4 Ways to Pick Multibagger Stocks
Created on 22 Feb 2019
Wraps up in 4 Min
Read by 5.3k people
Updated on 19 Jun 2021
The ultimate goal behind investing is obviously generating returns. Who doesn’t want to put as few resources as possible and generate more than it’s capable of? Everyone does, right? This is particularly true when it comes to sharing markets.
So, there’s one energy portion that can turn the tables and fetch you good returns even more than 100%. Ya, you heard it right. It’s all about picking ‘Multi-baggers.'
The word, which was engineered by Peter Lynch as early as 1988, soon became the mantra of investing for many. Multi-baggers are those stocks that have the ability to fetch enormous returns in the near future. While the very concept seems easy, finding one is not; remember there is only a difference in vowels between a 'multi-bagger' and a 'multi-beggar.' But in reality, both are exactly the opposite!
If you haven't been able to pick one for yourself, worry not. We will help you to figure it out.
Is it an aspirational brand?
If yes, then have them in your portfolio. We will tell you why.
Irrespective of the opportunity cost involved, the majority of us would see IPL over other shows. Not because we like cricket, but we love it. Some fans even idolize it. In such a scenario, assume that IPL is a stock listed on the NSE. Don’t you think it will fetch a good return for its investors? Absolutely, yes.
Aspirational brands are no different. These brands have a fan base that follows them religiously and a group looking forward to joining the same sooner or later. The best example is Apple iPhones. People don’t mind cutting their expenses only to purchase the all-new iPhone in the market.
Adding to that, another example which you can look at is Titan watches. Though it is a really small thing, many people adore branded watches and aspire to own one. In the past 10 years, the stocks of Titan have increased 9 fold, proving it to be a multi-bagger. These brands enjoy a high pricing power along with huge volumes of sales.
Look out for a domino effect
Have you seen the domino? Pushing one causes a chain reaction on others. This can be seen in the market as well. You must pick stocks that have a network effect. Let’s take the same Apple iPhone, for instance.
Any iPhone buyer cannot say a no to the other add-ons that come along with it. You will have to purchase everything from iCloud to Airdrop to fully gain the experience associated with the same. The same applies to Google as well. Whenever you buy a phone irrespective of its use, you will have to open a Google account, link it with it, use the Google play store, maps, web search, and whatnot. Everything is indirectly fetching Google profits. Unlike the case in iPhones, it’s hard to keep yourself disconnected from Google (Unless you quit using phones).
All of this rounds up to one thing, multibagger. These companies have huge potential to grow many folds in the future and fetch their investors a good return.
What does your stock have to offer?
Yes, a company's past performance is crucial and cannot be ruled out under any circumstances. So do the future performances. Just because a company XYZ minted cash in the past does not mean it will be a hit in the future. It relies on the industry, economy, and, most crucially, the product it has to offer.
Tesla stocks are not hitting high circuits for no reason. People, particularly investors, look at it as a company of the future. Any company offering a product that has huge future value or potential for growth can be a possible multi-bagger. So be keen to look out for such stocks.
Apart from all these, any company with unconventional products that can attract crowds, good capital, and business structure are all something you can look out for in a stock.
Industry and economic changes
Sometimes significant economic changes can give rise to multibagger stocks. Industrial changes or any company-specific events can make a stock a potential earner. Nestle can be told as one of the examples. After the problem with one of its products(Maggi), the stock saw a steep fall. But it was quick enough to regain the loss. People who were prompt enough in understanding the same made a jump into the markets.
Similarly, due to economic changes, the demand for SAIL and Hindustan zinc saw huge demand. This put both the companies on the list of multi-baggers where prices went up by 28 times (during 2002 – 2007).
As investors, it is crucial to have an eye for all these sorts of companies as they are difficult to find. They are easy to miss until they make the headlines out of nowhere for the high returns they offered.
A note of caution
While the above strategies help you find a good stock, it's important to stay connected to your basics. Always analyze your potential investments! Right from ratios to balance sheets, an investor must do proper research to back his findings. Jumping on stocks without research is like jumping into the ocean without a life jacket. You might survive, but there is also a high chance that you might drown.
The strategies are good enough to help you find your way. But sometimes, we are fated to be lost. Similarly, in the case of multi-baggers, too, there is a high chance that your prediction might falter. Hence you must operate cautiously.
So which stock(s) do you think will be future multi-bagger(s)? We are curious to know your thoughts.
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