Long term investment styles: Value Pick OR Multibagger Stocks, Where to invest?

Growth and value investments tend to run in cycles. Understanding the meaning and differences between them may help you decide which may be appropriate to help you pursue your specific goals.

What are Multibagger Stocks?

MULTIBAGGER STOCKS is a term that we often hear of. Though there is no specific definition available for this term. It is an investment jargonwhich is used by market participants to describe an equity stock which gives you multiple times return. According to layman, 100% return is defined as a single bagger, likewise two baggers give 200% returns. Multibagger stocks are small to mid-cap stocks and possess the potential to outperform the overall markets and even their respective industry for a period of time. These stocks are of companies that are in high growth phase and so possess huge growth potential. Multibagger stocks from companies that are high growth companies in early stage of life with low market share.

What are Value Pick Stocks?

VALUE PICK STOCKS are usually large cap stocks with large market share and stable growth rate. When such stocks are trading below their intrinsic value i.e. discounted price of future cash flows they become good bet to buy for value investors due to positive margin of safety. For example, the intrinsic of a company’s stock may be Rs. 25 a share and if it is trading for Rs. 20 a share at the moment. These stocks often tend to have lower P/E and P/B ratios.Value stocks generally have good fundamentals but become undervalued for many reasons like fall in overall market, economic crisis, industry specific some bad news, company specific scandal, etc. But if the company’s financials are still relatively solid, then smart money will jump in at that point, as they know its temporary hiccup and the price will be back on or above its valuations.

Where to invest?

Investors are often confused where to invest in growth stocks or value stocks. At times, growth stocks may be seen as expensive and overvalued, which is why some investors may prefer value stocks, which are considered undervalued by the market. Value stocks are those that tend to trade at a lower price relative to their valuation.

Value Pick stocks are considered to have a lower level of risk because they are usually found among larger, more established companies and bought on lower side and these stocks often pay dividends as well. Multibagger stocks, on the other hand occasionally pay dividends and the chances of loss can be higher. However, high risk brings higher returns also, growth stocks have the highest potential for the greatest returns over time.

The answer to the growth-versus-value is ultimately dependent upon the investor’s risk return profile as well as the current state of the market. Let’s compare the risk return profile to understand where to invest.

Multibagger Stocks (Growth) and value (Value Pick stocks) are two major styles of investing in stocks. Neither approach is guaranteed to provide appreciation in stock market; both carry investment risk. The return and principal value of stocks fluctuate with changes in market conditions. Investments in equity involve a greater degree of risk as able to give higher returns on it.

Multibagger Stocks are high capital appreciation and high risk stocks. Bought on higher side and gets filtered on Corrections as they throw weaker ones out and you remain only with (survival of fittest) best for again big move in next rally of not less than 100-1000% and this cycle goes on. Stocks may fall even 50%-80% after buying but they rise with much more momentum after that. They have potential to over perform market many times.

Value Pick Stocks are minimum risk with good returns, as these are well known names with trusted fundamentals and bought from lower levels. Though they may not rise much from higher side like Multibagger socks they don’t correct like Multibagger stocks in correction.

For most investors, following any single approach of investing over a longer time frame may not provide any absolute advantage. Hence instead of following any single approach, go for a combination of value and growth stocks so as to strive for the best possible return. This would help investors to profit throughout various economic cycles where market favors either value or growth investing style with reduced risk.

Growth stocks, in general, have the potential to perform better when interest rates are falling and company earnings are rising. However, they are generally the first to be punished when the market corrects. Value stocks, generally do well early in an after correction but are typically more likely to lag in a sustained bull market. Both growth and value stocks have taken turns leading and lagging one another during different markets and economic conditions.

Earn 30-40% returns p.a. by investing in both Growth (Multibagger Stocks) and Value Stocks (Value Pick Stocks) and take benefit of each move of market with ABJ, SEBI Registered Research Analyst.Regardless of which type of investor you are, there may be a place for both growth and value stocks in your portfolio.

Abj is a team of Sebi Registered Research Analyst, Traders, Investors and Tutors. Its vision is to build wealth of clients by making investment in proper stocks for long term.