Multibagger Stocks for the Next 10 Years

'The stock market is a device for transferring money from the impatient to the patient.' - Warren Buffett

It's said that in the stock market more than 90% of traders lose money in their trading activities in the long term.

Among the remaining 10%, most don't make too much profit, certainly not enough to sustain a good lifestyle. Only about 1% of all traders make consistent profits which can justify taking up trading in the first place.

And it's only a small fraction of this 1% who actually get rich from trading in the long term.

But there is no reason to be disappointed. The stock market offers a simple way to beat the odds and beat the market.

It requires you to become a long-term investor.

In this regard, the Buffett quote above, is particularly illuminating. The market does indeed reward those who successfully apply the rules of long-term investing.

But this doesn't mean you can buy any stock and hold on to it for the long term.

To create life-changing wealth, you must find the big winners. The top multibagger stocks for the next 10 years.

So how do you get started?

Well, here are some of the important criteria to look at...

• Past Track Record

  While no investor makes profits in the past, it's still important to look at the past as a guide.

  If a stock has been a multibagger in the past, it's worth checking out if it was driven by fundamental reasons or by speculation.

  If the reason was strong fundamentals, and those fundamentals are still intact, you could have a multibagger stock on your hands.

  Check out this list of multibagger stocks.

• Growth

  Companies that maintain good sales and profit growth during a stock market downturn as always in demand. Check for good growth in topline and bottomline. The higher the better.

  The market knows these stocks are essentially getting cheaper. This is because high growth increases per share earnings at a fast pace. This combined with a falling market makes these stocks attractively valued. At a certain point, deep-pocketed invests start buying these stocks.

  In fast growing stocks get to this point sooner than slow growing stocks. Unfortunately, these stocks tend to be overvalued at the start of the correction, so they more downside.

  It's a waiting game with high growth stocks. If you invest too soon you may end up buying the stock before its valuation has corrected sufficiently. But if you are patient, the stock market will present you with a golden opportunity to buy these stocks at a great price.

  Check out the list of fastest growing companies as well as the top growth stocks in the market.

• Return on Equity

  The return on equity is one of the best measures of a quality company.

  High return on equity along with low debt is a great combination to focus on when looking for stocks with the best fundamentals. All great long-term stocks have good ROE. Just be sure to use it along with metrics like high growth and low debt.

  If you rigorously filter out low ROE stocks, you will get a list of stocks with high ROE.

• Debt

  It's always a good idea to start with debt levels of the company you are considering.

  Ideally the company should have very little debt or should be debt free. Many fundamentally strong stocks have zero debt.

  You can check out this list of debt free companies. Also, it's a good idea to look for companies that are actively reducing their debt. While they may have some debt today, they are unlikely to be badly affected by rising interest rates.

Here's a list of the top companies reducing debt.

Potential Multibagger Stocks

This will get you started in your screening process. But to find a big multibagger stock, you will need to dig deeper.

You can also check out our multibagger stock in India screener.

In this editorial, we will discuss 10 stocks with the potential to become multibaggers over the next 10 years. Keep them on your watchlist.

#1 Asian Paints

From humble beginnings in a small garage in the year 1942, Asian Paints became the largest paint company in 1967, and has maintained its leadership position for the last 55 years.

Asian Paints is one of the finest paint companies in India. It manufactures various products, including varnishes, enamels, lacquers, surfacing preparation, organic composite solvents, and thinners. It's present in more than 60 countries across the globe.

The company is known for its supply chain strategy. It removed all channel partners and reached out to paint dealers and mom-and-pop stores directly to sell its products.

It has more than 145,000 touchpoints and over 70,000 dealers selling its products. This extended market reach explains why Asian Paints has close to 50% market share in the organised market.

After establishing itself in the paint industry, Asian Paints has also successfully ventured into the home decor and interior design business too.

While competition will pick up in the sector with the entry of Grasim by the end of this financial year, Asian Paints stands as the strongest player by far in the sector.

The increased competition will hurt the weaker firms in the long term. But once the dust settles, Asian Paints will likely come out on top. Its balance sheet strength, strong control over costs, and the quality of the management, pretty much guarantees this outcome.

In the short term too the company's margins are improving due to a decline in input prices as well as a pickup in rural demand.

To know more, check out Asian Paints' factsheet and quarterly results.

#2 L&T

Larsen & Toubro (L&T) is an Indian company founded by two Danish refugees - Henning Holck-Larsen and Soren Kristian Toubro.

If you talk engineering and infra stocks in India, L&T is the first name which comes to mind. It's one of the top 5 construction companies in India. It's also engaged in defence manufacturing, IT, and financial services.

L&T's financial statements makes for pleasant reading Sales and profits have seen a steady increase. L&T has also recovered quickly from the pandemic.

The company's fundamentals are strong. It has a low debt-equity ratio and a steadily growing return on equity.

The company has been winning many orders recently which has supported the stock price. The government's budgetary allocation of a massive Rs 10 trillion capital investment plan for the financial year 2023-24, was yet another boost for the company.

Big orders and many sectoral tailwinds have ensured L&T's long-term prospects are very rosy indeed.

To know more, check out L&T's factsheet and quarterly results.

#3 Hindalco

Hindalco Industries is an Indian aluminium and copper manufacturing company. The company is a subsidiary of the Aditya Birla Group.

Hindalco is the largest aluminium rolling and recycling corporation in the world, as well as a major copper player. It is also one of Asia's top primary aluminium producers.

Building and construction, auto-motives, packaging, electrical, consumer durables, refractories, and ceramics are some of the industries it serves.

Along with its global subsidiary Novelis Inc., Hindalco has a presence in 12 countries. From bauxite mining to alumina refinement, aluminium smelting, rolling, and extrusions, the company engages in a wide range of operations.

The company has thrown its hat into the EV ecosystem. Hindalco, in December 2023, announced its plans to invest Rs 8 billion (bn) to set up a battery aluminium foil plant in Odisha as it evaluates opportunities in the electric mobility value chain.

The Odisha unit will be located alongside a 25 MW solar power plant. It can access extra solar energy from a 400 KV national grid connection. This 25,000-tonne plant will be commissioned by July 2025.

Hindalco expects national demand for battery-grade aluminium foil to reach 40,000 tonnes by 2030, prompting their foray into this space. The unit will initially focus on exports. The target market will be abroad and domestically.

Hindalco is in the process of qualifying as a supplier with lithium-ion cell manufacturers in India, Europe, and the United States.

It has also further signed a memorandum of understanding (MoU) with Phinergy, a metal-air battery technology firm, and IOC Phinergy, a joint venture between Phinergy and the Indian Oil Corporation.

The MoU commits to research, development, and pilot production of plates for aluminium-air batteries and recycling of aluminium after usage in batteries.

Going ahead, the company is focused on downstream expansions in India, with an emphasis on increasing contributions from value-added products. This strategy aims to enhance profitability and protect the company from fluctuations in aluminium prices.

Further, it expects to sustain its positive momentum in the copper business, driven by increasing volumes, robust demand, and improved TC/RC (treatment charge/refining charge) margins.

For more details, check out Hindalco's factsheet and quarterly results.

#4 Kotak Mahindra Bank

Kotak Mahindra Bank is among the leading private sector banks in India with a total loan book (assets under management as of FY23) of nearly Rs 4 tn.

The stock may be under pressure in the short term due to the RBI's recent directive but there is no doubt about its long-term potential.

The bank enjoys a strong urban franchise in India with an extensive distribution network of more than 1,750 branches and 2,800 ATMs. It also has a strong presence in the retail segment and is investing significantly in digital platforms.

Through its subsidiaries, it has built a presence in businesses like auto loans, broking, life insurance, and asset management.

Between 2019-2023, the advances and net profit reported a 5-year CAGR of 11% and grew at 19.2%, respectively.

While the company has maintained its NIMs in the range of 4-3-4.6% over the last 10 years, FY23 was higher at 5.3% driven by driven by our risk adjusted pricing on loans.

Its return on equity (ROE) has averaged 12.4% over the same period. The asset quality has improved drastically, with the NPAs going down from 0.75% in 2019 to 0.37%.

The company continues to guide for steady growth trend and aims to improve the mix of unsecured loans, expressing confidence in the quality of the underlying portfolio.

The lender boasts a well-capitalised balance sheet with a healthy CAR of 19.9% as of December 2023.

To know more, check out Kotak Mahindra Bank's factsheet and financial results.

#5 ITC

ITC is India's biggest cigarettes & one of the largest fast-moving consumer goods (FMCG) company.

It has 78% market share in cigarettes and presence in other business segments such as staples, biscuits, and personal care products. The company is also present in paperboard, printing & packaging business.

In the agri sector, it's acknowledged globally as a pioneer in farmer empowerment through its wide-reaching agri business. In the hotels segment, it's a pre-eminent hotel chain in India.

The company completed 100 years in 2010 and it employs over 36,500 people at more than 60 locations across India and is part of the Forbes 2000 list.

For years, ITC was planning to gradually shift towards an asset-light model in the hospitality sector for further expansion. It's only now that the words have been put to action with its hotel business demerger plan.

Over the last decade, ITC has successfully created an array of strong brands which are either #1 or #2. They are market leaders in their respective categories. Recently, ITC's FMCG business has reached a turning point with increasing EBIT margins.

This positive trend is attributed to expanded outlet coverage, effective implementation of a localisation strategy, a focus on premium products, utilisation of demand and supply technologies, and a decline in raw material costs.

Looking ahead, ITC Foods, the branded packaged foods division of ITC, envisions a resurgence in demand for the dairy and beverage sector within the next six to nine months. This optimistic outlook is driven by expectations of a warm summer and favourable dairy conditions.

Recognising the rising consumer preference for natural and healthier products such as coconut water and smoothies, alongside traditional options, the company is actively working on expanding its rural distribution.

In its future strategy, the company is prioritising the utilisation of digital technology to optimise its supply chain, ensure consistent product quality, adhere to food regulations, and bolster food security.

Furthermore, there are plans to expand its presence in the Asia-Pacific region, with a specific focus on the packaging and paperboard sectors.

Also, its demerger of the hotel business will strengthen ITC's balance sheet and improve return ratios.

To know more, check out ITC's factsheet and quarterly results.

#6 HAL

Hindustan Aeronautics (HAL) is an aerospace and defence company, owned by the government of India. Established on 23 December 1940, HAL is one of the oldest and largest aerospace and defence manufacturers in the world.

It's the only Indian company to have specialisation in manufacturing and maintaining aircraft services. The company develops, designs, manufactures, and supplies aircraft, helicopters, avionics, and communications equipment for military and civil markets.

HAL is aggressively pursuing exports by leveraging its range of indigenous products, particularly highlighting the capabilities and safety of platforms like the LCA Tejas.

It's also eyeing exports to countries interested in the light combat aircraft (LCA) Mk-1A and the advanced light helicopter (ALH). HAL recently came close to winning a US$ 920 million (Rs 75.1 bn) contract to supply 18 fighter jets to Malaysia but was pipped by Korea Aerospace Industries.

In November 2023, Hindustan Aeronautics and the leading European aerospace company, Airbus, joined hands by signing a contract. The plan is to create a maintenance, repair, and overhaul (MRO) facility for the A320 family of aircraft in New Delhi.

This is a big deal because this partnership will boost the Make in India initiative and will make India more self-reliant in repairing and maintaining aeroplanes.

HAL's plan is to make an MRO hub in New Delhi which offers one stop solution for commercial airlines. The goal is to have the facility ready by November 2024.

HAL has also signed a US$ 716 m deal with GE Aviation for the supplies of engines.

It has also set up a Rs 2.1 bn Integrated Cryogenic Engine Manufacturing Facility (ICMF) that would cater to the entire rocket engine production under one roof for ISRO. This will eventually result in higher profits for the company.

As a continuation of its focus on expansion, the company is looking for partners from around the world and even opening up export offices in specific locations.

The company's focus on upgrading aircraft for defence customers is another ace up its sleeve. This includes changes like giving planes a tech makeover, like avionics upgrades and integrating new weapon systems.

This expertise is expected to be a key driver in the company's success story moving forward.

For more details, check out HAL's factsheet and quarterly results.

#7 Bharat Electronics

Bharat Electronics was established in 1954 in association with CSF France, the company is now a government aerospace and defence company. It manufactures a range of specialised electronic products for military as well as non-military use.

Bharat Electronics' product portfolio is broadly classified into defence & non-defence, which includes a slew of simple and complex products such as batteries, radars, electronic voting systems, and encryptors.

Apart from catering to the domestic market, it exports its products to several countries, including Botswana, Indonesia, Sri Lanka, Russia, the US, and South Africa.

Bharat Electronics Limited (BEL) heavily relies on the Indian defence sector, constituting about 87% of its revenue. This high dependence poses vulnerability to shifts in defence policies or significant spending cuts.

To address this, BEL is actively diversifying its revenue sources by increasing non-defence earnings and exploring defence equipment exports to friendly nations.

Its focus on regions like Southeast Asia, Europe, the Middle East, Africa, and North and South America underscores its commitment to expanding its global footprint.

BEL's electronics are integrated into various Indian-made defence platforms like fighter jets, warships, submarines, and communication networks. The global appeal of these platforms indirectly translates to increased demand for BEL's electronics as part of the export package.

Beyond supplying domestic platforms, BEL also directly exports its range of electronic defence equipment. This includes radars, communication systems, and electronic warfare suites, catering to the specific needs of foreign militaries.

BEL's consistent investment towards R&D has helped create a strong competitive moat by enabling it to develop the latest generation products and services and gradually increasing the indigenisation of its product offerings, this will further help the company gain international market share.

The company expects revenue and net profit CAGR of 21% and 20% over FY24-26.

For more details, check out Bharat Electronics' factsheet and quarterly results.

#8 Dr Reddy's Laboratories

Dr Reddy's Laboratories is an Indian multinational pharmaceutical company based in Hyderabad. It manufactures and markets a wide range of pharmaceuticals in India and overseas.

The financial year 2023 was one of the best years for Dr Reddy's Laboratories. The company's revenue came in at Rs 245.9 billion (bn) and grew by 15% on a YoY basis. The growth was mainly driven by new product launches, partly offset by price erosion.

Its total net profit more than doubled and grew by 107% on a YoY basis to Rs 45.1 bn. The increase was driven by new product sales with higher gross margins, higher government incentives, and favourable foreign exchange.

It launched 10 new products during the quarter and 94 new products during the year across various countries of emerging markets.

The company closed the financial year with double-digit top-line and bottom-line growth, with earnings before interest, tax, depreciation, amortisation (EBITDA) and return on capital earnings (ROCE) margin exceeding the 25% levels.

Dr Reddy's diversified global presence, capability, and strong balance sheet make it a partner of choice for various business partners.

To know more, check out Dr Reddys' factsheet and quarterly results.

#9 Dixon Technologies

Dixon Technologies is one of India's leading manufacturers of electronics.

The company operates as an original equipment manufacturer (OEM) and original designing manufacturer (ODM) for several industries. This includes LED TVs, consumer durables, and mobile phones. It also offers repair and refurbishment services for the same.

Its clients include Samsung, Xiaomi, One Plus, Havells, Bajaj, and Godrej, among others.

With the global supply chain adopting the China Plus One strategy, a new opportunity has opened up for Dixon Technologies.

The company is already the fastest growing mobile manufacturing company in India. Under the product-linked incentive (PLI) scheme, it has set up a manufacturing facility to expand its mobile phone production capacity by 20 m units.

It's a good choice for global companies looking for an Indian partner in their China Plus One strategy.

Also, the PLI scheme is being extended to other industries such as IT hardware, lighting, air conditioners, wearables, and hearables.

Thus, Dixon Technologies has the capacity to emerge as a major global electronics manufacturing company in the long term.

The company's established position in the market, along with its expansion plans, will drive its long-term growth, especially from exports.

To know more, check out Dixon Technologies' factsheet and quarterly results.

#10 Aarti Industries

Aarti Industries, one of India's leading manufacturers of speciality chemicals and pharmaceuticals.

The company has a diversified basket of products and a monopoly in several chemicals. It also manufactures active pharmaceutical ingredients (API), intermediates, and xanthine derivatives.

It's the largest producer of benzene-based chemicals and derivatives. It has a market share of 25-40% for various products. Aarti Industries enjoys high economies of scale and low cost of production. It also has a strong pipeline of over 90 products.

Aarti Industries exports its products majorly to Europe, North America, Japan, and China. It has a large client base. Some are distinguished names like 3M, Dabur, Sun Pharma, and Bayer.

The company has been ramping up its capacities across all product lines. It's well placed to take advantage of the growing demand for speciality chemicals which China is unable to fill.

This puts the company in a sweet spot and makes it an attractive candidate to take advantage of the slowdown in China in the long term.

It's capacity expansion, along with its edge in low cost of manufacturing, will drive revenue and profits of the company for many years to come.

To know more, check out Aarti Industries' factsheet and quarterly results.

Conclusion

We have often heard stories on how investing in share markets have led to unbelievably high returns. Investors are fascinated by the multibagger returns that fundamentally strong stocks keep on delivering.

But the most important aspect of investing is often ignored, i.e. the time horizon. History is proof that some of the largest gains have come from investing in multibagger stocks for 10 years or more.

The key to finding such stocks is to look at all the aspects of the company. You need to look at the growth opportunities for both revenues and profits, quality of the management, financial performance, track record of dividends, and much more.

Consider all these points holistically. The best stocks for the long term are the ones that have a tick mark against all these points.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...