Kenneth Andrade, the whiz-kid former fund manager of IDFC MF, who is now the proud owner of a PMS called “Old Bridge Capital Management”, gave us a glimpse of his sheer mastery in stock picking a few weeks ago.
Gains gush from Alphageo
Kenneth invested a large chunk of his money into a micro-cap called Alphageo which is engaged in doing seismic survey for companies that explore for crude oil.
Andrade’s timing couldn’t have been better. Immediately after he made the investment, Alphageo announced that it had been awarded a mammoth contract by ONGC for doing seismic surveys.
This news sent Alphageo into an unstoppable upward surge, giving Kenneth Andrade fantastic gains on his investment.
Mudar Patherya also pockets gains from Alphageo
At this stage, we must compliment Mudar Patherya for his stock picking skills.
Just when everyone thought that Alphageo had gone out of hand and that it was too late to invest, Mudar recommended a buy. he called it a “stock picker’s delight“.
His logic was simple that if Alphageo has to implement such a major order, its top-line and bottom-line will sparkle for years to come and that it is never too late to buy such a stock.
This recommendation has worked out well because in the period from 24th July 2016 to date, Alphageo has given hefty gains in excess of 30%.
This proves the point that just because a stock is caught up in a series of upper circuits is no reason not to buy it. Even after delivering hefty gains, there may still be hefty gains that can be harvested from the stock.
Four “underdog” stocks
Mudar Patherya has now trained his sights on four stocks which he describes as “underdogs”. Let’s take a quick look at them:
| Stock | Market Cap (Rs Cr) | CMP (Rs) | YoY Gains (%) |
| Star Paper | 147 | 94 | 204 |
| Vesuvius India | 1988 | 979 | 36 |
| IPCA Laboratories | 6,450 | 511 | (40) |
| Jyothy Laboratories | 5,281 | 292 | (8) |
The basic theory that has tempted Mudar Patherya to recommend these stocks is the fact that they have reported robust Q1FY17 results. His theory is that this is a sign that the Companies may be turning the corner and getting onto the path of growth and profitability.
Sensible investment strategy
If you ponder over it, investing in such “underdog” stocks can be a sensible investment strategy. Investors have very low expectations from such stocks and the risk of a disappointment and downside is low.
Even in the worst case scenario, the stocks are unlikely to lose much ground given their already rock-bottom valuations.
On the other hand, if the stock rediscovers its lost mojo, it can effortlessly become a mega multibagger and create enormous wealth for investors.
Howard Marks endorses strategy
Howard Marks, one of the greatest investment thinkers of contemporary times, described such an investment strategy as being “risk-free”. In fact, Howard Marks become a Billionaire by practicing this strategy in the context of “junk bonds” where the risk of default is so high that one can literally buy them for free.
“Hidden Gem” Mercator is a multibagger
Mudar Patherya has himself given us an example of how well this strategy works in the context of Mercator Shipping. Mudar recommended Mercator Shipping as part of his “Hidden Gems” stocks. Mercator was reeling under such heavy losses that there were no takers for it. However, a slight change in its fortunes has caused investors to rush to it and it is now a multibagger in Mudar Patherya’s portfolio.
Jain Irrigation
Jain Irrigation is yet another example of an “underdog” stock. Ambareesh Baliga described the stock as a “fallen angel”. Sandip Sabharwal acknowledged that investors have “disbelief” in the stock. Both, Ambareesh Baliga and Sandip Sabharwal, are confident that the stock is on the path of revival and will deliver hefty gains to investors.
Special Temperament required
However, it must be remembered that investing in “underdog” and “dark horse” stocks is not everyone’s cup of tea. One needs to have the patience and the temperament to play the waiting game. Also, such stocks suffer from a high mortality rate. So, one must also be prepared to take hefty losses in the stride!
Please send me updates thanx Sudarsan Iyer
Dear Arjun, forget about Alphageo, direct your readers to look at Emmbi Industries. It is a strict research based company, having its Government of India recognised R&D lab (which means products that come out commercially from this lab is free of excise duty for three years and 3x times expenditure of the lab is deductible from PBT for tax payment). Being the world’s biggest woven plastic manufacturer in the world, its products find diverse usage round the world. Take for example crash resistant packaging material which it supplies to Boeing Aircraft Company. It supplies to 10 Fortune 500 companies. Out of its topline of 210 crores, 108 crore comes from exports. In India too it has exponentially growing products in agriculture, water conservation areas. Plus the company is a MAT payer from this quarter onwards till 2019. There are too many positives about this company, like CAGR growth in topline, EBIDTA, cash flows etc. No wonder its share price has appreciated from 45 in Feb this year to 133 today, 24th Aug’16. Alphageo’s stock price increase pales before Emmbi.
Alphageo is a small cap company which has delivered progressive returns over the period of time. Looking at the volume of the stock, few thousand people are always associated with the company on daily basis. Company managed to reduce debt significantly in the last year and expected to deliver better performance in the coming years. The stock is undervalued at current levels as well.
Alphageo still have some upside left.
Vesuvius also looks strong on fundamental turf.
Right now not very optimistic on IPCA and Jyothy Lab.