How to find the best multibagger stocks for 2022?
"Multibagger stocks can help investors to create phenomenal wealth over the medium to long term. However, it is important to spot them at an initial stage before they become the favourite of the market," asserts Achin Goel, Fund Manager of Bonanza Portfolio Ltd.
Here are some key factors to consider while looking for the best multibagger stocks for 2022:
Look for companies with a competitive edge
Companies with a competitive edge in the form of high entry barriers or exclusive technology can stay miles ahead of the competition even as they scale up their business. Such companies with a competitive edge can become multibagger stocks with time.
Check the debt levels of the company
Companies with high debt have to use a significant portion of their earnings for servicing the debt. On the other hand, companies with positive and free-flowing cash flow can use their earnings for expansion of capacity and thereby scale up their business model.
Look for professionally well-managed companies
The quality of management plays a crucial role in the success of a company. Visionary and experienced management with a history of good corporate governance can take a business to new heights of success. Some prime examples of professionally well-managed companies which turned into multibagger stocks in the past include Asian Paints, Infosys, Eicher Motors and Maruti Suzuki.
Does the company have efficient return ratios?
Ratio analysis is a crucial step in identifying multibagger stocks. Investors should look for companies where return ratios should be constant or increasing on a Y-o-Y basis.
Look for companies with consistent growth in earnings
Higher earnings growth with PE expansion typically leads to a higher market capitalization. So investors should look at higher earnings growth consistently over a long term period.
Key sectors which are likely to give rise to multibagger stocks:
With hostile neighbours in the country’s west and north, India ranks among the top 3 highest military spenders in the world. Given the immense demand in the defence sector, the government has identified it as one of the core areas for achieving self-reliance. Government has set an ambitious target of achieving a turnover of US$ 25 billion by the year 2025 which includes the export of US$ 5 billion in aerospace, defence equipment and services.
In the budget 2021-22, the government hiked the defence capital outlay by 18.75 per cent compared to the previous year which is the highest ever increase in the last 15 years. The above measures along with the opening up of the Indian defence industry offers a huge opportunity for companies in the defence sector in India.
Well-developed infrastructure is the backbone of a developed country and an important driver for the economy. In its Union Budget for 2021, the government has given a massive thrust for infrastructure sector development by allocating Rs 233,083 crore to enhance the transport infrastructure. As India transitions from a developing country to a developed country over the next few years, some companies that are engaged in the country’s colossal infrastructure growth are also likely to grow massively, generating multibagger returns.
Electric Vehicles (EV)
With lower running costs and zero emissions the EV industry looks poised to disrupt the market for vehicles with internal combustion engines that run on fossil fuels over the next few years. According to a study released by the CEEW Centre for Energy Finance, India’s electric vehicle market is estimated to be worth Rs 14,42,000 crore by 2030 with sales in all EV segments expected to surpass 100 million units by FY30. This presents a massive market opportunity for companies in this segment including battery manufacturers, Original Equipment Manufacturers (OEMs), charging infrastructure providers etc.