on October 27. The period’s overall revenue was $246.17 million, up 246.17 percent year-over-year and exceeding expectations by $24.20 million.
On December 21, Wedbush analyst David Chiaverini began covering LendingClub Corporation (NYSE: LC) with an Outperform rating and a $40 price target, down from $50. The analyst praised the LendingClub Corporation (NYSE: LC) new business strategy following the acquisition of Radius Bank earlier this year, citing the company’s strong projected growth, superior credit quality relative to competitors, and “fair” value.
Cathie Wood’s ARK Investment Management is the largest LendingClub Corporation (NYSE: LC) shareholder as of Q3 2021, with 2.88 million shares worth $81.5 million.
In addition to Devon Energy Corporation (NYSE: DVN), NVIDIA Corporation (NASDAQ: NVDA), and Ford Motor Company (NYSE: F), LendingClub Corporation (NYSE: LC) is one of the greatest stocks to invest in for multibagger returns.
4. Ring Energy, Inc. (NYSE: REI)
Ring Energy, Inc. (NYSE: REI) is a Texas-based oil and gas firm that offers crude oil and natural gas liquids from its Permian Basin of Texas and New Mexico holdings.
On November 9, Ring Energy, Inc. (NYSE: REI) announced its Q3 2021 earnings. The company reported a profit per share of $0.18, above expectations by $0.10. The income increased by 56.92 percent annually to $49.38 million, beating projections by $5.65 million.
On October 14, analyst John White at Roth Capital raised Ring Energy, Inc. (NYSE: REI) from Neutral to Buy with a $4.75 price target. According to the analyst, Ring Energy, Inc. (NYSE: REI) renegotiated more advantageous crude oil transportation agreements, including lower pipeline tariffs and trucking fees, and made major changes to senior management.
According to the hedge funds tracked by Insider Monkey, Two Sigma Advisors was the largest shareholder in Ring Energy, Inc. (NYSE: REI) at the end of September. In the third quarter of 2021, Two Sigma Advisors boosted its investment in the company by 876 percent to 1.69 million shares worth over $5 million.
5. Signet Jewelers Limited (NYSE: SIG)
Signet Jewelers Limited (NYSE: SIG) made our list of the greatest multibagger stocks, with a return of over 239.93 percent over the past year. Signet Jewelers Limited (NYSE: SIG), headquartered in Ohio, is the largest diamond jewelry retailer in the world. The corporation owns jewelry brands such as Zales, Kay Jewelers, Jared, and JamesAllen.com and is a leading diamond distributor in the U.S., Canada, and the United Kingdom.
On December 2, Signet Jewelers Limited (NYSE: SIG) reported earnings per share of $1.43, exceeding expectations by $0.71. The quarterly sales surpassed expectations by $110.62 million, up 18.27 percent year-over-year to $1.54 billion.
Citi analyst Paul Lejuez boosted the price objective on Signet Jewelers Limited (NYSE: SIG) from $93 to $100 on December 3 and maintained a Neutral rating on the stock. The analyst considers the company’s projections to be conservative.
Signet Jewelers Limited (NYSE: SIG) stated on November 18 that it had completed its $490 million cash acquisition of American diamond specialty retailer Diamonds Direct. Diamonds Direct operates 22 mature stores with median yearly revenue of about $18.5 million over the last twelve months, which will assist Signet Jewelers Limited (NYSE: SIG) increase its operations and strengthen its fundamentals.
In the third quarter, 33 hedge funds tracked by Insider Monkey held long positions in Signet Jewelers Limited (NYSE: SIG), worth a total of $1.16 billion. Robert Joseph Caruso’s Select Equity Group is the largest shareholder in Signet Jewelers Limited (NYSE: SIG), with 5.23 million shares worth almost $413 million.
In addition to Devon Energy Corporation (NYSE: DVN), NVIDIA Corporation (NASDAQ: NVDA), Ford Motor Company (NYSE: F), and Signet Jewelers Limited (NYSE: SIG) is, a top multibagger stock pick of hedge funds (NYSE: F).
Multibagger stocks might be an attractive investment opportunity. To find a true multibagger stock, however, you must evaluate the key metrics of a specific company. Additionally, you must invest in these stocks with reasonable expectations and a long-term vision. Always find a trustworthy and dependable financial partner prior to investing in stocks. Consider features such as all-in-one trading platforms, free Demat and trading accounts, adjustable brokerage costs, cutting-edge technology, comprehensive market reports, etc.