'Ten-bagger' stocks are the 'holy grail': Strategist

Nvidia's slide continues as stock tumbles over 10% from recent record

Wed, Dec 6, 2023, 8:21 AM

"Ten-baggers" are defined as stocks whose share price is capable of multiplying by a factor of 10x. They comprise just 2% of names across global markets. Laidler says key features of these stocks include: very strong revenue growth, mid-cap size with room to expand, existing profitability and attractive valuations.

While tech dominates as the top U.S. ten-bagger sector, Laidler notes variation globally. Areas like mining and lithium drive Australia and Sweden ten-baggers amid hot demand.

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Video Transcript

- To rally or not to rally? That is the question hovering over markets at the moment while stocks continue the momentum we saw in November. And if they do, where should people jump in? Investors looking for opportunities may want to know about what our next guest calls ten-bagger stocks. Names that multiply their share price by a factor of 10. These stocks make up only 2.7% of 16 developed market indices over the past 10 years.

Here with the names of those ten-bagger stocks is Ben Laidler, eToro Global Markets Strategist. Ben, so thank you so much for joining us again. Let's jump right into these stocks that we're really looking at to kind of take us off to the races.

BEN LAIDLER: Yeah, so I guess it's the Holy Grail for any investor, is to find those winners and just let them run. Clearly it's more difficult than I make it out to be, otherwise I'd already be on my sort of yacht somewhere. But to your point, 2.7% of global stocks have been ten-baggers over the last decade. Nearly 5%, interestingly in the S&P 500, which is one of the better hit rates globally.

And we're not throwing darts at a dart board here. There are some common denominators to try and increase your odds. They tend to have very strong revenue growth, and therefore it helps to be in a sector like tech, which has this sort of structural growth. They tend to have started off as sort of mid-cap stocks. You know, big enough to take advantage of the opportunity, but small enough to have that sort of growth runway over time.

And I guess thirdly and maybe most interestingly, they're already profitable, and they have quite low valuations. And that really, you know, then gets that virtuous circle going of margins then expand. Investors pay more attention. They rewrite, and, you, know then you get-- then you become that sort of ten-bagger over time.

- Ben, it's really interesting. You know, even as you're rattling off some of the parameters that kind of make up this ten-bagger personification, if you will, of some of the tickers that you're looking across, they're not even all concentrated specifically in one region of the world. They're quite international here. You know, give us a little bit more perspective on that and what investors should be keeping tabs on about the international environment for where some of these companies play in.

BEN LAIDLER: Sure. So the US does well. It's full of tech names, and we all-- you know, we've all watched in awe of the sort of NVIDIA story. But it's not the best. Australia has nearly twice the proportion of ten-baggers as the S&P 500. And the sector composition is completely different. It doesn't have anything to do with tech. It's all to do with mining.

And a lot of these sort of lithium miners are really leading the way there, you know, riding on the back of the EV boom. Pilbara is a stock that's up 320 times over the last decade. So double what you've made out of NVIDIA. But you've also made, you know, great money proportionally in places like Sweden, places like Germany. Markets that maybe you don't instinctively look at, or those, you know, big sort of tech juggernauts. But they've actually proportionally had more ten-baggers than the US has.

- And Ben, you mentioned NVIDIA. Is it too late for investors to get into that, or is that still a strong play based on these parameters that you're looking at? And where else? Is it AMD? I think that's one you're a fan of. But how do you balance that out?

BEN LAIDLER: Yeah, so if you look at the top five ten-baggers in the US over the last decade, it's NVIDIA sort of off the charts, head and shoulders above everyone else. 120 times. You know, AMD Tesla 30 odd times. And then Broadcom and Cadence up sort of 20 odd times. Now obviously, when you're that big already and you've already gone up that much, it's going to be very difficult to then repeat it again. That's why it tends to be those sort of mid-caps that are growing very quickly that can keep doing that.

But doesn't mean that you should be bearish on these stocks. You know, I think AI has, you know, moved from hype to reality. NVIDIA has actually become cheaper this year, because the earnings revisions have just, you know, way outpaced the, you know, stock price. So I think that's a good place to be. It just may not be another ten-bagger from here.

- All right, Ben Laidler, who's the eToro Global Market Strategist. Ben, always a pleasure to kick off the session with you. Thanks so much for taking some time.

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