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TitleMultibagger Stock Ideas
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Multibagger Stock Ideas
June, 2011



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Index of Contents






 Preface


 Approach I – Buying Stocks With Low Price in Relation to Earnings


 Approach II – Buying Stocks With Low Price in Relation to Book Value


 Approach III – Buying Stocks With Low Price in Relation to Liquidating value


 Approach IV – Buying Stocks Using Benjamin Graham’s Magic Multiple


 A Universe of Stocks ‘On Sale’



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Approach II - Buying Stocks With Low Price in Relation

to Book Value


Apart from P/E, another ratio that is commonly used to value stocks is price to book value or

P/BV. This is arrived at by dividing the market price of a share with the respective company's

book value per share. Book value is equal to the shareholder's equity (share capital plus reserves

and surplus). Book value can also be arrived at by subtracting current liabilities and debt from

total assets.


Stocks priced at less than book value are purchased on the assumption that, in time, their market

price will reflect at least their stated book value, i.e., what the company itself has paid for its

own assets. All things remaining constant, such stocks generate higher returns over the long run

as compared to stocks that trade at higher P/BV ratios.





0

1,500

3,000

4,500

<1 1 to 1.5 1.5 to 2.0 2.0 to 3.0 >3.0

P/B V in January 2002

Avg. return for stocks based on P/BV

%
R

e
tu

rn
s

o
v

e
r

9
y

e
a

rs From a universe of 200 of BSE-500 stocks
that were listed 9 yearsback


Data Source: ACE Equity



See for instance the chart above. Stocks trading at P/BV of less than 1 time or even 1.5 times in

the year 2002 have far outperformed those that traded at a higher valuation (1.5 times and

above).


Based on this analysis, it becomes clear that buying a basket of low P/BV stocks may get you

outstanding returns over the long term. But you may do even better if you can determine which

of the low P/BV stocks are worth purchasing and which are about to go bankrupt. Looking for

companies with a good overall track record, and manageable to low debt among stocks trading

at discount to their book value can present great investment opportunities.





http://www.equitymaster.com/detail.asp?date=9/13/2004&story=2

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Multibagger Stock Ideas Page 7 of 14





Approach III - Buying Stocks With Low Price in Relation

to Liquidating Value




The idea here is to buy stocks at a cost less than their net current asset value (NCAV), and

thereby giving no value to the fixed assets. But why just current assets? Because it includes

items like cash and other assets that can be turned into cash within one year, such as accounts

receivable and inventory, and is therefore a good measure of a company’s worth if it were to be

liquidated. This was a stock selection technique successfully employed by Benjamin Graham.


Graham believed that stocks selling below NCAV were worth more dead than alive. He stated if

a stock was selling below liquidating value, either the price is too low or the company should be

liquidated. He also states that stocks are ‘real’ bargains as per the NCAV method only if these

companies are in no danger of squandering these assets, and have formerly shown a large

earning power on the market price.


The fact that the NCAV rule works cannot be doubted. But it is difficult to find stocks that sell

at a discount to NCAV in bull markets. It was the case in 2002 as well. While there were several

stocks that were trading at low P/E and P/BV, but not many were trading at discount to their

respective NCAV.


As such, for our analysis, we have studied the premium on NCAV at which stocks from our

universe were trading at then. And the result is that - stocks that were trading at the lowest

premium to the NCAV (less than 5 times NCAV) in the year 2002 have returned the most in the

subsequent nine years. As compared to this, stocks trading at multiples of more than 5 times

NCAV have turned out a poor performance over these years.

MC-Market capitalisation, NCAV – Net current asset value; Data Source: ACE Equity
Excludes banking & financial companies.



0

1,000

2,000

3,000

4,000

<5 5 to 10 10 to 15 >15

Avg. return for stocks based on MC/NCAV

MC/NCAV (Times) as in March 2002

From a universe of 184 of BSE-500 stocks
that were listed 9 yearsback.,
Excludes banks

%
R

e
tu

rn
s

o
v

e
r

9
y

e
a

rs

http://www.equitymaster.com/5minwrapup/detail.asp?date=1/4/2010&story=2

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IV. Stocks With Low Price in Relation to Graham’s Multiple

Company Name Graham multiple

Piramal Healthcare Ltd. 0.3

Allied Digital Services Ltd. 0.7

Bartronics India Ltd. 1.4

Bharati Shipyard Ltd. 1.5

Prakash Industries Ltd. 2.1

Geodesic Ltd. 2.2

PSL Ltd. 2.4

Jindal Poly Films Ltd. 2.4

Vardhman Textiles Ltd. 2.5

ICSA (India) Ltd. 3.0

Ansal Properties & Infrastructure Ltd. 3.5

Orbit Corporation Ltd. 3.6

Electrosteel Castings Ltd. 3.6

KS Oils Ltd. 3.7

Marg Ltd. 3.7

Gujarat State Fertilizers & Chemicals Ltd. 3.7

Sasken Communication Technologies Ltd. 3.9

Gujarat Narmada Valley Fertilizers Company Ltd. 4.0

JK Tyre & Inds. Ltd. 4.2

DB Realty Ltd. 4.4

Alok Industries Ltd. 4.4

SRF Ltd. 4.4

Rolta India Ltd. 4.6

Videocon Industries Ltd. 5.0

Nava Bharat Ventures Ltd. 5.1

JK Lakshmi Cement Ltd. 5.3

JSL Stainless Ltd. 5.4

Escorts Ltd. 5.5

CESC Ltd. 5.9

Shipping Corpn. Of India Ltd. 5.9

Note: Data as on June 09, 2011., Click on the company name to get more information on the stock.,

Excludes banking & financial companies.







http://www.equitymaster.com/result.asp?symbol=NCHP&name=PIRAMAL-HEALTHCARE-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ADSL&name=ALLIED-DIGITAL-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=BART&name=BARTRONICS-INDIA-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=BSHIP&name=BHARATI-SHIPYARD-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=PRKI&name=PRAKASH-INDUSTRIES-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=BVHD&name=GEODESIC-LTD-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=PSLH&name=PSL-LTD-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=JLPY&name=JINDAL-POLYS-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=MHSP&name=VARDHMAN-TEXTILES-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=MDHPC&name=ICSA-INDIA-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ANSAL&name=ANSAL-PROP-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ORBIT&name=ORBIT-CORP-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ELETST&name=ELECTROSTEEL-CAST-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=KSOL&name=KSOILS-LTD-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=MRGC&name=MARG-LTD-Stock-Quote-Chart
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http://www.equitymaster.com/result.asp?symbol=GNFC&name=GUJNARMADA-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=JKID&name=JK-TYRE--IND-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=DBRL&name=DB-REALTY-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ALTE&name=ALOK-INDUSTRIES-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=SRFL&name=SRF-LTD-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ROLT&name=ROLTA-INDIA-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=VDFN&name=VIDEOCON-INDUSTRIES-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=NABF&name=NAVA-BHARAT-VENTURES-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=JKCO&name=JK-LAKSHMI-CEMENT-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=JNST&name=JSL-STAINLESS-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=ESCR&name=ESCORTS-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=CESC&name=CESC-LTD-Stock-Quote-Chart
http://www.equitymaster.com/result.asp?symbol=SHCN&name=SHIP-CORP-Stock-Quote-Chart

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