Fundamental Analysis and Position Trading: Evolution of a Trader

CHAPTER 14

Finding 10-Baggers

10-baggers—stocks that move up by at least 10 times their original value—are easy to spot. “I should have bought right there,” I will say and point to a chart of a stock that became a moon shot. Trying to find 10-baggers before they make their move is more challenging.

This chapter looks at traits common to stocks that climb at least 900 percent (10-baggers) in five years or less. Since such stocks are as rare as snow flurries in Florida, I added more samples to my Value Line database. After I finished typing in the information, I had unearthed only 163 nonoverlapping 10-baggers covering the years from 1992 to 2007. By nonoverlapping, I mean a stock can have two 10-baggers providing one ends before the next begins. I found only 11 stocks that had more than one 10-bagger and the separation between where one ended and the next began averaged 3.3 years.

I used split-unadjusted data to get an accurate price representation. If price is cut in half by a two-for-one split, for example, price to book value, price to sales, and other ratios change. I eliminated that possibility by removing quote data that had a split during or after price began its 10-bagger run.

To find the start of a 10-bagger, I located where price made a large move and then measured from the highest price backward in time and stopped if price qualified as a 10-bagger in five years or less. This method of looking backward in time means I did not have to guess about where a 10-bagger began, ...