Tenbaggers Have Asian Cousins

They're mostly small-cap stocks with returns in excess of 1000 percent.

Peter Lynch coined the term "tenbaggers" as shorthand for stocks that go up 10 times in value. The legendary fund manager discovered many of them. With total returns in excess of 2,000 percent, his Fidelity Magellan Fund was itself a "twentybagger" when Lynch ran it between 1977 and 1990.   

For a more contemporary survey, look no further than Asian small-cap stocks. As many as 57 had a market value of less than $500 million eight years ago and have since crossed that Rubicon by generating returns in their local currencies, excluding dividends, of more than 1,000 percent, of which at least 500 percent came in the last four years. In dollar terms, a market-cap weighted portfolio of these stocks has risen 22-fold since July 2008.

Asia's Own Multibaggers

An index of selected small-cap stocks has increased 22-fold in eight years in dollar terms

Source: Bloomberg

*Market-cap weighted returns from 57 stocks with less than $500 million in market value eight years ago; each has jumped at least 500 percent in the past four years and 1,000 percent in eight years.

That's impressive, considering the most recent four-year period has been marked by an abrupt slowdown in the region's growth. For investors smart enough to steer clear of pump-and-dump schemes, the rewards can be many times what larger companies can provide. Only seven out of more than 1,700 Asian stocks with a market value of more than $1 billion eight years ago have been tenbaggers in the last eight years. Just one of those -- South Korean drugmaker Hanmi Science -- has also been at least a fivebagger in the past 48 months.

Enough of the rear-view mirror. What matters to investors is future returns. On that score, too, the prognosis is encouraging.

Think of a portfolio of Asia's 57 tenbaggers. The consensus estimate of analysts is for 13 percent returns over the next 12 months, which isn't much higher than the 12 percent gain forecasters are penciling in for the MSCI Asia Pacific Large Cap Index. There's a difference, though. While the big companies are sitting on a 0.6 percent year-to-date loss, the Asian small-cap multibaggers are up 19 percent as a group. Eight of them are expected to chalk up returns of between 37 and 65 percent.

More to Come

Analysts are penciling in gains of 37 to 65 percent for eight Asian multibaggers*

*Consensus estimates of 1-year price gains for 57 stocks, which had market capitalization of less than $500 million eight years ago and have risen 10-fold since then, including a five-fold jump in the past four years.

Analysts' most bullish bets are on Japanese biopharma holding company Sosei Group, Tokyo-based property information provider Next Co., Indonesian finance and e-commerce firm Kresna Graha Investama, Thai construction materials group Tipco Asphalt, and Korean interior designer Hanssem. Most of their pessimism is reserved for Australian gold miner Northern Star Resources, as well as a clutch of Indian companies. The latter may need to catch their breath: Tile-maker Kajaria Ceramics, pharma exporter Shilpa Medicare and Symphony, which manufactures air coolers,  are all trading 1.7 to 2 standard deviations above their 10-year average price-to-earnings ratios. 

Still, Asian multibaggers don't exactly offer a free lunch. The private equity-type payoffs are partly compensation for a lack of liquidity. Without aggressive selling, which will cause prices to fall, about a quarter of the Asian tenbagger portfolio can be disposed of in a day; almost 12 percent will remain unsold even after a month, according to data compiled by Bloomberg.

That's not ideal for risk-averse investors, who can always buy a liquid bond fund instead. Although, as Lynch said, "Gentlemen who prefer bonds don't know what they're missing."

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andy Mukherjee in Singapore at amukherjee@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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