July 13, 2021 | Ganesh Adhikari
The term 10-bagger was coined by Peter Lynch, one of the greatest mutual fund managers in his book, “One up on Wall Street”. Ten-bagger refers to the stock that will give a 1000% (10 times) return on the initial purchase price. According to the legendary investor Peter Lynch, who averaged a 29.2% annual return, “the best place to begin looking for the 10-bagger is close to home —if not in the backyard then down at the shopping mall, and especially wherever you happen to work.” One doesn’t need to be a mutual fund manager or work in a brokerage firm to pick the winning horse. The average person who makes things, sells things, cleans things, or analyzes things encounter numerous stock-picking opportunities in the company, business, or the field s/he works in.
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Identifying even a couple of those 10-bagger stocks would turn your fortune for good and might even make you the winner of the game. NEPSE has seen quite a number of those 10- baggers over the years. I have listed a few 10-baggers seen in the current Bull Run in NEPSE.
a) HDL (Himalayan Distillery Limited):
Closing price on 21st march 2018 – Rs. 402
Closing price on 12th June 2021 – Rs. 5,500
b) STC (Salt Trading Corporation):
Closing Price on 4th December 2019 – Rs. 972
Closing Price on 12th July 2021 – Rs. 9,772
c) RADHI (Radhi Bidyut Company Ltd.)
Closing Price on 4th November 2019 – Rs. 133
Closing Price on 12th June 2021 – Rs. 740
Note: The price is adjusted after the inclusion of the recent bonus share. Hence, if we include the bonus share, the return would be more than 10 times. Before the book closure of RADHI for 36.50 percent bonus share, the stock traded as high as Rs 1,340.
Key To Finding 10-Bagger Stocks:
1. Small Market-Cap Stocks
Small market–cap companies have high growth potential. One can expect those companies to be paying high dividends to expand their business. The mentioned above companies fulfill the criteria.
2. Exceptional Performers In The Particular Sector
It is no wonder that when the market takes up stride, the companies leading the sectors will be recognized first.
3. Business With Unique Ideas And A Wide-open Future
The stock market is all about future earnings and progress, thus the companies with brilliant ideas tend to rise with no boundary.
4. Longer Holding Periods (At least 2-3 Years)
Picking up a 10-bagger is only possible when you have it in your portfolio. Patience is the most important weapon you will need while you are on the journey to finding a 10–bagger stock.
5. Diversifying Your Portfolio
Diversifying the portfolio gives you a better opportunity to find the 10-bagger stock. Picking up 10 stocks gives you a better opportunity to win the grand winner rather than relying on one.
6. The Insiders Are Buying The Shares
There’s no better confirmation, that you have picked a winning stock, than that people in the company are aggressively buying the stocks of their own company. Well if you happen to recognize any insider buying the stocks, you got yourself a deal.
7. The Company Is Buying Back Shares
If a company, that has faith in its future, is buying its shares then don’t wait for any other signal. It could be your potential 10-bagger.
You don’t have to work in Himalayan Distillery’s (HDL) main office or be its manager to know about the prospects of high quality and own-country manufactured Golden Oak and that its sales are up. You could be a regular consumer of whisky, or the owner of a whisky shop, or a worker in the company. You could also be an attendant at the local wedding who observes which beverages are being most consumed. One can always heed the story of a good company at your street, shop, or office. You can be an insurance agent or policyholder to know about the sales of its policies. You can be a construction site worker or projected affected area resident to know about the progress of the hydropower. You always have an edge in your profession.
Confirming With Fundamental and Technical Analysis
There are many fundamental indicators to identify your big winner. Since we want the 10- bagger. So investing early is the key. Thus you ought to confirm the stock with a low P/E ratio. If the P/E ratio is already too high it could have a good future but not the 10-bagger. Looking for a higher ROE can give you an edge.
A breakout above the top of the resistance zone and the 30-week MA occurring on impressive volume is the indication for a long-term Bull Run. This should hint at the best time to buy the stock.
Always remember that you are investing in the company, not in the stock market. Indeed 10-bagger stocks are out there and if you invest to find one, you will beat the market.
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