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 (%)|
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 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!