Stocks at the bottom of the barrel are usually ‘fail safe’
We know from past experience that Mudar Patherya’s stock recommendations are not meant to be taken lightly. He has mastered the technique of homing in on stocks which are at the bottom of the barrel but which have the potential to turn into mega winners.
The advantage of buying stocks which are at the bottom of the barrel is that the loss is limited. Even in the worst case scenario, one is unlikely to lose much money on such stocks.
However, if the stocks do get their act in order and live up to their promise, we can feast on multibagger gains.
This theory has been propounded and proved to be correct by eminent gurus such as Shankar Sharma (see Shankar Sharma Reveals Five Fail-Proof Mantras For Finding Multibagger Stocks) and Howard Marks (see Howard Marks Explains Why A “Safe” Stock May Be Risky While A “Risky” Stock May Actually Be Safe)
Stellar track record
Mudar has been having a good run in the recent past with several of his recommendations having delivered humungous gains. Let’s take a quick look at some of them:
Mercator – 112% gains in twelve months
Mercator was in such a pitiable state one year ago that investors were not willing to touch it with even a 10-foot barge pole.
Yet, Mudar recommended a buy on the basis that “I can smell an imminent turnaround in loss-making Mumbai-based Mercator”.
The recommendation proved prophetic because Mercator is indeed on the path of a turnaround and has posted fabulous gains of 112% in just the last one year.
Caplin Point – 76% gain in six months
When Mudar boldly declared that Caplin Point, a micro-cap, would be the “next Ajanta Pharma”, people stared at him with disbelief in their eyes.
Ajanta Pharma has such a mind-boggling track record for wealth creation that it is unthinkable that another stock will be able to emulate that record.
Yet, Caplin Point is well on the way to prove Mudar’s point. It is up a magnificent 76% since he recommended it in July 2016.
Max ventures – 36% gain in four months
When Mudar recommended Max Ventures on 17th October 2016, I did not pay attention for unknown reasons. However, Mudar’s logic was compelling:
“Max Ventures: Annualised revenue of around Rs 10 crore, loss on the bottom line and priced in excess of Rs 250 crore. If there is one reason I would put some ‘buy it, forget it’ money on this company, it is its promoter: Analjit Singh, established wealth creator. I’m putting my chips on the possibility that our man will route his prospective wealth creation through this company.” he said.
Max Ventures is also one of Porinju Veliyath’s favourite stocks:
@porinju bought Max ventures today. Sir, u have habit of catching cos post restructuring and listing. Remember Arvind infra as well
— Varinder Bansal (@varinder_bansal) June 24, 2016
The stock is up 36% in the four months that have elapsed since Mudar’s recommendation.
Alphageo – 21% gain in six months
Kenneth Andrade of Old Bridge Capital was the first to spot the opportunity in Alphageo. He stormed into the counter in a stealthy manner and before anyone could realize what was happening, he pocketed 75% gains in just four days.
Mudar was not deterred by the steep gains posted by Alphageo. Instead, he recommended it by calling it a “stock picker’s delight” and gave several cogent reasons in support.
The trust in Alphageo has been vindicated because the stock is up a hefty 21% since then. The stock touched a high of Rs. 1145 on 29th September 2016, at which stage the gains were 60% from Mudar’s recommended price.
Latest stock recommendations of Mudar Patherya
Now, let’s take a quick look at the latest four micro/ small-cap stock recommendations.
| Stock | MCap (Rs Cr) | CMP (Rs) | YoY Gain (%) |
| Sandur Manganese | 758 | 866 | 141 |
| Kaveri Seed | 3,323 | 481 | 44 |
| West Coast Paper | 913 | 138 | 130 |
| Electrosteel Castings | 999 | 28 | 37 |
Sandur Manganese – zero debt, high EBITDA and huge operating leverage
Normally, novice investors are advised to steer clear of commodity stocks owing to their sensitivity to macro-economic factors and unpredictable earnings.
However, we saw earlier how buying commodity stocks at trough valuations can effortlessly lead to multibagger gains.
Porinju Veliyath and Shyam Sekhar stunned us by revealing that they have made gains of up to 1000% in just 12 months by buying sugar stocks at the bottom of the cycle.
Mudar’s recommendation of Sandur Manganese is based on the logic that the prices of ore are surging and this is leading to hefty gains for the Company. In addition, Sandur has no debt, high Ebitda margin and a huge operating leverage, Mudar says.
Kaveri Seed Company – coming back into reckoning
Kaveri Seed is a textbook example of how stocks with great promise can wither away.
The Company was supposed to revolutionize agriculture operations in India with its “genetically modified” seeds which are supposed to be “pest resistant” and “high yielding”.
The stock commanded such respect that even the hard-boiled experts at the valuepickr forum talked about it in hushed tones.
Sadly, a dispute with Monsanto, the global behemoth in GM seeds over royalty payments, farmers’ agitations over poor quality and over-pricing, allegations of fraud etc, caused Kaveri Seeds to lose favour amongst the cognoscenti.
However, Mudar has sensed that a turnaround is happening. He claims that the robust Q1 and Q2FY17 results are evidence of this. The Company has posted “dream” results which indicate that it is getting its act in order, Mudar says.
West Coast Paper – entire paper sector is a “screaming buy”
Porinju gave us a glimpse of his stock picking mastery by loading up on paper stocks (Nirvikara/ Balkrishna Paper) when they were languishing at throwaway valuations. Later, the fortunes for the entire paper sector changed and Porinju pocketed multibagger gains (see Porinju Veliyath Mints Fortune As All Stocks In Sector Become “Screaming Buys”).
Mudar has emphasized that West Coast Paper is also on a strong growth trajectory as is evidenced by the high turnover, high Ebit and low interest payment.
“Looks like something happening here,” Mudar says.
Electrosteel Castings – revival of new chapter of “glorious days”
Electrosteel Castings is yet another stock which showed great promise buy which disappointed sorely.
Indications are that the Company is now getting its act in order and heading towards a comeback.
Mudar has cited the rise in Ebit and net profit coupled with a decline in interest payment as evidence of a comeback.
He emphasizes that there are two triggers for the Company which, if fulfilled, could be the start of a new chapter for it.
Why makes Mudar select West Coast Paper? Such poor Return Ratios it has. Such huge debt burden it has. Such huge Raw Material cost per as a percent of its cost of production it has. it has. In fact nothing makes it a good buy. Star Paper comes head and shoulders above West Coast Paper. Superb Return Rations, ZERO DEBT, lowest cost of raw material as a percentage of cost of production – IN FACT IT HAS THE INDUSTRY’S LOWEST RAW MATERIAL COST, Such attractive PE it quotes. No wonder the stock price has shot up (and is consistently trending up even now) from 27 as of todays date last year to 183 on 20th Jan’17, ie. the last traded date. It has multibagger potential even from here.
No doubt Star is better placed on paper but Mudar is pointing towards CHANGE which is happening in West Coast.
IT IS A RISK. INSTEAD PREFER POTENTIAL NIFTY STOCKS. ALSO PREFER SELECT NIFTY JUNIOR STOCKS HAVING GOOD TRACK AND CAGR AS COMPARED TO PREVIOUS YEAR AND WHICH ARE LIKELY TO BECOME SENIOR NIFTY STOCKS. IT IS BECAUSE YOUR SELECTION OF STOCKS THAT MATTERS. ALL THE BEST.
Only well researched small caps wil give you returns fast. Nifty junior stocks will take 5 to 10 years which a good small cap/midcap will do in one to two years. Your choice.
Pl suggest few of tour well research small cap stock which will do wonders in two years as suggested by U
Well I have placed my bets on Star Paper itself. I have researched it, and bet my money big time on it. Have 45.3k shares at 83.75. From today’s price, 300 does not seem far at all, frankly speaking. West Coast paper will be defeated in the race by a large margin.
Your this preference was already in your first poat.Dear Venky,throw light on atleast three or four more good small cap stocks
Well kharb, do research yourself. There are hundreds of stocks which will do well. My post was only to highlight Mudar Pathreya’s choice of West Coast Paper as a opportunity for investment.
Is there any harm in looking into small cap choice of other experts like U,as I only track large cap.
If we keep West Coast Paper out of picture, I think Mudar Patherya has recommended extremely low risk but potential high reward stocks.