How to Buy Cheap Stocks

How to Buy Cheap Stocks

The name of cheap stocks might cause some confusion. The common understanding of cheap stocks is of little help to boost the assets of an investor’s portfolio. Successful cheap stock trading has nothing to do with blindly buying any stock just because of its low share price. The key of cheap stock trade is to find the undervalued stocks with promising potentials.

Peter Lynch – Master of Cheap Stock Trading

Peter Lynch is considered to be the best fund manager in the world. Under his management, the assets of Magellan Fund had increased from $18 million to $14 billion in thirteen years (1977 – 1990). Lynch’s investment philosophy is quite simple and straight forward. He believes in “Invest in what you know”, which echoes with what Warren Buffett preaches and practices “Never invest in a business you cannot understand”.

In One Up on Wall Street and Beating the Street, Lynch revealed the secret of his super performance is largely due to a series of successful cheap stock trading. Lynch coined an investment term called “10-bagger”, which refers to a ten fold return of the initial investment. Lynch had found more than a hundred “10-bagger” stocks during his career, just to name a few, Fannie Mae, General Electric, Ford Motor, Dunkin’ Donuts, Taco Bell, and Philip Morris International.

Normal investors would brag a lot if they could lay their hands on one or two of “10-bagger”, while many would never have this kind of experience in their lives. The fact that Lynch can find more than a hundred of them makes him a live legend of cheap stock trading.

Cheap Stock Trading Example with Forty-fold Return

While Lynch reigned as a fund manger, the market never ends to produce “10-bagger” stocks. Sina Corp. (SINA) is an excellent example after 2000. During the debacle of dot-com frenzy, the share price of SINA crashed from its all-time high $47.87 down to $1.07 in less than one and half year (May, 2000 – Sep, 2001), which qualified it as a cheap penny stock. Since SINA is a leading information service provider in China, during the next two and half years, SINA made a round trip back to $47.69 by Jan, 2004. For shrew investors, SINA would be a handsomely “forty bagger”, and multiply their investment portfolios many times in less than three years.

A thorough understanding of principles of value investing and Peter Lynch’s investment philosophy is indispensable to buy cheap stock successfully. For investors who rush to search for the next “10-bagger” best cheap stock, they might find their cheap stock picks aren’t cheap at all. It takes time and great efforts to buy cheap stock effectively. Be well prepared and do your homework, you might be able to add the next good cheap stock to your investment portfolio.

http://hubpages.com/hub/How-to-Buy-Cheap-Stocks

Some Ten-Baggers For You

August 2nd, 2009 at 6:31 pm

Some Ten-Baggers For You

A cognoscente is someone who has specialized knowledge. I’m not perfect. I wish that I had sold all of my stocks at the end of 2007 and started buying in March of this year. One of my 401K’s was down almost 50% last year, and a two of my stocks were down 66%. It’s always my feeling though that you need chips on the table, good or bad, or you don’t even have a chance of winning. One thing I’m proud of is that I held on to everything I had, and began a buying program in the face of the worst market since 1933. I’ll let you be the judge if I qualify as a card carrying member of the stock market cognoscenti.

If you review my blogs since I began, you will see that by and large, most of my recommendations and picks have panned out, many of them, spectacularly. I conservatively stated that most of my picks would gain 50% or more in one year, but many of them doubled, tripled and even quadrupled in the last 7 months !! If I had a lot of money to invest, I would have bought all of my own picks, but like you, I can only buy a few at a time.

You might think it’s time to sell. But you would be wrong. Let me give you some insight as to why I was so optimistic when I started.

As you know, I have been a student of the stock market and investing for over 35 years. You don’t have to work on Wall Street to be good at this game. Look at the smartest cognoscente in the world, Warren Buffet, he’s been watching from Omaha for the last 50 years and is to investing what Einstein was to Physics, a genius. What I’m getting at is the “bird’s eye view.”

As we descended into the abyss last October, everyone was asking “Is this going to be a repeat of the Great Depression ? “ I’m fully aware of the economic history behind that debacle. My answer was no. The reason for my optimism is that there was just too much money around. And there still is.

Once you take my supposition, and if you believe we’re emerging from a Great Recession rather than a Great Depression, then from my bird’s eye view, what was happening to the market was an outlier. Statisticians know what outliers are. They are temporary deviations from trend due to a cataclysmic type cause. Think of the market drop after Kennedy was assassinated. Think of September 11th. Last August, it all had to do with Treasury Secretary Paulson suddenly getting capitalist religion and deciding, wrongly, to let Lehman Brothers go under.

Let’s return to the present. Because the market has gained so much, you would think, under normal circumstances, that we’re going to have another crackdown. I don’t think we’re going to get a crackdown at all. We might get a 10 or 20% drop at some point. That mild drop (comparatively) won’t come until the outlier is erased, possibly as early as Labor Day, but more likely by the end of this year.

Cognoscenti have knowledge but to survive in the stock market, you have to have insights, hunches, or revelations. My current revelation is that we will not return to normal in this stock market until we have fully climbed the proverbial Wall of Worry. There are still too many people that are negative and think the market will drop. And the higher it goes, the more negative they get that it will drop. However, it will not drop, until they give up and transfer all their 401K money back in because they are afraid they’ll miss the next up wave.

If you are a novice to the stock market, what I’m saying to you may be contrary to common sense thinking. However, the stock market is not based upon common sense, it is based upon people’s expectations of stock supply and demand. No one explained this concept better than the great cognoscente John Templeton, on Louis Rukeyser’s old Wall Street Week program, every Friday night, at 8 pm, on public TV. What he said was, if you had an ailment and went to the doctor and got an opinion, then consulted another doctor and got an opinion, and then went to 10 doctors and got an opinion, and if all 10 of them were in consensus about your ailment and its cure, you would take that advice. However, using stock market logic, you would take the consensus of 10 stock advisers, and THEN DO THE EXACT OPPOSITE.

This is what Warren Buffet was trying to tell us last October when he said “sell when others are greedy, and buy when others are fearful”. He lent 5 Billion Dollars to Goldman Sachs for a 10% dividend forever, with warrants to buy the stock at 117. Goldman dipped down into the 60’s or 70’s, and last month they paid back their 25 billion in Tarp money, AND their stock price is now in the 160’s. And Warren is sitting on a massive unsold capital gain while he collects 500 million year after year until he decides he’d like to cash it in.

Ten Baggers

A ten bagger is a stock which goes up 10 times in price. Seem impossible ? OK, after September 11, I bought some shares of Amazon for my kids accounts at 6 dollars, and about 1 year or 2 years later I was selling them over 60 dollars per share. Amazon closed this week at 85, and I think you’re looking at another double at least by the end of next year.

Before I get to the 10 baggers which is what you do with speculative money you might lose, let me mention my personal 5 horsemen, stocks that I keep holding because they’ll probably double or triple pretty easily in the next 2 years, these are the type of stocks you can own more of without worrying about losing sleep– GOOG (Google), AAPL (Apple), Amazon (AMZN), Blue Nile (NILE), and Research in Motion (RIMM) the makers of Blackberry. Hey, I know there are also a bunch of other great stocks out there, but technology is my business and I like these particular stocks. Oh, don’t forget Brk.B that will double and you won’t lose a minute of sleep at all.

In your 401K’s, try to move your funds into International Funds, they are going to do well this next year. If you like funds, look at EWZ (Brazil), PBD (Global Clean Energy), GEX (Global Alternative Energy), and COW (Livestock Stocks).

Here are some potential 10-baggers (over the next 1-3 years) for you to consider not necessarily in priority order. I expect many of these to double by December.

OCNF – Dry Shipping , now at 1.36 a short-term double, it has a book value (if it were to be liquidated) of $11.
XTEX – Nat Gas, now at 3.39 , has a book value of $15 and pays 20% dividend
URE – a real estate mutual fund, now at 4.28 it pays 10%
CLZR – they make cosmetic surgery lasers, now at 1.13 book value $3 and no debt
ESCA – Sporting Goods, now at a buck, $6 book , looks like a quadruple in 1 year.
OBAS – Optibase, they’re into internet TV, now at $1, $2 book.
LYG – Lloyds of London insurance, now at $6, $10 book, pays 30% dividend.
SHS = Sauer Danfoss Heavy Machinery, now at $5, $6.5 book, pays 14%.
UYG – these are your biggest banks, 4.59 pays 4%

No one has enough money to buy all of these, but here are some more if you’d like to check them out.

XJT airlines 1.37 $11 book
WNC Trucking .83 $4 book

Real Estate
AHR Reit .58
BEE Hotels 1.18 $5 book
ABR Reit 1.81 $11 book, pays 53%
DDR Shopping Centers $5 , $16 book
TPGI Prop Mgt 1.37 $5 book

Oil and Gas

FTK drilling 1.88 $2.7 book
AHD Pipelines around 3 bucks, pays 7%
DPTR Nat Gas $2 , $6 book

Retail

TWMC Entertainment (owns FYE) 1.11 $7 book
FNET Toys and Games 1.15 $4 book
KDE Toy and Game Licensing 2 , $5 book, no debt
PERF umania Perfumes, 2.4 $7.8 book

Hodgepodge

MIC 4 , pays 20%
NWD .13 Asia Food and Bev
HTX Foreign Telecom 4

Remember what Cramer says, do your homework – these stocks are going to have some ups and downs, but from my birds eye view, even if they don’t become 10 baggers, some of them might double or triple, and that’s not a bad thing. You should diversify and spread some of your speculative money (10-20% of your overall) into these and I think overall, you will be rewarded.

Sorry, I am not a regular blogger, from my birds eye world I really only need to comment periodically. I only like to write when I get an inspiration. Stay tuned.


http://www.emilsblog.com/?p=24

The multi-baggers from 10k to 20k index of the Indian Stock Market

Sunday, Nov 25, 2007

The multi-baggers from 10k to 20k

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The majority of the multi-baggers owe their stellar returns to the market “re-rating”, rather than an impressive expansion in their earnings.


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Kumar Shankar Roy

It took a little over 18 months for the benchmark index of the Indian stock market to double from 10,000 levels to the dizzying heights of 20,000. Not to be left behind, the Nifty too breached the 6000 level on November 1, from a shade below 3000 last June. One would think this would have made the job of ferreting out multi-baggers (stocks whose prices have risen several times over) easy. But could you have spotted these multi-baggers through some in-depth research into th ese companies in June last year? Maybe not!

Indeed, the list of multi-baggers over the past year and half would leave an investor confused. Street-sense says that capital goods, real-estate and infrastructure, the most fancied sectors in the stock market in the past year, would have been the ones to yield multi-baggers over the past year and a half. But there is no specific sector theme to the stocks that made it to the top. Companies from the infrastructure, capital goods and real-estate sectors are, in fact, missing from the top 20.

Unitech comes in at the 38th position in spite of witnessing its stock price rising 5.6 times. It would also have been quite difficult to catch these stocks last year, even had you pored over their financials. The majority of the multi-baggers owe their stellar returns to the market “re-rating” them (allowing them a larger price-earnings multiple), rather than an impressive expansion in their earnings. Which are the stocks heading the multi-baggers list? Is there a pattern to them? Let us find out.

Top multi-baggers


Jai Corp, Walchandnagar Industries, State Trading Co, India Infoline and BAG Films lead the list of top 10 multi-baggers since June 2006 (when the Sensex was at 10,000). These stocks naturally represent the big gainers among the 1,033 listed stocks on the NSE. Others that make it to the list are Autolite (I), KS Oils, REI Agro, Nicco Corporation and Goldstone Technologies. All these stocks had risen tenfold or more in the period under review — June 19, 2006 to November 16, 2007 (we chose these dates as they represent Sensex levels of 10,000 and 20,000 respectively).

Would you have put Jai Corp on your “buy” list last year, based on its business prospects? Maybe not. Seeking an explanation for why a Rs 19 stock in a matter of just one-and-a-half years rose to Rs 1,000, we find that Jai Corp is into such businesses as steel, plastic processing and spinning yarn facilities. But this was not why it was sought after.

The stock came into the limelight because of speculation that the promoters of a mega corporation have an indirect stake in the company and plan to use it as their infrastructure vehicle. This partly explains the stock price rising by over 67 times. The fact that only 15 per cent of its stock is freely available to the investing public may also have helped its stratospheric rise.

In the second slot, we have Walchandnagar Industries Ltd (WIL), whose story is a different one; though the fact that the stock has risen by nearly 20 times its price tag of Rs 450 in June last year. WIL is engaged in the manufacture of sugar plants, cement plants, nuclear power and space equipment and other engineering products. Notwithstanding the decent results posted by it over the past year (72 per cent profit growth), interest in the stock has been stoked by reports of indirect stake held by some influential politicians in the stock.

Apart from these, companies that operate in “sunrise” businesses and seen as offering high potential, such as India Infoline (broking), Goldstone Technologies (IPTV services), BAG Films (media), Nicco Corporation (entertainment parks) and REI Agro (basmati rice) feature in the top ten multibaggers (see Table).

Surging on ‘potential’


For five of these companies, namely WIL, State Trading Corporation, India Infoline, BAG Films and Rei Agro, earnings have risen, but their PE multiples have expanded even more, as investors have marked them up on the strength of their forays into promising new businesses. There are a couple of stocks which did benefit from a change in fundamentals.

The spike in prices of the shares of Autolite and Nicco Corporation is explained mainly by a turnaround in profitability. Nicco recorded a profit of Rs 6 crore last year as against a loss of Rs 16 crore in the year ago. Autolite, which makes lights and tubes, posted around Rs 5 crore profit, compared to a loss of Rs 3.3 crore in the earlier year. Both companies continued a sharp ramp-up in earnings numbers in the first six months of the current fiscal.

Though spotting the multi-baggers in advance was difficult, there was actually a good chance you held one in your portfolio. In the over 1,000 stocks reviewed on the NSE, shares of more than 490 companies, over half, gave a 100 per cent return between June 19 and November 17. Most of the stocks enjoyed both domestic as well as foreign investors’ attention, leading to a hefty rise in prices. Over 60 companies saw their stock price rise five-fold or more. Stocks of 12 companies multiplied 10 times or more.

Small-caps in limelight


It is a known fact that retail investors have an unexplained penchant for stocks trading at low absolute prices, and these dotted the list of multi-baggers. While the multi-baggers, in general, did not huddle close to any specific sector theme, the market-cap status of stocks did play a role.

Results showed that out of the 490 companies that doubled their value in these 18 months, 409 were small-caps, i.e. companies with a market capitalisation of Rs 2,500 crore or less. In this set of small-cap companies, the average share price rise was 3.4 times, higher than the average share price rise in mid-caps as well as large-caps at 2.4 times for each respectively.

Mid-caps are companies that have market capitalisation between Rs 2,500 crore to Rs 10,000 crore.

These results are not surprising because this period has largely seen the mid-cap (103 per cent) and small-cap indices (107 per cent) exceeding the returns of the bellwethers such as the Sensex (97 per cent) or the Nifty (98 per cent).

In the mid-cap space, around 61 companies were multi-baggers (they at least doubled in value) while only 23 large-caps (companies with a market capitalisation of Rs 10,000 crore or more) were a part of the list. This data clearly indicates that cheap stocks of lesser-known companies delivered a more stellar rise than stocks of widely-tracked, larger companies.

Parting shot


If the multi-baggers were not entirely sought after for their strong earnings growth, the stocks that fell most sharply in this period were certainly swayed to a greater extent by fundamentals. Companies such as Aztecsoft, Nova Petrochem, Thiru Arooran Sugar and Suryalakshmi Cotton Mills head the list of worst performing stocks over this period.

Other laggards include Dhampur Sugar, Celebrity Fashions, Shah Alloys, Uttam Sugar Mill, Simbhaoli Sugars and Sakthi Sugars.

Unlike the multi-baggers, whose share prices have gone up as a result of better growth potential, rather than actual earnings, the laggards appear to have declined directly in response to their profit performance.

Finally, discussion on multi-baggers from 10k to 20k would be incomplete without mention of the following companies. IFCI, despite its unimpressive financials, saw a stellar rise, following the announcement that the management had put a 26 per cent equity stake on the block. Reports of the company’s real-estate holdings and its long list of suitors helped the stock move up from Rs 9 to Rs 90, gaining a whopping 900 per cent in the process.

India may not yet be ready for Internet protocol TV, but that didn’t deter investors putting their money into IOL Broadband. From being a little known entity, the Rs 53-share gained almost 10 times its value in a matter of months, without the fundamental picture changing too much.

On the other hand, stocks such as Gujarat Mineral Development Corporation (832 per cent), Reliance Natural Resources (740 per cent), KLG Systel (500 per cent) and Welspun Gujarat Stahl (480 per cent) rode excellent earnings growth.

Fundamentally sound companies that turned out to be multi-baggers include TV18 India, Everest Kanto, Elecon Engineering, SREI Infrastructure Finance, Kotak Mahindra Bank and Larsen and Toubro.

In some cases, niche business areas attracted investors’ attention. Educomp (e-learning), Alphageo (seismic surveillance), Aban Offshore (oil rigs), Karuturi Networks (a leading cultivator of flowers), and Rolta (digital mapping) are prime examples.


http://www.thehindubusinessline.com/iw/2007/11/25/stories/2007112550750700.htm

How to buy multi bagger stocks?

Tuesday, February 3, 2009

How to buy multi bagger stocks?

Rakesh Jhunjhunwala & Others Guidelines To You

For any investor, buying stocks which can be multibaggers are the most attractive option. Raamdeo Agrawal, Director, Motilal Oswal Financial Services owned over 10 multibagger stocks, while Sanjoy Bhattacharyya, Partner, Fortuna Capital owned over 100 baggers. And we all know about the success story of Rakesh Jhunjhunwala, legendary investor in Indian stock market.

But how does one identify a multibagger? Valuation, a company's fundamentals, a business that promises growth over time, management's integrity, rational allocation of capital etc decide if a stock is of the multibagger variety.

Explains Raamdeo Agrawal, "If you want a multi bagger, it has to be bought literally free of cost...the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years." There is also another plot to this story--the market. Agrawal says a multibagger gets irrational quote from the market in three steps. It goes from being undervalued to fairly valued to being irrationally valued.

Rakesh Jhunjhunwala, Partner, Rare Enterprises, advice is that one needs to check what opportunity the business has, who are the entrepreneurs, how much capital is needed, is the business scalable, and what is the company’s valuation.

Here is a verbatim transcript of the exclusive interview with Raamdeo Agrawal and Rakesh Jhunjhunwala on CNBC-TV18. Also see the accompanying video.

Q: You had more than 10 multi-bagger stocks, what are the characteristics? How does one find 10 multi-bagger stocks? How does one start the process of thinking that the stock is going to be a 10 bagger?

Agrawal: You don’t pay anything to have multi-baggers. If you want a multi-bagger literally you have to buy free of cost, your purchase price decides your rate of return. That is a simple method.

Jhunjhunwala: That doesn’t mean that if Infosys has Rs 30 crore market capitalization, then at Rs 90 crore I should not buy it. We don’t buy it just because it has doubled. You have to see value when you buy.

Agrawal: The first fundamental thing is that you have got to buy extremely cheap and it is non-negotiable. If you want a multi bagger, it has to be bought literally free of cost. Like I could have bought Bharti Telecom around Rs 4,000-5,000 kind of valuation, today it commands a valuation of Rs 1,50,000 crore in just five years. So, when you buy these kind of things at those prices literally, the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years. That is a non-negotiable kind of a trade for finding a multi bagger. Now, the market must become irrational about that stock. So, from under valuation it goes to a fair valuation and from fair valuation it goes to irrational valuation.

Q: You are too modest to say this but I know you have had 700 baggers. Where have you looked for your 100 baggers, give us intellectual hypothesis?

Bhattacharyya: Between being smart and being lucky, I know it will hurt your ego like hell because all you guys are IIM-A always ought to be lucky not smart. It seems that there are two things, which are very important. Agrawal spoke the need to buy cheap, so valuation is very much in your favour.

But two other things you must buy a business, which is of very high quality. What do I mean by high quality business is that a business which is capable of growing over time. I think in the modern lingua franca it is called scalable. I hate words like that. But I think that is what they teach you here, so scalable and the scalability doesn’t require linear inputs of capital.

In a really high quality business, which is disproportionate and where you don’t need to have equal amounts of money to finance incremental growth, that is a wonderful business. The cigarette business, the biscuit business are also highly predictable. What destroys most people is their inability to foresee change. Most of us are not as smart as we think and change can be very rapid and very destructive. So, you have got to be able to figure out change.

Unless you are Rakesh Jhunjhunwala, you are usually a minority holder.

Then, it is very important to understand, what is the agenda and the interest of the majority holder or management usually. If it’s a private equity firm which has the majority stake in the company, what is their agenda? What do they want and how well do they allocate capital? You can never have a multi-bagger if capital is irrationally allocated by the people who run the company. If they have this wild ambition that I am going to spend and earn lots of money, but I will spend even more in terms of capital expenditure and financing growth, you will have very high reported profit but zero cash flow or negative cash flow. You can never get a multi-bagger out of that situation. But you have obviously got to search for a management which has competence and then make sure that you sort of super-impose a huge dose of integrity on that and rational capital allocation. The minute that is missing you will be at risk. Your 10 baggers could reduce back to being a 2 baggers because you could wipe out 80% of your gains.



Q: Are Titan, Praj, Nagarjuna some of the great multi-baggers?

Jhunjhunwala: Titan was a retailer, it was a brand company, it always had a great business. That was a reality. So, it was a great business. In a moment of crisis and when they went into Europe, they lost money. That was a crisis primarily. To my mind what is most important for Titan is India’s prosperity. I envisaged the future and I thought Indians are going to buy far many watches, so that is how he said that the business should be great. So, in a moment of crisis you get great valuations and you envisage the future where the product could have great demand and great growth and that business doesn’t need money.

In MBA language, price is equal to EPS multiplies by P/E, so circumstance should arise where the P/E should grow and the EPS should grow. Suppose I buy a stock, which earns Rs 5. At 5 P/E and I pay Rs 25, if the earnings becomes Rs 15 and the P/E becomes Rs 20, that Rs 25 goes to Rs 300. So, the basic methodology is that can this EPS grow year-upon-year and will the P/E expand. P/E expansion is function of so many items. It is a function of size. So, many of my companies I don’t sell because I feel that P/E will expand, as their size increases and liquidity increases.

Q: Your favourite multi-bagger in your career?

Agrawal: Vysya Bank that was a very first one, second one was Hero Honda, and third one was Bharti.

Q: What has been your multi-bagger historically?

Jhunjhunwala: For me anything that gives me money is my favourite one. There is no emotion. But I think as I judge myself some of the finest investment decisions which I have taken in my life is the decision to invest in Titan, decision to invest in Crisil, decision to invest and retain my holding of Karur Vysya Bank. Now, it is14-15 years since I have bought them. But I think some investment of Rs 2,000 is worth sum I don’t know how many crores today.

Bhattacharyya: The important thing is to identifying the opportunity and then as Jhunjhunwala said is acting on it, being decisive, not getting stuck in a trap where you are perpetually seeking extra information. If you are looking to identify great opportunities, one other thing that all of you will do well is to make friends or associates with people who are called in the language of Dalal Street smart money. You have three of the smartest guys sitting here. But to say this if you have guys, who are really smart serious, thinking investors, one of the ways you will find 100 baggers is by talking to them frequently. I am not joking.

Jhunjhunwala: One important trade of any 10 bagger is there should not be any institutional ownership, it should be under research, nobody should know about it. Today also I was asking Mr. Bhattacharyya that have you researched Titan. Even if the stock have gone up 30 times, Mr. Bhattacharyya has not researched it, which is very good for Titan. I have not researched Bharti, which is very good for Bharti. The stock has appreciated so much but the amount of interest remains in the stock remains at low level. So, it should not be one of the popular not by rule but generally it is not a popular stocks and there should be deep scepticism.

Bhattacharyya: In fact one of the good test to follow is go and tell it to someone else who has experience and has been around in the market for a long time. He will laugh at you. The fact that he is laughing at you should be like a tremendous source of encouragement.

Jhunjhunwala: There are no rules. If two agree, it doesn’t mean that you don’t buy.

Agrawal: What Mr. Bhattacharyya said is a truest thing, when I like something very deeply and when he disagrees ‑ because he is my friend, I go and test with him – and when he disagrees that is going to be a multi bagger.

Q: When you look at buying stake in a company, what is the most important factor or criteria that you look at?

Jhunjhunwala: I cannot say whether the leg or head is more important or the brain is more important or the heart is more important. There are equally important factors, and any successful business is a combination of factors.

When I look at any investment or any business, I look at three-four factors. First, the external opportunity which is demand. For instance in Praj maybe because of the need of alternative fuels the demand for ethanol plants went through the roof. So, I look at the opportunity the business has.

Then I look at the entrepreneurs, I look at the capital needed, and I want to judge scalability. We could make money in Pantaloon because Kishore Biyani could scale the business. Then, it is important what you buy, it is important at what price you buy. So, I look at the valuation. I have no analysis paralysis. I judge very fast.

Q: Which are the sectors that one should invest in say for a period of one year given the current market level and fluctuations?

Bhattacharyya: My answer is not going to be a happy answer. First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.

You are buying a business with specific players, a cast. You are buying the people who run that business; you are buying the assets and liabilities of that business, you are buying the balance sheet of the company. Within the same sector, different people have different opportunities.

So, if I were to say that the pharmaceutical sector is a great opportunity, there are different pharmaceutical companies. Say if you were buying Sun Pharma as opposed to buying Lupin, you are buying it at completely different valuations. Some sectors that are hot right now, I mean the whole world knows they are hot right now. So, the prices at which you are buying that sector reflect the hope and the enthusiasm that people have for that now.

But I don’t think that I understand anything other than what is called bottom-up. That means god lies in the details. There are specific opportunities or companies that I can tend to buy.

Agrawal: I would approach the financial sector, the large banks, which have large bond portfolios like SBI has Rs 2-2.5 lakh crore worth of bond portfolio, mark-to-market. When the yield drops you know what happens to bond prices and that goes directly to the P&L. In any case, you are buying that stock at 1-1.2 times book, insurance free thrown with the SBI stock. So, I would like to buy that for maybe 25-40% case for the next one year.

Secondly, I would say telecom. I think god communicates wirelessly. I think the telecom penetration in India is just about 25%. We are headed for 75% if not 100% in the next 5-6 years. We are going to see more than 10-15% compounded quarterly growth for the next 20-25 quarters in this country. Hence, we have a great opportunity in buying Bharti Telecom.

Q: Is there any sector you like?

Jhunjhunwala: I think that India-centric sectors will do well whether it is banking, retailing, infrastructure, all sectors that are related to India – SBI, Bharti, and Hero Honda.

Q: You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like Tata Power and NTPC have significantly high ground assets, or whether some new companies like KSK Energy who have captive coal reserves. How do you compare these and what are the parameters that you use to identify value?

Jhunjhunwala: The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.

Bhattacharyya: In fact, I would like to endorse what Jhunjhunwala said. But I think of your question and I suspect it may be that how do you distinguish between companies that are asset plays, which don’t have at this stage earnings that you can identify with and see and therefore put a multiple to them as opposed to companies that have a stream of earnings.

Jhunjhunwala: But market will value them if within a comprehensible period those assets can return a stream of earnings. If I have a company whose office is worth Rs 5,000 crore, what can I do? I will wait for earnings for one, two, or five years. Nobody is going to buy that company because their office is there. Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.

Q: In the present market scenario both from an investors’ perspective and a speculators’ perspective, where would you put your money – in real estate, in fixed income, equities, or gold?

Agrawal: To tell you the truth, I don’t know any other trade. I know only stocks. So, I don’t have any other option but to buy stock.

Jhunjhunwala: We never allocate capital. We have money means it is for equities.

Agrawal: Just equities, not even cash and equities, only equities. So, when I wanted to play real estate, I bought hotel shares. I am not going to buy 100 acres here and there. I said let’s go and buy earning real estate, i.e. hotel shares.

Jhunjhunwala: I have allocated some part of my trading portfolio to debt – to buy bonds. Long-dated bonds with good yields are very good.

Q: How do you decide when to sell a multi-bagger?

Jhunjhunwala: I will sell a stock only in two circumstances: when I have limited capital and when I get an opportunity that is better than what I have now. So, if comparatively I need capital, I will sell it.

Secondly, when the perception of earnings peaks and the P/E is unsustainable. I think that is a time to sell. The earning may not peak but the expectations of hope like in 2000 everybody said Infosys’ earnings will double every year for the next 10 years. That was the expectation in the market and its P/E was at the current earnings, it was 100-150 times. So, when the expectation of earnings peaks and the P/E is unsustainable, I think that is a time to sell.

Agrawal: There are two types of stocks. One you buy forever and one you buy for a trade.

Jhunjhunwala: I strongly contest this. There is no stock forever in the world.

Agrawal: I contest that. There are clearly two types of stock. One you buy for selling and one you buy forever.

Source: Moneycontrol.com


http://www.indianstocksnews.com/2009/02/how-to-buy-multi-bagger-stocks-rakesh.html

3 important considerations when buying a stock

From my experience, there are three important things that influence the “health” of a stock market investor. What are they?

1)What price you paid for the stock?
2)Which company or stock you have bought?
3)How many of the same stock you bought?

Buffett: “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and “Wide diversification is only required when investors do not understand what they are doing”.



http://www.stockanalysisonline.com/2009/08/investment-prudence-and-multi-bagger.html

Investment Prudence and “Multi Bagger” Concept

Saturday, August 1, 2009
Investment Prudence and “Multi Bagger” Concept

Investment in Stocks has been increasingly becoming very popular and one reason that everyone invests in stocks is to make money in multiples or at least better returns than any other form of investment. But do they end up getting that “dream” return in their investment? Yes and No. Some people do and some don’t. Investors who are very prudent with “stock market” patience usually complete the race while people who just come with expectation of making in millions by investing in mushrooming “Multi baggers” or doing futures and derivative trading, end up as a sorry figure. Stock investment can be compared to a Marathon rather than 100 meter dash.

Though I have not made in millions, I do feel that my investment has generated decent returns and more importantly, I have not lost single penny during one of the most difficult investment climate in history. From my experience, there are three important things that influence the “health” of a stock market investor. What are they?

1)What price you paid for the stock?
2)Which company or stock you have bought?
3)How many of the same stock you bought?

Investment Prudence

The price you pay for the stock is the single most important factor that not only decides your short term return but the long term success as well which is why I have mentioned it first. Why? Simply because, if we buy, even a average stock at a dirt cheap price, there is a chance to end up getting a decent return. But if you buy a great company at an exorbitant price, then you have dug a grave for yourself. But to be successful in stock investment, all three has to be in harmony with each other and may be that’s the reason Warren Buffet has mentioned I quote

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and “Wide diversification is only required when investors do not understand what they are doing”.

Real Example:

Investor Name: Rakesh Jhunjhunwala.

First Big profit stock: TATA TEA

Price paid for Tata Tea: Rs.43

Selling Price: Rs.143

Number of Shares: 5000

Profit Made: 5 Lakhs (715000 – 215000)

Duration: 3 months

My Experience

I actually had a similar experience recently but I have not made 5 lakhs simply because of the third reason (How many bought).

Investor Name: Myself

First Big profit stock: YES BANK

Price paid for YES Bank: Rs.42

Current Price: Rs.160

Number of Shares: 500

Current Profit (Still Holding): Rs.59, 000 (80000 - 21000)

Duration: 4 Months

Hope you see what difference the number of shares makes. So, all I want to mention here is not to go for too much diversification. If we find good stocks at a great price, we should buy it in huge quantities without even flinching for once. Had I bought 5000 shares of YES Bank, I would be worth 8 Lakhs from YES Bank alone. But I failed to take that extra risk which now gave me a lesson and good experience.

Had investors applied the above three things in the last 1 year period, I am pretty sure they could have found many “Multi Baggers”.

The concept of “Multi bagger” has been misinterpreted by many people. I read many articles where Small Cap stocks with good business potential have been mentioned as “Multi Baggers” and that’s where I beg to differ. Multi baggers can be found among large and midcaps as well.



Multi Bagger

By definition “Multi Bagger” is a stock that goes up in price multiple times of the initial investment. So, if we apply the definition as it is, then almost half of the big companies have been the “Multi Baggers” in this recession leading up to the current rally.

Example:

GRASIM: The price of GRASIM when the SENSEX was around 8000 in 2008 November - December period was Rs.831 and current price of the same stock is Rs.2740. It has appreciated more than 3 times.
BHEL: Rs.1000 to Rs.2300, 2.3 times appreciation.
Educomp Solutions: Rs.1400 to Rs.4100, 3 times appreciation.
Aban Offshore: Rs.250 to Rs.1050, 4 times appreciation.
Axis Bank: Rs.300 to Rs.900, 3 times appreciation
Asian Paints:Rs.700 to Rs.1415, 2 times appreciation (Defensive Stock)
Tata Steel: Rs.150 to Rs.460, 3 times appreciation
Sterlite Industries: Rs.170 to Rs.650, more than 3 times appreciation
ICICI Bank: Rs.255 to Rs.760, 3 times appreciation
Jaipraksh Associates: Rs.50 to Rs.250, 5 times appreciation

So, the notion that “Multi Baggers” are found only among small caps is wrong and I hope I have provided ample proof for that. In the above 10 examples, I have purposefully left out small caps and even if we take small caps into account, not many small caps have appreciated as much as what I listed above. Hence, I strongly feel that any stock that fits into the definition of “Multi Bagger” should be considered as a “Multi bagger” and my suggestion for retail investors is to practice the three things that I mentioned in the first section which will give an opportunity to find less risky “Multi Baggers” from the pool of large caps. Only thing is investors need to grab the opportunity that "Mr. Market" presents.

Your sincere comments and discussions are invited.

Kumaran Seenivasan
http://www.stockanalysisonline.com/


http://www.stockanalysisonline.com/2009/08/investment-prudence-and-multi-bagger.html

Performance of Top Glove since listing

Low Price in 2001: 0.27 (Price Range: 0.27 - 0.61)
Low Price in 2009: 3.58 (Price Range: 3.58 - 7.50)
Investing Period: 8 years

Over the course of 8 periods your investment grew from $0.27 to $3.58, its compound annual growth rate, or its overall return, is 38.14%.

Price increased 13.3 x, giving a gain of 1230%.

-----

High Price in 2001: 0.61 (Price Range: 0.27 - 0.61)
Low Price in 2009: 3.58 (Price Range: 3.58 - 7.50)
Investing Period: 8 years

Over the course of 8 periods your investment grew from $0.61 to $3.58, its compound annual growth rate, or its overall return, is 24.76%.

Price increased 5.8 x, giving a gain of 480%.

-----

High Price in 2001: 0.61 (Price Range: 0.27 - 0.61)
High Price in 2009: 7.50 (Price Range: 3.58 - 7.50)
Investing Period: 8 years

Over the course of 8 periods your investment grew from $0.61 to $7.50, its compound annual growth rate, or its overall return, is 36.84%.

Price increased 12.3 x, giving a gain of 1130%.

-----

Low Price in 2001: 0.27 (Price Range: 0.27 - 0.61)
High Price in 2009: 7.50 (Price Range: 3.58 - 7.50)
Investing Period: 8 years

Over the course of 8 periods your investment grew from $0.27 to $7.50, its compound annual growth rate, or its overall return, is 51.52%.

Price increased 27.8 x, giving a gain of 2680%.

-----

CAGR essentially smoothes out the progress of your investment over a period of time, providing a clearer picture of your annual return. However, although your investment started at $0.27 and ended with $3.58, its growth in any one year may have been quite a bit higher or even negative (if the investment ever lost money over that time). Consequently, the CAGR figure may give the impression that the investment has produced a stable return throughout its life, even if the investment was extremely volatile, fluctuating a great deal from year to year.


The above illustrates the importance of buying at a low price. Buying at a low price provides a margin of safety and magnifies the gains.

Challenges:

How can you spot a similar stock early in its business life?
Will you be able to put a large investment into such a stock?
Will you be able to stay the course without selling out, to capture all the gains from compounding at rates ranging from 24.76% to 51.52%?

Multiple baggers in KLSE

Here is a spreadsheet of the top multiple bagger stocks in KLSE for the 10 year period from 1999 to 2009.

http://spreadsheets.google.com/pub?key=t_fTtRGB_8FXvEh7RIPU_pQ&output=html

There are only 2 ten baggers over this period, namely Top Glove and Mah Sing. A close third is IOI Corp.

All multiple baggers give dividend in varying amounts. Among these multiple baggers, DLady, PBB and PPB occupy the top 3 places in terms of dividend yields.

A doubling of a share price of $1 to $2 equates to a gain of 100%. Another doubling of the share price from $2 to $4 equates to a gain of 300%. Doubling again from $4 to $8, gives a gain of 700%.

Having a 10 bagger in your portfolio equates to a gain 900%. That means the share have at least doubled more than 3x from its initial share price, thus, 2 x 2 x 2 x ... .

It is therefore not surprising that a 10 bagger is a rarity over a short investing time frame. Moreover, a 10 bagger over a 10 year investing period (1999 - 2009) is a rare event in KLSE as per data above. Although it is possible over a very long time frame, many investors would have sold off the stocks to capture the gains much earlier.


Did you recently ride on this 10 bagger depicted below?

MEANING OF TEN BAGGER --Discussion

MEANING OF TEN BAGGER --Discussion


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whiteheron02-03-2006, 08:17 PM
The definition of a TEN BAGGER is "a stock whose value increases ten times"

The expression was originated by Peter Lynch , one of the greatest investors of all time

So far , so good --- but nowhere can I find any really meangingful reference to the time period allowed to score a ten bagger
A year would seem most unlikely , except in the most extreme of cases
A decade maybe --- this would seem pretty damm good
Fifty years --- one would probably expect any reasonable stock to be a ten bagger in this time , given good returns , compounding , inflation etc

So a simplistic statement does not , in my opinion , address the matter fully ( and I wont be around for another 50 years for that option anyway )

So far I have been investing ( and trading ) for under 4 years and have achieved less than a handful of 2 to 3+ baggers , and one real " bugger "

I would like to hear what others have to say on this subject

--------------------------------------------------------------------------------

Halebop02-03-2006, 08:47 PM
As you allude, I think the term is irrelevent without a timeframe.

I've enjoyed just 1 ten bagger in 20+ years of investing. It might have been something more like a 20 or 30 bagger but took around a decade to realize and several additional purchases along the way muddied the final return calculations.

Given an "Oustanding" long term investment might generate 20% per annum, it's quite a reach to achieve a 10 bagger over even a decade. So I suspect the term just resonates more with an individual than actually being any useful benchmark.

If someone can beat some meaningful benchmarks like an index they should be well satisfied. My targets include beating the All Ords and NZX year on year, beating inflation and an absolute (positive) return.

--------------------------------------------------------------------------------

Mick10004-03-2006, 09:07 PM
I had one last yr and have another couple getting close - all from 2003 investments

I'm expecting 10 baggers to become as common as mud over the next 5-10 yrs for those people invested in resources
,

--------------------------------------------------------------------------------

Lawso10-03-2006, 06:11 PM
GEN - bought @ an average of 350, sold for 35. Clearly a 10 bugger [V]

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duncan macgregor10-03-2006, 06:33 PM
ONLY SHARE THAT SPRINGS TO MIND IS POISIDEN. A fifty cent share that went to over $230-00 and back again in the late sixties in Australia.
macdunk.
Ps i was to bloody smart to buy in to it YUCK.

--------------------------------------------------------------------------------

Dazza13-03-2006, 03:27 PM
CAZ
10 bagger there :P

--------------------------------------------------------------------------------

Sideshow Bob13-03-2006, 04:22 PM
Think the hardest thing would be not to sell before getting 10x the buy-in price.

Know I would take the money & run well before that!

--------------------------------------------------------------------------------

kittydashwood19-03-2006, 02:49 PM
Selling down incrementally leaves you a small final slice that can easy get to ten bags.XSNX was my most recent.

--------------------------------------------------------------------------------

Mick10011-04-2006, 07:21 PM
Got another one today

BSG - accumulated on the dips in 03, 04 and 05
,

--------------------------------------------------------------------------------

whiteheron11-04-2006, 07:29 PM
Mick 100

I have had a history of getting out of winners far too early
eg BSG , purchased about 30c and cashed in at 90c

Now trying hard to overcome this tendency --- but I suppose better to get out at a healthy profit than hang on to a loser and suffer a heavy loss

--------------------------------------------------------------------------------

Mick10011-04-2006, 07:47 PM
Yeah, the idea is to get a balance WH
I'v hung on to a couple of losers far too long, TRO, CRS

I'm beginning to appreciate good stable managment more than ever with regards to my speculative shares.
BSG have had their share of problems in the early days while their main stay operations were in Georgia But they always seem to manage to turn a bad situation into a good situation - I put that down to, not good luck but rather, good managment.
,

--------------------------------------------------------------------------------

whiteheron11-04-2006, 08:10 PM
My worst experience was with GTM (now CME )
Cost me plenty , but in this game the best lessons often cost !

On the other hand I have/have had some real winners eg AWE , BHP sold too early , EXS .

MMN has been pretty good too --- have bought and sold since around 10c
Now have 15,000 shares worth about $6,600 , at a cost of negative $2,400

--------------------------------------------------------------------------------

OldRider15-04-2006, 08:17 AM
There are apparently various ideas about what the "10 bagger" tag means, can I toss in the idea that it could be as much a reflection of poor investment decisions as good ones.

If we try to be aboard winners we should be buying stocks on a steady climb, if this is done it is difficult to ever reach a 10 bagger, where the criteria is total gain is divided by total cost, for the percentage gain deteriorates on further purchases.

An example from my statistics, AVM from an initial purchase under 10c has reached 10 bagger status, however, several additional purchases leaves it well down at round four times cost.

So while feeling good over a 10 bagger, reality could be a missed opportunity.

--------------------------------------------------------------------------------

Mick10015-04-2006, 02:22 PM
quote:Originally posted by OldRider

There are apparently various ideas about what the "10 bagger" tag means, can I toss in the idea that it could be as much a reflection of poor investment decisions as good ones.

If we try to be aboard winners we should be buying stocks on a steady climb, if this is done it is difficult to ever reach a 10 bagger, where the criteria is total gain is divided by total cost, for the percentage gain deteriorates on further purchases.

An example from my statistics, AVM from an initial purchase under 10c has reached 10 bagger status, however, several additional purchases leaves it well down at round four times cost.

So while feeling good over a 10 bagger, reality could be a missed opportunity.






Not so Old rider
My definition of 10 bagger is 10 times your average buy price
I bought BSG in three parcles
2003, parcle 1 @ 19c
2004, parcle 2 @ 26.5c
2005, parcle 3 @ 47c ( this was a small parcle)

average price of 26.1c

The moral of the story - buy right and sit tight

PS, I have another one getting close - will keep you informed
,

--------------------------------------------------------------------------------

OldRider15-04-2006, 05:13 PM
Mick100:

I guess you would be happier had you purchased an even larger parcel at 47c or even another later at a higher price, to have not reached 10 bagger status yet, but be better off, and viewing the investment as even better choice.

You may well be correct about my definition, nonetheless you confirmed my real point, that averaging up on a sound stock delays reaching 10 bagger status, but this does not reflect badly on the decisions.

--------------------------------------------------------------------------------

whiteheron15-04-2006, 08:13 PM
There are many ways to look at this matter in my opinion

As I see it , just because you average up ( a good strategy on a top class stock ) does not take away from having a 10 bagger on your first or early parcels purchased , with lesser baggers on subsequent parcels purchased

Hard learned lessons have taught me that averaging up is much smarter than averaging down

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Lawso17-04-2006, 10:51 AM
quote:Hard learned lessons have taught me that averaging up is much smarter than averaging down
Words of wisdom from whiteheron. Unless you've done the homework and are convinced that the company concerned is still sound, averaging down is a way of chucking good money after bad.

--------------------------------------------------------------------------------

davidrob02-05-2006, 09:20 PM
Hi guys,

Four quick reflections / ideas .

(1) Ten Bagger seeking (in a 12 month framework) ....imo.... can be potentially dangerous to long term compounding results....


(2) Interesting to compare compounding say 120% increases over an average of say 12 shares, rolled over a few times, and statisticaly comparing the average median result -- to attempting to get 12 individual "10 baggers".

(3) Agree with Mick.... that "stable" management.... is as important as stock selection, in mnay respects.


(4) I think.... what Mick is probably saying -- ??--- ....... Do correct me if I am wrong.... is that what Mick is saying ....is that "money management"..... is as important a "key skill set" to wealth through shares ......as is "stock picking"....

Kindest Regards,

Robbo:)






quote:Originally posted by Mick100

Yeah, the idea is to get a balance WH
I'v hung on to a couple of losers far too long, TRO, CRS

I'm beginning to appreciate good stable managment more than ever with regards to my speculative shares.
BSG have had their share of problems in the early days while their main stay operations were in Georgia But they always seem to manage to turn a bad situation into a good situation - I put that down to, not good luck but rather, good managment.
,

--------------------------------------------------------------------------------

Bel03-05-2006, 02:34 PM
quote:Originally posted by davidrob

(4) I think.... what Mick is probably saying -- ??--- ....... Do correct me if I am wrong.... is that what Mick is saying ....is that "money management"..... is as important a "key skill set" to wealth through shares ......as is "stock picking"....
:)

Well considering the stories of other apes picking stocks just as well as fund managers then i would definately agree that knowing money management is as equal to or more important than the actual stocks that are picked.




quote:Originally posted by Mick100

Yeah, the idea is to get a balance WH
I'v hung on to a couple of losers far too long, TRO, CRS

I'm beginning to appreciate good stable managment more than ever with regards to my speculative shares.
BSG have had their share of problems in the early days while their main stay operations were in Georgia But they always seem to manage to turn a bad situation into a good situation - I put that down to, not good luck but rather, good managment.
,

--------------------------------------------------------------------------------

belgarion03-05-2006, 06:16 PM
10-baggers come most often in ....

1) recovery stocks where fear is so bad you can smell it

2) small non-mainboard companies (have excluded private companies)

3) start-ups where the business model/product is so new that people just don't get it (these can also be small non-mainboard companies too)

4) and, of course, penny-dreadfuls ...

I like 1 and 3.

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Dazza27-05-2006, 12:13 AM
my CAZ 10 bagger, turned out to be a 1 bagger ><

have cashed in now.

ARUO - from 1 bagger to 0 bagger ><

still holding ARUO though.

Potential 10 baggers for me at this moment:

ARUO
EXT
AEX
WMEO
UNX
TOX
BRO

just like belg said,


bro is #3

tox is #1

and the uranium are well number 4 i guess :P

--------------------------------------------------------------------------------

trackers22-08-2006, 04:57 PM
I'll never achieve a 10 bagger..

I will achieve 10 1 baggers :)

work out 10k doubled 7 times ;)


http://www.sharetrader.co.nz/archive/index.php?t-3344.html

Hunting Lynch's 10-Baggers

Published January 26, 2006
by Jack Hough (Author Archive)

Hunting Lynch's 10-Baggers

PETER LYNCH SOUGHT and captured stock returns so large that he created a new terminology to discuss his winners. In his 1989 stock-picking primer "One Up On Wall Street," the former Fidelity Magellan fund manager used the word "10-bagger" to describe a stock that increased ten-fold in value. Dunkin' Donuts and Pep Boys (PBY: 8.70, +0.20, +2.35%) are examples of 10-baggers Lynch owned for Magellan. Magellan itself was a 28-bagger during his 13 years at the helm.

Lynch would seem a perfect inspiration, then, for a guru-style stock screen, one based on the investment strategies of a renowned investor. There's one hitch, though: Not all guru strategies lend themselves neatly to screening.

For example, aside from the term "10-bagger," Lynch is perhaps best known for the phrase "buy what you know." Many of his picks came from companies with products or services he used. A stock screener, of course, can't test for what you know. In fact, it does quite the opposite. A stock screener excels at judging companies based not on personal preferences, but on a cold calculus of their financial statements.

Fortunately, Lynch used plenty of hard metrics, too, and these give us some guidelines for how to build our screen. Rather than use a one-size-fits-all approach, he broke companies into six classes. These include slow growers, stalwarts, cyclicals, turnarounds, asset opportunities and fast growers. Of the last type, he wrote, "If you choose wisely, this is the land of the 10- to 40-baggers, and even the 200-baggers." Sounds like fast-growers are for us.

Spotlight Stock
Quality Systems (QSII)
Develops and markets health-care information systems that automate medical and dental practices, physician and hospital organizations, management service organizations and community health centers, among others.
Thursday's Close $79.86
Market Value $1.1 billion
Trailing 12-Month Sales $105 million
Forward P/E 47
Proj. Long-Term EPS Growth Rate 30%
Additional Data:
Earnings Financials Key Ratios Ratings Insiders

Fast growers are small, aggressive new enterprises growing at 20% to 25% a year, according to Lynch. We'll call "small" anything with a market value below $5 billion. And we'll look for companies that have boosted their sales and earnings by at least 20% apiece for the past three years, and which are projected to boost their earnings by at least 20% in their current fiscal year. Already, these demands reduce our database of more than 8,000 stocks to a mere 99.

Lynch called companies with little or no institutional ownership potential winners, and companies with scant analyst coverage double-winners. So we'll look for companies where institutions own no more than 40% of outstanding shares and are followed by no more than four analysts. That leaves 17 stocks.

Of course, our screen survivors should be affordable and financially stable. Since Lynch liked to compare companies' price/earnings ratios with their earnings growth rates, we'll do so by looking for price/earnings-to-growth, or PEG, ratios (P/E divided by long-term earnings growth projection) that are below 1.7. (The broad market's average PEG is about 1.5.) And we'll require that debt/capital ratios be no higher than 0.5.

That leaves us with a mere 11 stocks. Use our stock screener anytime to run the search for yourself. We've preloaded it into the pull-down menu of screen recipes.

Note that three of our screen survivors were 2005 picks. Pet Meds (PETS: 55.13, +0.94, +1.73%) is up a tail-thumping 56% since we called it "the most promising pick of the litter" in October (see "Such a Good Buy, Yes You Are"). Kitchen gadgeteer Lifetime Brands (LCUT), which we highlighted just last month ("The Chance of a Lifetime") is already up 8%, despite a flat performance for the market. And we really shouldn't tell you how far circuit-board maker MultiFineline Electronix (MFLX) has climbed since we described its valuation as "wafer thin" in March ("M-Flex Inside"). But if you must know: 168%, mocking the market's 8% increase.

Let's look now at another of the Lynch screen's survivors. Quality Systems (QSII) is the kind of company name that could just as easily describe a hydraulics outfit as it could a maker of hot-dog casings. In fact, it makes health-care information systems — software used by private-practice doctors and network participants to manage their patient care and billing. The company's NextGen suite tracks patient information, manages appointment scheduling and referrals, stores prescriptions and clinical images, prints bills and letters and goes after insurer reimbursements. It also prints educational materials for patients and efficiency reports for doctors.

NextGen brings in more than 85% of Quality Systems' sales — not exactly income-stream diversification. But one-product companies whose products are hot can produce stunning gains, both in their earnings and their share prices. In its second quarter, which ended Sept. 30, Quality Systems' sales and earnings jumped 39% and 56%, respectively, over the same quarter last year. Over the past year, the company has produced an operating margin of nearly 29% on sales of $105 million. The average operating margin for health-care information companies is below 5%.

Quality Systems' stock has already been a two-plus-bagger over the past year, a seven-bagger over the past three years and an 18-bagger over the past five. The trio of analysts who cover the stock expect the company to boost its earnings by 40% in its fiscal 2006, which ends March 31, and by 26% in fiscal 2007. Over the next five years, they're looking for annual earnings growth of 30%. That helps make the stock's 2006 P/E of 47 seem reasonable. Scalp the $5 a share Quality Systems holds in cash off of its $80 share price, and you end up with an even more reasonable P/E of 44. (The company is debt-free.)

Those numbers give Quality Systems shares a PEG ratio of 1.57 or 1.46, depending on whether you factor in the cash. The company's closest competitors, Cerner (CERN) and Amicas (AMCS), carry PEGs of 1.66 and 7.36, respectively. (Though in fairness, the latter number is skewed by the company's low earnings base, thanks to its recent swing to profitability.)

All told, the numbers we're seeing on Quality Systems say bag these shares before they head any higher.

Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."


http://www.smartmoney.com/investing/stocks/Hunting-Lynchs-10-Baggers-18937/

7 Stocks That Could Be 10-Baggers

In early October, 2002, I went to visit two guys who were running a small hedge fund of about $10 million. They had been short Ford (F) and GM (GM) and a number of other stocks.

I asked them what their view of the world was. I told them I was bullish, but they laughed and said, "That’s because you’re always bullish. When are you ever bearish?" They said, "It’s about to hit the fan. We are massively short everything. America is going down."

(As an aside, both of these guys are in jail now. One wouldn’t testify against the other, so he got the larger sentence. The other guy (who was actually the boss) will be out in a year or so. The crime had nothing to do with their hedge fund but with a currency brokerage firm they had been running for 20 years that turned out to be a massive scam. The incident above was the last time I ever spoke to them, and a few weeks later, I saw that the FBI had arrested them and about 30 others in a multiyear sting operation.)

The point is, the world was falling apart in October 2002. Criminals and sociopaths were slitting the throat of America in an attempt to make money on the short side. Back then, inflation wasn’t a worry but deflation. And "Helicopter Ben" was threatening to carpet bomb the economy with dollar bills.

How does one do that? By cutting rates. By backing debt at the esoteric parts of the yield curve. By bailing out failing banks. By opening the discount window to banks and lower beasts on the financial evolutionary curve. By even buying stock in a worst-case scenario.

At the time, there were about a dozen stocks trading for less than cash. In other words, they had, for example, $100 million in the bank and no debt, were profitable and had a market cap less than $100mm. A little company called TheStreet.com was an example of such a stock.

In December 2002, I wrote an article about these stocks for the now-deceased Street Insight, which was later folded into RealMoney Silver. People laughed at me. "They trade below cash for a reason. " I was mocked. Children at my kids’ schools spit in their faces.

Five years later, many of these stocks (for example, ValueClick (VCLK)) were up more than 1,000%.

Now it’s happening again. The same sickness that convinced people that our way of life was a life gone wayward has again spread its bacteria into our heads. So here are my five stocks that I think can double, and perhaps double after that.

None of these is Microsoft (MSFT) or Google (GOOG) or Research In Motion (RIMM). Those are the debutantes at the ball. What follows are the rejects that were never even invited to the party.

Adaptec (ADPT) makes storage products. It has a $383 million market cap and $400 million net cash. The company was GAAP break-even last quarter, and non-GAAP it made $5.7 million in income. So people can buy a profitable company right now and put $17 million in their pockets with the excess cash.

It may not be so simple, but it’s still dirt cheap with a margin of safety. Steel Partners
has been buying millions of dollars worth of stock in Adaptec.

HouseValues (SOLD) has $63 million cash, a $65 million market cap and a break-even to profitable business. Good play on any sort of housing snapback and zero chance it goes out of business. Uber-hedge fund Renaissance Technologies is one of its largest shareholders.

Forget Baidu.com (BIDU). Ninetowns (NINE) is the best B2B Internet play in China. It facilitates the online process of importing and exporting goods to and from China. It has a $69 million market cap and $115 million net cash. Again, Renaissance has been loading up on this stock.

Heelys (HLYS) makes those shoes with wheels. It has a $105 million market cap, $100 million cash and no debt. It’s growing huge in Europe and is about to introduce sneakers without wheels. If anyone knows where I can get a pair of those shoes with wheels, please tell me. Apparently the demographic that most wants the sneakers is men over thirty.

If you want a stock with cash flows, check out 4 P/E Crocs (CROX). But Heelys is interesting to me because of the cash levels. And once again, our best friends at Renaissance (a fund that was up 73% last year after fees) is long Heelys.

Premier Exhibitions (PRXI), with a $100 market cap, makes the Bodies exhibit. It also run the Titanic exhibits. There are $3 billion worth of Titanic artifacts sitting on the ocean floor. Premier happens to own the rights to all of those artifacts and has already excavated $100 million worth. There are issues with where the bodies are coming from for the Bodies exhibit, but Premier settled with the New York attorney general, and it may not affect the $17 million in cash flows Premier is generating from these exhibits.

Also check out Entertainment Distribution (EDCI). It has $40 million in net cash, and the company is yours for a meager $35 million. Three of my favorites -- activist investor Chapman Capital, Daniel Loeb’s Third Point and Renaissance -- have all been loading up on shares of this company, which is essentially trading for $0. And before I forget: It is EBITDA-positive.

Zapata (ZAP) has $154 million of cash in the bank and no debt, and you can buy the entire company for $135 million. Not only that, it had $2 million in operating cash flow last year, and Renaissance is a small shareholder.

Sure, all of these stocks are ugly. They look in the mirror, and all they see is scars from a lifetime of malnourishment and poor hygiene. Don’t put all your eggs in this basket. But all it takes is one 10-bagger, and all the rest can go to zero, and you’ve just made 45% on your money.


http://www.stockpickr.com/problog/733/

Returns of up to 400% annually. Is this possible?

Investment Question:

I've heard some "market gurus" claim returns of up to 400% annually. Is this possible?

--------------------------------------------------------------------------------


To answer your question in a word: No! Although we wish such a phenomenal investment system were real, the claims you speak of are preposterous. Most "gurus" are nothing more than salespeople trying to push a product that, despite what they say, does not work.

Anyone promising annual returns of more than 400% is one of two things: dishonest or extremely dumb. If these people truly had such a great system, do you think they would waste their time trying to sell it for four measly payments of $24.99?

Let's do some quick math. Say you had this secret formula and invested $1,000 into it. If it returned 400% for five years in a row, you would have $1,024,000 (through the magic of compounding). Before long, you'd be on Forbes' billionaire list, along with true market guru Warren Buffett. Clearly, anyone with a foolproof system providing such astronomical returns would not need to put on seminars or sell books for what would be pocket change.

The truth is that many systems out there base their historical performance on backtesting. In other words, they test obscure strategies on historical data, and then use the theoretical returns in their marketing copy. Other swindlers trying to sell you something may report short-term gains as annualized gains. For example, they may have made 25% in a stock over four weeks which, sustained over a whole year, is an annualized gain of roughly 325%. But the chances of anyone being able to maintain 25% returns every four weeks over several years are pretty much nil.

Like anything we try to learn, investing doesn't work by cutting corners. Remember that the power of compounding is most effective over the long term. And, as the old saying goes, if something sounds too good to be true, chances are, it is.


http://www.investopedia.com/terms/t/tenbagger.asp

http://www.investopedia.com/ask/answers/04/030404.asp?viewed=1

What Does Tenbagger Mean?

Tenbagger: A stock whose value increases ten times its purchase price. This expression was coined by Peter Lynch, one of the greatest investors of all time, in his book "One Up On Wall Street" (1989).

Investopedia explains Tenbagger
These types of returns are considered once-in-a-lifetime investments. Some of the most famous examples of tenbaggers include now blue-chip stocks like Wal-Mart, Hewlett-Packard and General Electric.

Many investors are constantly in search of the elusive tenbagger, but there isn't an exact science to discover tenbagger stocks.

Generally, these explosive companies are smaller companies (market cap under $1 billion) with large potential markets.

Over time, these companies grow into their potential markets, providing patient investors with handsome returns.

A China Penny Stock With Ten-Bagger Potential

A China Penny Stock With Ten-Bagger Potential
August 13, 2009

By Jamie Dlugosch, Editor, Penny Stock Winners



Feeding China's billions is Job #1 for Beijing, make no mistake. China is always, always, one typhoon away from utter social collapse.

China cheerleaders won't tell you this, of course. Last year's horrible earthquake revealed the ugly truth: Beijing's hold on power is very conditional.

Rice and pork, not cars and phones, are what motivate 1,530,000,000 Chinese.

Following this theme led me at first to a fertilizer company, China Green (CGA), but the stock's run from $2 to $13 happened too quickly for my taste.

Nevertheless, a seed company I discovered in Beijing is perfectly poised to jump from $4.50 to $15 quickly, and even $45 down the road.

Rice Price Jumps 50%

Rice, the staple crop of Asia, is racing for a 34-year high, and the reason is: Supply cannot meet demand.

India is unofficially in a drought. Australia is officially so.

Prices have jumped 50% recently. Hardest hit: the Philippines, by far the world's largest rice importer.

Worldwide famine and massive civil unrest are real possibilities at this point.

This China Seed Company Is at the Forefront

Origin Agritech (SEED) designs rice that is drought-resistant, flood-resistant, bug-resistant. One blight in particular, known as Xoo, can destroy a rice paddy in a matter of days.

Origin Agritech holds the key to combating Xoo and has all the advantages that spell a 10-to-1 return:

It's small — a few hundred employees, $103 million market cap.
It has no analyst coverage.
Deferred revenues are up 57% for the first 3 months.
Earnings, which were released on Tuesday, show an income increase of 21%. The stock jumped 16%.


What to Do Now
Buy SEED up to $5.00 with a stop at $3.88

http://www.investorplace.com/experts/james_dlugosch/articles/china-penny-stock-origin-agritech-seed.html

10 Bagger Anyone?

08-05-2009

10 Bagger Anyone?

Interesting Stuff from the Bespoke Investment Group
Reply


With the current rally now at five months and ticking, there are a number of stocks that have really taken off, and they continue to gain momentum. In the last bull market from '02-'07, many new momentum names emerged from the prior bear -- TASR, ISRG, GOOG, TZOO, NTRI, BOOM, HANS, etc. Now some new stars are being born, and if the market continues its run for another few months, these names will be even more present on trader's screens. The fact that 332 stocks in the Russell 3,000 are up more than 100% year to date (more than 10% of the index) shows just how strong this rally has been. Investors lucky enough to own any of these 332 stocks have at least doubled their money in seven months. Below we highlight the top 40 performing stocks in the index year to date. Every single one is up more than 400% already! Talk about winners.

As we mentioned earlier, DDRX is up the most with a gain of 6,738.89%. DDRX is followed by VNDA (2,954%), ATSG (1,783%), DTG (1,486%), and CAR (1,161%). The top five have all gone up tenfold. That's called a Ten Bagger.






http://www.fpstockchallenge.com/CS/forums/p/31845/294106.aspx

Canadian Stock Alerts - The 10 Bagger

Canadian Stock Alerts - The 10 Bagger

by Mike Perras

Just for reference I might as well qualify just what a 10 bagger is. Essentially it's a stock who's share price goes up 10 fold or 1000%.

Now since the BreX scandal days most might assume that this never happens anymore. And frankly I must admit it still surprises me when I see it, but yes it still happens to this day.

Let me share two Canadian 10 bagger stories:

Back on December 11, 2008, Ventana Gold (VEN.TO) was still just a teenager as I like to call it. Meaning it was trading at just .20 . Now move the clock forward to June 2009, just six months later and that .20 stock is now trading at $5.00 . So 50,000 shares that you bought just 6 months ago for $10,000.00 would today be worth $250,000.00

So in fact Ventana is not a 10 bagger at all, but more like a 25 bagger. 10 baggers are rare at best these days, but 25 baggers, it's like winning the lottery! But you had to wait a full six months to collect and you would have likely sold out long ago. I mean if you're honest here, you'll have to admit, hanging in from .20 to past $2.00 would be really stretching it.

But what if I told you it could happen in just two days. Well things seem to be going that way this week for Blackwatch Energy (BWT.TO) . On Wednesday June 9, 2009 it traded at just .10 and today Friday June 12, 2009 it closed at .98

In this case your 50,000 shares cost $5,000.00 on Wednesday and two days later are worth $50,000.00 Here's a kicker, you could have actually done all that in your TFSA! Yeah I know, just imagine it .. in just two days!

Now let me share two Canadian 10 bagger hopefuls:

There are a few juniors I like so far this year that I believe have great "bagger" potential. When you do your reseach on (TYE.V) TROYMET Exploration or (NET.V) Network Exploration you'll see what I see. NET and TYE are both great candidates!

But only the stock Gods know for sure.

Mike Perras manages the Canadian Stock Alerts blog. While these alerts are never meant as a recommendation to buy a particular stock, they are nonetheless a heads up or an alert to a certain potential positive trend.

Canadian Stock Alerts follows one major rule, follow the volume! When trading volume in any stock is higher than usual, a trend has been established. While the stock may go higher or lower is in fact irrelevant. Stocks that go higher, always pull back. Stocks that go lower are often oversold. In both cases alerts may be issued.


Mr. Perras always recommends trading on paper first before following any new investing strategy. Try it out, without using real money. When you can see first hand that this style of investing works and satisfies your own risk tolerance level, only then should you consider it a strategy you want to work with.

Canadian Stock Alerts does not receive any compensation whatsoever by any of the companies it issues alerts for. Alerts are issued in real time during market hours and follow the "higher than usual volume" rule always. One's own due diligence is always recommended when it comes to any kind of investing.

His system Best Stocks For Easy Profits is also available online. Take a look and see some real life examples.


About the Author
Mike Perras is a former media executive and faculty of business professor. Today he is a freelance writer and also manages several blogs including, Canadian Stock Alerts. He is a media specialist, as it relates to Organic Marketing, Article Marketing and New Age SEO.

You can find him on Twitter @ http://twitter.com/mikeperras


http://www.goarticles.com/cgi-bin/showa.cgi?C=1683053