Stock Market

Ambit’s 30 stocks that it says can deliver 10-bagger returns in 10 yrs

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A 26 per cent annual compounded return can grow your portfolio 10 times in 10 years! Sounds mouth-watering Ambit Capital on Tuesday listed 30 ‘great’ stocks that it said can multiply investor wealth by 10 times in the coming years. The list included Nilkamal, La Opala RG, Avenue Supermarts, Maruti Suzuki, Kansai Nerolac, PVR, Venky’s India, Sudarshan Chemicals, Torrent Power, Sheela Foam, Godrej Agrovet, JB Chemical, WABCO India, Heidelberg Cements, Dr Lal Pathlabs, Advanced Enzymes, Johnson Control, CCL Products, Natco Pharma and Jyothy Lab.

Seven other stocks on the list were Timken India, Atul, Whirlpool India, Britannia Industries, Sundram Fasteners, 3M India, Kajaria Ceramics. Source: Ambit CapitalThe brokerage defined ‘great’ stocks as those which have been showing incremental capex, efficiency in capital employed, pricing discipline, steady cash generation, PAT improvement, solid balance sheet and steady improvement and above-median sales. The greatness framework includes companies that invest capital, turn investment into sales, turn sales into profit, turn profit into balance sheet strength, turn all of that into free cash flow and invest free cash flow again. Back-tested data showed such stocks have delivered superior returns in the longer run.

During 2004-19, such companies outperformed the entire stock universe by 3.5 per cent per annum (on an average) and the BSE500 index by 5.7 per cent, Ambit said. Source: Ambit CapitalTo determine whether a particular stock is cheap or not, Ambit categorises these stocks into buckets based on their relative attractiveness on valuations with respect to their own history. “We compare these firms with respect to their five-year average valuations on three metrics – price-to-book, price-to-earnings and EV/Ebitda.” The brokerage found only 21 of these stocks inexpensive, but said from a long-term perspective, all 30 remain potential ten-bagger candidates.

Ambit has bottom-up coverage on Maruti Suzuki and PVR with ‘buy’ ratings. A similar 10-bagger list published by the brokerage on January 15, 2018 slipped 9 per cent in last one year.

Ambit also released a list of 15 smallcaps than can become ten-baggers over time.

The list included Bhansali Engineering, Menon Bearings, Kennametal India, Lumax Industries, Matrimony.com, Foseco India, NR Agarwal Industries, Harita Seating, Multibase India, Valiant Organics, Orient Refractories, Shemaroo Entertainment, India Glycols, Ruchil Décor and Deccan Cement.

As a rider, the brokerage said it is not necessary all the stocks highlighted through this process are going to be individually ten-baggers.

“We ask investors to own the portfolio for 10 years.

Here we churn this equally-weighted portfolio annually.

The objective behind this process is to try and generate 26 per cent CAGR over a 10-year holding period by buying companies that are improving on ‘greatness’ count as well as on accounting scores,” the brokerage said.




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