When people think about 10 bagger stocks, they often think about all the wonderful growth stocks that gradually return 10x over time. Over the weekend, we ran some filters to seek out the current stocks that returned 10x between their lows and their highs during the past decade, to see how these stocks behaved. Therefore, some of these stocks may be now at a price significantly lower than their previous peak, but they did at one point in the past decade returned 10x for the investors who bought at their lows. This also excludes the stocks which got acquired and are no longer trading. In addition, we filtered out all the stocks with current market capitalisation less than $300 million, thus filtering out all the penny stocks and a few others. With these criteria, we found around 500 of these stocks.
Since the dot com bubble bursted in 2000, these stocks did not take into account one of the craziest bubbles of investment history. However, there were plenty that caught the housing bubble and commodities craze before the financial tsunami washed them out.
From this universe of 10x return stocks, they can be basically classified into 3 types:
- Crashed and recovered stocks These are stocks that was once the darlings of investors, then crashed but then somehow found a way to climb back to return 10x for the investors who bought at the low. Many of them are tech stocks which crashed after the dot com bubble, but proceeded to a great recovery.
- These are stocks that was once the darlings of investors, then crashed but then somehow found a way to climb back to return 10x for the investors who bought at the low. Many of them are tech stocks which crashed after the dot com bubble, but proceeded to a great recovery.
- Super spike stocks These are stocks which spiked and return 10x, but then crashed back to their previous levels. Many of them are housing or commodities related companies.
- These are stocks which spiked and return 10x, but then crashed back to their previous levels. Many of them are housing or commodities related companies.
- True growth stocks These are stocks that are truly growth stocks that grew their business leaps and bounds in the past decade.
- These are stocks that are truly growth stocks that grew their business leaps and bounds in the past decade.
While it’s great to be able to invest in the true growth stocks, there are actually a lot more crashed-and-recovered and super-spike stocks which returned 10x for those investors who bought at the lows. In this article, we will highlight and discuss some of these stocks.
Part 1: Crashed and recovered stocks
Many of these stocks are dot com stocks which saw their immature business models crashed, but survived the dot com bubble burst, modified their business and found new source of revenue, or executed much better afterward with the wind of internet/broadband revolution behind them. For example, all three of the major Chinese internet portals, Sina.com, Sohu.com, and Netease, crashed after the dot com bubble, all traded below $1/share or close to it at one point, but found new life in SMS (Short Message Service, or texting in the US) services to generate the necessary revenue to fight another day to prosper later. They are all trading between $40/share – $60/share these days, so they in fact returned 40x-60x to investors who bought at the lows, much better than household names like Google (which did not even make the 10x return list except for the investors who got the stocks before the company went public).
Not all crashed-and-recovered stocks are tech stocks. For example, Airgas, Inc., which is currently in an M&A fight from Air Products and Chemicals, Inc., is a company which distributes industrial, medical, and speciality gases such as nitrogen, oxygen, helium, etc. While ARG did not exactly crashed, its stock declined from $25/share to $5/share from 1996 to 2000. The latest offer from APD is currently at $65.5/share.
Some of the other crashed-and-recovered 10x return stocks include tech stocks such as Akamia, Citrix Systems, Ebix, and those from other industries such as Gymberee, NutriSystems, and EZCorp.
Part 2: Super-spike 10x stocks
Super-spike stocks are stocks which returned 10x to their investors over a rather short period of time, but could not sustain the momentum and tumbled back to a lower price levels. In general, these are companies that took advantage of a trend, and profit expectation was at an extreme during their highs. However, once the trend changed or receded, the companies found that their revenue streams or high P/E multiples rapidly faded away. However, unlike the crashed-and-recovered 10x stocks, these companies could not, or have not been able to find a new source of revenue streams to maintain the high growth they once had.
To illustrate these stocks with a graph, we can look at the chart of MEM Electronic Materials, Inc. above. MEMC is a supplier of silicon wafers of which every semiconductor chip is made of. The stock had a low of $1.05/share in the past decade, and reached as high as $94.02/share in 2008, while currently trading around $13/share. The rise of the stock over the past decade was generally the recognition that everything is turning electronic and there’s a high demand of silicon wafers. However, its meteoric rise from 2006 – 2008 was mostly a side effect of the commodities bubble, causing extreme expectation on makers of solar panels, made with the same materials supplied by MEMC. The company also got actively involved in manufacturing and servicing the solar energy industry during that time.
Once the financial tsunami popped the commodities bubble, MEMC stock just crashed. This is not to say that MEMC is a washed-out company. In fact, Sun Edison, a subsidiary of MEMC, recently signed a contract with CPS Energy to deploy 30 megawatts of utility-scale solar in Texas, and also received a commitment for about $60 million of solar financing from JPMorgan. Nonetheless, to reach the old high again, it will probably take a much longer time frame, and another frenzy in the interests of solar energy again.
Other than MEMC, many of the super-spike stocks, some of the other stocks are oil related companies such as Frontier Oil Corp. or Tesoro Corporation that got popped by the commodities bubble; fashion companies such as Bebe, Inc.; or technology companies that could not develop a new product to replace the previous hot product yet such as Trident MicroSystems.
There are also many of these super-spike stocks which could not survive the aftermath, and got acquired for a low price, or just withered away. Many internet or telecom equipment companies behaved this way after the dot-com bubble burst, as well as many financial companies which got busted after the financial tsunami.
Part 3: True-Growth 10x return stocks
The stock charts of true-growth 10x return stocks look very similar to the chart of AutoZone, Inc. shown above. Even many of these companies were severely affected by the financial tsunami, they bounced back strong, and continue their way to return handsomely for investors.
True-Growth 10x return stocks come in many different kinds of industries. Some of them might have created a new category of business all by itself, such as Salesforce.com; while some copied a successful business model and deployed it elsewhere, such as Baidu, Inc; or some that perfected a formula for consumer taste, such as Panera Bread, Inc. Nonetheless, they all have good management and were able to take their businesses to a far-higher level from where they started.
Some of the other true-growth 10x return stocks in the past decade are Ctrip.com International, Ltd., Express Scripts, Inc., and NetFlix, Inc.
The allure of true-growth 10x return stocks to investors is understandable, as it seems like one can just pick the stocks and forget about them. After that, the companies will just grow and grow and investors get richer and richer. However, as we all know, hind-sight is always 20/20. For every 10x return true-growth stock that builds a formidable business, there are plenty that did not, or return 2x-3x and then crashed and burned or plateau out.
When it comes to 10x return, there are many more crashed-and-recovered stocks than true-growth stocks. Many of them were in fact true-growth companies, but valuations got too far ahead before their stock prices crashed after a bubble bursted. Amazon.com, Inc. is a perfect example of such stocks. Therefore, if investors were to look for high return stocks, do not overlook those companies that just crashed.
In addition, to find stocks that will ultimately return 10x, it’s best to start with small-cap or mid-cap stocks. There are far less large-cap stocks that can return 10x within a decade simply because of the law of large numbers.
Finally, the key to getting 10x return is not just about picking the stocks, but resisting the urge to sell. When a stock returns 5x already, is it better for investors to wait until it returns 10x or bags it at 5x and then look for other 2x return stocks? This is a question best left for each investor to answer.
* See the full list of 10x return stocks here.
Daniel Ho is the founder of 10xreturn.com, a financial portal providing financial information and market statistics for investment professionals.