Market Overview

10x Return Stocks - True-Growth Stocks (Part 3)

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In part 1 and part 2 of this article, we discussed crashed-and-recovered and super-spike 10x return stocks. While these two types give the best return in relatively short time spans, most investors, when they think of 10x return stocks, focus on finding true-growth stocks, stocks of companies which grow their businesses leaps and bounds over a longer period of time, and turned them into formidable businesses.

True-Growth 10x return stocks

AutoZone, Inc. 10 year chart

The stock charts of true-growth 10x return stocks look very similar to the chart of AutoZone, Inc. (NYSE: AZO) 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 (NYSE: CRM); while some copied a successful business model and deployed it elsewhere, such as Baidu, Inc. (NASDAQ: BIDU); or some that perfected a formula for consumer taste, such as Panera Bread, Inc (NASDAQ: PNRA). 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. (NASDAQ: CTRP), Express Scripts, Inc. (NASDAQ: ESRX), and NetFlix, Inc. (NASDAQ: NFLX).

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. (NASDAQ: AMZN) 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.

 

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