In FY21, Mazagon Dock Shipbuilders had 8,000 Cr in cash while its market cap was only around 4,000 Cr. Since then, the market cap has soared past 1 lakh Cr. A similar story played out with Prestige Estates when the real estate cycle turned—stock zoomed nearly 10x. The same pattern can be seen in other winners like Vinati Organics, Page Industries, Varun Beverages, and many more.
I was discussing this with a friend, and he said: “The game is all about narratives, narratives, and narratives.” When the narrative around a company or sector improves, the PE rerates—and that’s when fat money can be made.But here’s my struggle:
How do you catch a stock before the narrative shifts and becomes favorable?I couldn’t find a thread on ValuePickr discussing this in detail, so I’m starting one myself. If you’ve ever managed to identify a company before the narrative changed, could you please share what led you to invest in it? What signals or patterns helped you sense the upcoming shift?Looking forward to your insights. Thank you in advance!
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Your friend is only partially correct. FY21 was a special year. Everything was on a fire sale. That was the case even for some portion of 2022 and 2023.
Almost every stock is a multibagger since then.
Having said that, how do you identify? It is far easier in a bear market when even good companies are sold for coppers. The narrative is down economy wide. This is why we need to have cash at the opportune moment. If you have even a little money during such times, you will do very well.
Currently, I don’t see such a situation in the market. I for one am waiting for a crisis.
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Very well said @randomquarks!
Even some industries such as IT, where earnings are depressed due to political uncertainty in the US are still not dipping below their historical PE averages.
It is almost impossible to find value right now - I think funds such as PPFAS and MOST have the right idea by keeping 20-30% in cash for now.
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There are times when going is not good for both the industry in which a company is operating and then company itself is not performing well. In such a situation, even when all the ratios are favorable to purchase, people with limited resource wouldn’t take the bet that in future such company’s price goes up. However, if one is able to foresee considerable growth in a particular sector and then chose the best stock with the financial parameters, one can see multibagger retruns in such cases for eg BSE & CDSL from 2021 onwards, all the defense related stocks from 2021 onwards. Both these sectors still have long way to go & in next 3-5 years, this sector will churn out superb profits thereby fantastic returns too. So to conclude, one has to be on top of the sectors which will be a growth sector for the next 3-5 years which will ensure multibagger returns during these periods.
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As per my observations, mostly knowing which sectors will create multi-baggers is not that easy even if it sounds so.
Way back in 2020 No expert has highlighted that, Retail equity investing will grow by multiple times. It is only in the hindsight that, now few analysts are talking about it.
Same is applicable to Defence sector. Very few experts were recommending BUY on stocks like Bharat Electronics or HAL in 2018-19-20 when these stocks were available at P/E of 10-20.
Returns are always in the hindsight and Risk is in the journey. Which retail investors had the courage to invest 5% or 6% in Defence sector in 2018-19. I think, it would be hardly few ones.
For most of the investors, even if they stick to simple Value investing i.e. buying stocks when those are undervalued is sufficient criteria to generate very good returns.
I am not suggesting that, we should not look for future multibagger generating sectors at all, but it is not as simple as it sounds!!
Today we may feel that, EV could be the next sector in which 5-10-15 baggers will be generated but we may get it completely wrong after 3 years and it could be a surprise sector which might have generated the multibaggers.. Instead of this, if you invest in some undervalued stock, it may throw surprise returns. Just a thought.
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