Ashish Chugh’s portfolio of multibagger stocks
Ashish Chugh’s portfolio is the subject matter of intense envy from novice investors because of the sheer number of multibaggers sparkling therein.
Avanti Feeds – 50x bagger
Avanti Feeds, the producer of shrimp feeds, is one example of a stock which has turned into a magnificent mega-bagger.
Ashish recommended Avanti Feeds four years ago when it was available at the throwaway valuation of 98 crore.
He pointed out that Avanti had all the qualities necessary to be investment-worthy, namely, high dividend payout of 25%, cheap P/E of 3.5x, CAGR of 70% and dividend yield of 6%.
His precise words were as follows:
“The company has, each year, in the last 2 years distributed 25% of the profits earned (PAT) as dividend (plus dividend distribution tax). If the company continues with this payout & maintains this track, we believe this will lead to a change in perception and gradual re-rating of the stock. We believe that with an EPS of Rs.33, PE of less than 3.5, CAGR of over 70 % (over last 3 years), and a dividend yield of 6%, the stock merits investment at the current valuations.”
Today, Avanti Feeds is quoting at Rs. 5,500 crore which means that Ashish Chugh and his band of devoted followers have pocketed massive gains of 50x (5000%).
Vadilal Industries, Balaji Amines
There are several other multibagger stocks sparkling in Ashish Chugh’s portfolio. However, for the present, it is sufficient for us to take note of Vadilal Industries and Balaji Amines as good examples.
Ashish Kacholia has recently bought Vadilal Industries. Mohnish Pabrai has recently bought Balaji Amines.
The interest of the two visionaries in these stocks implies that they are poised to give hefty returns even from this stage.
Top-secret template for snaring multibagger stocks
To our good fortune, Ashish Chugh has revealed the template that he uses to home in on winning stocks.
(1) Always adopt a “Basket” approach to buying stocks
Novice investors have the bad habit of obsessing over losses instead of focusing over winners.
Ashish explained that for every one Avanti Feeds in the portfolio which turns out into a 50x bagger, there are bound to be several junkyard stocks like GVK Power and Deccan Gold which disappoint and give no returns or give losses.
He advised investors to adopt a “basket” or a “portfolio” approach and look at the aggregate returns from the basket.
While the losses from the dud stocks cannot exceed 100% of the capital, there is no limit to the upside. The winning stocks can give 5x, 10x or even 100x gain and make the entire investing process worthwhile, he explained.
Carl Icahn has a win rate of only 58%, 42% stocks picks are duds
At this stage, we must remember that even Billionaire Carl Icahn, who is highly famed for his stock picking prowess, has a win rate of only 58% which means that 42% of all stocks bought by him turned into duds.
Prima facie, this is mediocre investing ability, equal to that of novice investors.
However, Carl Icahn became a highly successful investor because the 58% stocks compounded his wealth at an incredible CAGR of 31% over a long period of time and contributed to his immense prosperity.
Beware of behavioural biases: Parag Parikh
Parag Parikh, the late value investor, was a renowned authority on behavioural finance.
He has written two bestsellers on the topic called “Value Investing and Behavioral Finance: Insights into Indian Stock Market Realities” and “Stocks to Riches: Insights on Investor Behaviour” in which he has explained how the tendency of investors to obsess over losses wrecks havoc with their thinking.
He has suggested several practical solutions to enable investors to overcome this handicap.
(2) Look for companies with “curable” negatives
Ashish cited Balaji Amines as a textbook example of a company which was hammered out of shape due to negative perception of investors.
Investors were so irked with the Company’s decision to diversify into the hotel business that they dumped the stock without a second’s thought.
The stock plunged to such low levels that it virtually became a fail-safe investment, Ashish said.
Needless to say, when the hotel became operational and starting generating profits, investors again made a beeline for the stock, resulting in multibagger gains for the few who had braved the storm.
(3) Keep alert for big-ticket investors dumping de-merged stocks
Ashish cited Marico and Marico Kaya as a text-book example of how the de-merger of a business of the former into the latter caused big-ticket investors of Marico to dump the stock of Marico Kaya because the allocation to the latter was too small for them.
The intense selling pressure caused the stock price to plunge to unrealistic levels even though the fundamentals of the Company were ship-shape.
Another example is Arvind Infra. We saw before our very eyes how Porinju Veliyath and Ashish Chugh rushed to scoop up the stock when it plunged owing to selling pressure for big investors.
Needless to say, both stalwarts are basking in riches from the stock now.
A potential investment opportunity may arise when a demerged company from large corporate house gets listed & has FII/ Institutinal Hldg 1/2
— Ashish Chugh (@hiddengemsindia) September 13, 2015
Institutions may be exiting stock not because of potential of demerged co, but becuse Inv may be below their tick size – giving rise to opp.
— Ashish Chugh (@hiddengemsindia) September 13, 2015
Marico Kaya-350cr Vs Marico-25000cr
Arvind Infra-80r Vs Arvind-6500 cr
Point is Mcap is so low, becomes insignfcnt to hold for Inst
— Ashish Chugh (@hiddengemsindia) September 14, 2015
(4) Look for GST Migration beneficiaries
GST will cripple the unorganized sector whilst showering riches on the organized sector, Ashish Chugh opined.
He advised that we home in on companies which are presently withering under the onslaught of the unorganized sector because these companies will have their vengeance once GST is on the anvil.
He cited plywood manufacturers and pen (stationary) companies as examples of this theme.
Insofar as stationary companies are concerned, we have to look no further than Kokuyo Camlin, the MNC.
The Japanese parent holds 75% of the equity. It also announced that the new integrated manufacturing plant at Patalganga has commenced production.
The brand name ‘Camlin’ also has immense respect and recall amongst customers.
Insofar as plywood companies are concerned, we can choose from candidates like Sarada Plywood (which is recommended by Porinju Veliyath) or established warhorses like Century Plyboards or Greenlam Industries.
(5) Take advantage of bad quarterly results to load up
Porinju Veliyath has contemptuously described the tendency of novice investors to dump stocks due to bad quarterly results as “monkey jumping”.
Monkey-jumping on Qtrly numbers: sell Federal Bank @ 40s on bad Q4, buy @ 80s on good Q2 after 6 months!
Think beyond Qtrs #ValueInvesting
— Porinju Veliyath (@porinju) October 26, 2016
Ashish Chugh amplified on this concept and explained that this knee-jerk habit of selling stocks provides a valuable opportunity to investors who are willing to look beyond quarterly results.
He pointed out that there can be several innocuous reasons for poor quarterly results.
A company which has recently completed an expansion project, for instance, will suffer a heavy depreciation and interest charge to the P&L A/c even though the expansion has not started generating revenues.
It is obvious that as and when the expansion goes on stream and generates profits, the stock price will rebound.
Example 1: DCB Bank
DCB Bank is an example that comes to mind when one talks of irrational investor behavior.
When the Bank announced ultra-ambitious expansion plans, analysts outdid each other in recommending a sell of the stock (see “100-Bagger” Stock Falls From Grace & Is Condemned To Sell Due To “Very Dangerous, Unexpected & Disappointing Shift” In Strategy).
Since then, DCB Bank is up a magnificent 117% making a mockery of the sell recommendations of the analysts.
Example 2: Vaibhav Global
Vaibhav Global is yet another example of a stock which degenerated from ‘hero’ to ‘zero’ status on the back of poor quarterly results.
Thereafter, it took only a couple of quarters of good results for the stock to regain ‘hero’ status.
Now, the stock finds pride of place in the portfolios of visionaries like Vijay Kedia and is being admired as the next multibagger.
Ashish Chugh emphasized that investing is essentially a “mind game”. Novice investors lose out because they lack the temperament to keep fortitude during times of adversity and squander away immense money making opportunities. If novice investors can learn to control their emotions and recognize opportunities when they come their way, they will also become immensely wealthy, he assured!