How to pick Stocks for maximum returns in Indian Stock market?
Make a portfolio of certain stocks with the following criteria:
Stock must be in top 3 Margin% in its industry. (Stock having strong margins are the industrial leaders with demand for investment.)
Stock must be in top 3 ROCE/ROE in its industry. (Stocks with better ROCE/ROE are the stocks with best management and can help investors with Good returns.)
Stock must be have low PE ratio in its industry. (Stock with low PE ratio has not priced-in the future returns of the company, more chances to find quality investors and have more changes to post multibagger returns on quality results.)
Stock must have low Price to Book in its industry. (P/B is one of the evaluation factor to identify if the stock has run up too much in recent times. Avoid P/B above 10–12)
Stock must have low EV/EBITA (Stock given multibagger returns in short span will have this value higher. Less the value, more space the stock has to rally in the near future. Avoid EV/EBITA above 20.)
The above Portfolio will give you maximum returns.
There are 3 phases in a stock’s multibagger rally.
Rally to cover basic EPS of the share.
Rally to cover the Next one year EPS of the share.
Rally to cover the next 3 years EPS of the share.
Let me explain in Brief
Let us assume a stock is trading at 120, Industrial PE: 12 and EPS over last 4 quarters as Rs. 3 each quarter. Annual EPS is 12.
Current Trailing PE is 120/12= 10 which is cheaper compared to Industry. Stock can rally 20%.
Once a quarterly results come with a EPS of 4. then Trailing EPS becomes 13.
Current Trailing PE becomes 120/13= 9.23. which is cheaper compared to other Stocks in the industry with upside of 30%.
Some investors think what if the stock can post same results for next 3 quarters with EPS of 4 per quarter. Then Annual EPS becomes 16.
PE after 9 months becomes= 120/16 = 7.5. Which is cheaper compared to the industrial PE of 12 and has upside of 60%.
After 3 months:
If the results shows growth in sales, profits and EPS for the quarter is posted at 5.
PE for the annualized EPS of 5 become= 120/20=6. Which is cheaper to its industry and has 100% upside.
Just in 4th month, the stock has 100% upside.
This is how our stock picks like Bhansali Engg, Sanwaria Agro, etc rallied more than 300%.
So where you should invest? You should invest in a fundamentally good stock where it already has a 20% upside compared the industry.
We have done such research and have made a list of stocks in our Priority list and making efforts to add at-least 2-3 such stocks every month to our Priority list.
Our Priority Stocks are up at an average of 30% while the NIFTY is up just 7% and the Small cap is up only 15%.