I was recently reading a USA Today article about 11 stocks that turned $10,000 into $100,000 in just 2 years. This is not a list of older established companies like Microsoft (MSFT) and Walmart (WMT) that you could have bought in the 80′s. Instead the list includes a number of companies that you could have bought over the past two years. Let’s take a look at the 11 stocks that made the list and what they have in common.
- Crocs (CROX), up 1347%
- Gulfport Energy (GPOR), up 1,227%
- ION Geophysical (IO), up 1,098%
- Ruby Tuesday(RT), up 1,072%
- Buckeye Technologies (BKI) , up 1,059%
- KapStone Paper and Packaging (KS), up 1,036%
- SFN Group (SFN), up 1,024%
- Veeco Instruments (VECO) , up 1,017%
- La-Z-Boy(LZB), up 1,016%
- Genworth (GNW), up 993%
- Sonic Automotive (SAH), up 906%
As you can see, all of these stocks are in a variety of different industries. They do however share a few common traits.
The first trait that they all shared is that they were value stocks. There shares were trading at extremely low valuations which meant that some kind of bounce back was highly likely. Investors may not have known that they would receive a return 10 times the purchase price but they knew that these stocks would rise. You should only buy stocks that are trading at a discount to their true value. That is exactly why I never buy shares of Netflix (NFLX) at $250 a share. It is simply too pricey.
I prefer to find a stock trading closer to its 52 week low than its 52 week high. I never want to overpay for the earnings of a company. The best values can be found when the whole market is tanking. You can find a perfectly good company whose shares have been driven down for no good reason. The last financial crisis is a great example of this.
Companies like Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) deserved to have their prices drop because they had too much leverage and teetered on the brink of failure. Cash rich technology companies like Apple (AAPL) saw its shares drop too and for no reason. The company was not tied to the financial crisis at all and investors had a chance to pick up the technology company for $75 a share.
Small Cap Stocks
Another thing that all of these companies had in common is that they did not have large market capitalizations. Companies with huge market caps do not have the ability to grow at the rate of companies with much smaller market caps. The time to buy a company like Walmart was in its early growth days. Walmart’s small market cap gave the company the potential to grow at an incredibly rate.
Today, Walmart has a market cap of nearly $200 billion dollars. If the company grew 10 times its current size, Walmart would have have a market cap of $2 trillion dollars. That is simply not going to happen anytime soon. Walmart is one of those growth stories that has evolved into the category with the dividend stocks.
Conversely, a smaller company like HHGregg (HGG) only has a market cap of $500 million dollars. It is realistic to think that if the stock price took off that the market cap could increase to $5 billion dollars. Today’s successful small and mid cap companies have the capability of becoming tomorrow’s large cap leaders.
Both large and small cap stocks have a place in the portfolio of investors. Large cap stocks provide stability and offer reasonable growth. Small cap stocks are a whole lot riskier but do have home run potential if you select the right one.
What companies do you think could realistically grow 10 ten fold over the next five years?