- (0:40) - What Are 10-bagger stocks?
- (3:45) - Characteristics and Examples of 10-Bagger Stocks
- (19:10) - Retail Stocks To Watch For Growth
- (25:00) - Episode Roundup: WMT, HD, UNH, TCEHY, FB, DPZ, LULU, GOOS, PLNT
Welcome to Episode #133 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
Have you ever heard of the phrase “10-bagger stock”?
It was coined in the 1980s and 1990s by famed Fidelity mutual fund manager Peter Lynch in his book “One up on Wall Street.”
It describes a stock that appreciates 10x its initial investment.
For example, a stock goes from $10 to $100 or $20 to $200.
This is easier said than done, especially as it’s usually not a quick process so you have to hold the stock over the long term. You may have to hold it for a decade or more.
How Do You Find a 10-Bagger Stock?
Usually, 10-bagger stocks are growth stocks, not value stocks. But, over the years, good investors have been able to find value stocks with big growth too.
Just take a look at the charts of the Unitedhealth Group or the other health insurers. These were all value stocks five to ten years ago. Some of them still are. Yet, several of them have produced 10-bagger returns.
10-bagger stocks usually have certain characteristics. While these are no guarantees that you’ll end up with a 10-bagger, at least you can narrow your choices.
5 Characteristics of 10-Bagger Stocks
1. They dominate their industry. Think of Facebook (FB - Free Report) and the social media industry. Who is bigger? It is the global leader in the industry, so much so, that some have called it a monopoly and want it broken into smaller segments.
2. Look for a hot product. Even older companies that have been around a while can suddenly come up with a new product that drives revenue and growth, and usually the stock price. In 2009, Domino’s (DPZ - Free Report) , after 50 years with its old recipe, rolled out a new pizza crust, sauce and cheese. It started the renaissance that was only enhanced when it was the first restaurant chain to launch its own ordering app. Both events fueled its return to big growth and the shares soared.
3. Rapid expansion. Check the growth. Planet Fitness (PLNT - Free Report) has been expanding its locations quickly across the United States. Sales are expected to rise 15.9% in 2019 and 12.7% in 2020.
4. Changes in government regulation. Sometimes regulatory changes aren’t a bad thing but they can actually help a company gain a competitive advantage. China’s economy is heavily regulated and that means some companies have been given advantages. Look at the large cap companies that dominate their industries, like Tencent (TCEHY - Free Report) . The government has created barriers to entry, both foreign and domestic, that it can now exploit.
5. A strong brand. Everyone knows Canada Goose (GOOS - Free Report) by now, right? It’s winter coats are distinctive. Over the last holiday season, customers were waiting in line outside of the Chicago store, just to get in. It is still in the expansion phase, with just 12 flagship stores worldwide.
While many of these stocks aren’t “value” stocks right now, that doesn’t mean some won’t see sell offs or pullbacks and get more attractive.
If you are looking for 10-baggers, you’ll want to have some growth. There’s nothing wrong with value investors also looking for growth plays.
What else should you know about finding 10-baggers?
Listen to this week’s podcast to find out.
[In full disclosure, the author of this article owns shares of FB in her personal portfolio.]
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