To some, it’s investing’s white whale: It will always be out of reach. But to our Chris Mayer, it’s investing’s holy grail. And he’s making progress in his quest.
It was nearly three months ago we told you Chris had set out with an independent researcher to identify 100-baggers — stocks that can turn every $10,000 investment into $1 million.
The bar is high: As we said at the time, it would require an average gain of 14% a year for 35 years. You’re not that patient? Then the bar is even higher: How about an average 36% a year for 15 years?
No matter. Chris think’s it’s a worthy effort: “The idea is to create a template of sorts that these 100-baggers have in common,” he says. “Then we’ll use that template to find stocks that could be 100-baggers in the making. Besides this, I expect the study will yield a lot of investing wisdom.”
Here’s what’s new: The research, covering the years 1962-2014, has unearthed 456 of these 100-baggers.
“We put parameters on this study to weed out some of the tiniest stocks,” Chris explains. “And we assume you reinvest the dividends. Here are the top 10, which include a few surprising names:
Kansas City Southern? “That’s a railroad stock,” says Chris. “It’s up more than 16,000-fold since 1974. A $10,000 investment there turned into $160 million in 40 years. I would never have guessed a railroad stock would top the list. The second stock on the list is an oil and gas firm that now is mainly a refiner. It’s a 14,000-bagger.
“There is good diversity in the 100-bagger population. There are retailers, beverage makers, food processors, tech firms and much more.”
So what do they have in common?
“There are only so many ways up the mountain of 100-baggerdom,” says Chris. “You have to be able to reinvest earnings at above-average rates for a long period of time.”
Often, though not always, that means dividends must be sacrificed. Makes sense: If a firm earns 15% on its capital and pays no dividends, it becomes a 100-bagger in 33 years. But if it pays out one-third of its earnings in dividends, it’s “only” a 23-bagger.
“If dividends can be a drag, borrowed money is an accelerant,” says Chris, looking at the flip side. “A company that earns 15% on its capital could raise it to, say, 20% by taking on some debt. This raises the risk of the stock, too.
“There are other ways to net a 100-bagger. Discoveries of natural resources, such as a great new oil field, can get you a 100-bagger. New inventions and new blockbuster drugs can do the same.
“It’s interesting the reactions I get to the whole project,” Chris goes on. “Most people are enthusiastic about it.
“But there have been dissenters. One friend of mine was not fond of the idea, because he says I’m promising something I can’t possibly deliver.
“First, I am not as pessimistic as he is. But second, even if I don’t uncover a 100-bagger, it can’t hurt to try. What if I turn up a 50-bagger? Or a 10-bagger? Heck, I think most people would be happy to find a few triples.”
Chris and his crew are still crunching the numbers. Watch this space for further updates.
[Ed. note: While we await further results from the 100-bagger project, we want you to know about one of Chris’ most valuable investing tools — one you can put to work right now.
It’s an “almanac” of sorts that indicates the precise days when a small number of stocks are set to soar in price.
Only 30 or so of these opportunities come up in a typical year. “It’s the ultimate cheat sheet,” says Chris. He explains this lucrative strategy in detail when you follow this link.]
The Nasdaq Composite hit 5,000 this morning for the first time since March 2000.
Granted, 15 years ago the Nasdaq traded for a ridiculous 100 times earnings. Now, it’s about 25. Not cheap, but not exactly nosebleed either.
Back then, a monkey could pick tech stocks by throwing darts… and did. The handlers of a chimpanzee named Raven created a dartboard of selected tech stocks and then turned it loose. Raven’s “Monkeydex” index returned 213% in 1999… beating all 6,000 technology mutual funds on the market.
“It was an astounding feat,” reminisces Jonas Elmerraji of our trading desk — “and a sure sign of the market top that followed.”
And now? “Anyone who thinks we’re in a stock market bubble needs to take another look at what actual bubbles look like,” Jonas says. “Can you make the case that stocks are generally overpriced here? Sure. But a bubble this isn’t.”
The S&P 500 is trading near record territory this morning, at 2,112… “but it’s up only 2.2% so far this year,” Jonas points out. “And approximately half of the names in the big index are actually down since the calendar flipped to January.”
Stocks are up even though the two big economic numbers of the morning are down…
- The ISM manufacturing survey clocked in at 52.9 in February. That’s comfortably above the 50 dividing line between growth and contraction, but the growth is the slowest in more than a year. Similar measures in China and the eurozone are showing growth accelerating, however…
- The mighty American consumer remains relatively tightfisted, according to the Commerce Department’s “income and spend” report. Personal incomes grew 0.3% in January, while consumer spending fell 0.2%. Bad news for those who think prosperity results from people spending out of an empty pocket…
The latter report also includes “core PCE” — the Federal Reserve’s preferred measure of inflation. It’s up 1.3% year over year — still nowhere near the Fed’s 2% sweet spot.
Crude has poked its head above $50 as the new week begins. At last check, a barrel of West Texas Intermediate was fetching $50.85.
“Everything I’m seeing in the field looks like a fairly drastic pullback in production is looming,” writes Matt Insley of our energy desk.
On Friday, Matt’s colleague Jody Chudley showed you how the premier U.S. shale player EOG Resources is not only scaling back on new drilling but planning to defer completion of wells already drilled but not yet in production.
Matt’s contacts are telling him much the same: “One company I spoke with is moving from three rigs to two rigs. Another company has already dropped from eight rigs to three rigs. I’ve also heard that adding more rigs won’t even be a consideration till we see prices closer to $75 per barrel. So the rigs that are being idled won’t be coming back soon.
“The pullback in production I’m expecting will justify a $65 price tag per barrel (which will give well-run producers some meat on the bone). For the time being, don’t be surprised if we continue to wage war around the $50 mark for the next month or so.”
“Waffle House Getting Into the Drug Cartel Business,” reads the satiric headline at Fark.com.
Fark’s headlines take you to real stories, and this one is fascinating. It has to do with an Atlanta-based startup called Roadie Inc.
“There’s somebody going just about everywhere from everywhere all the time,” says Roadie CEO Marc Gorlin. “If you can tap that traffic, you have a larger distribution network than UPS, FedEx and USPS combined.”
In other words, what Uber has done to taxis and Airbnb has done to hotels, Roadie hopes to do to the package-delivery giants.
If you have packages to deliver, you request a driver via Roadie’s website or smartphone app. You post details and photos of the items you want sent. Drivers respond based on where they are and where they’re going. Roadie collects a 20% cut of the driver’s fee.
The venture has already attracted $10 million in seed capital. Among the investors — UPS.
So what does Waffle House have to do with it? “Waffle House will offer Roadie drivers free food and beverages at its more than 1,750 restaurants in 25 states,” reports the Atlanta Business Chronicle, “and provide a meeting location for drivers and senders. Roadies get a free waffle upon downloading the app and a free beverage when they’re on a gig (delivery).”
Now with package pickup…
[Wikimedia Commons photo by Michael Rivera]
Clever. Presumably all involved have figured out a way to make sure the parcels are legal…
“Private prisons are definitely Orwellian-scary,” a reader writes on a hot topic here last week “because, like the ‘Little Shop of Horrors,’ they feed on the people — while lobbying for more incarceration laws and longer sentences, to make increasing profits.
“The good news is your article sheds light on the subject and their government-protected position. Hopefully, that will motivate readers to do more than write to you to complain. I am intending to start a groundswell writing effort to government officials, with a self-reminder date to avoid the route to hot pavement.”
The 5: We’re not much on political action around here. But if you can make a boatload of money from our recommendations and give a portion of your profits to an outfit like the Institute for Justice, that’d be good…
“Don’t feel bad about age-related derogatory comments, Dave,” reads the first of several more letters rising to our defense after we inadvertently offended sensitive folks age 68 and up.
“There are plenty of people in the 20s, 30s, 40s… who never bothered to mentally ‘check in’!”
“Heh, I really liked the comment about people at 68 years old having already mentally checked out,” adds another.
“I did not take the comment as a slur but as a realization that at 68, all of the huffing, puffing and worry about day-to-day activities should not really matter. The comment did not lead me to believe that I am losing my marbles, but rather that I can do more with less and enjoy my existence on planet Earth more! Thanks for the insights.”
“Being 68,” writes one of our regulars, “I just got around to reading the 5 issue about the ’68 mental checkout,’ which I am sure I do on occasion.
“However, I have been told that since I know that I am checking out, I’m not… or maybe… uhhh… oh, God, I have become a character between the covers of Catch-22! Actually, what a great idea — how do I make this ‘checking out’ thing happen?
“Thanks, 5, for… for… well, for whatever it is that you do that I like so much… Keep up the good work, I guess.”
“You clearly have several readers with fragile egos that have not learned to enjoy the cynicism and satire you regularly use in your missives. Jeesh, these folks need to lighten up. ‘He who laughs at his own foibles laughs hardest of all.'”
“Sometimes I read The 5 out of the proper order,” writes another regular. “I read Thursday’s after I read Friday’s, and I was amazed by the vitriol that flowed in because of the ‘age’ thing and several other issues that your ‘readers'(?) commented on.
“Young or old, for cryin’ out loud, chill out, people — it’s an investment vehicle. Focus your letters on your local politicians — they need the backlash — not The 5!”
The 5: True enough, but sometimes we need the entertainment…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “Tax Apps to Try This Tax Season,” reads a headline from ABC News
“These Apps Will Make Filing Your Taxes Way Less Painful,” says Time.
Well, maybe.
We’re not sure a smartphone app can clue you into legal but little-known deductions and credits that can save you as much as $18,000 this year alone.
How much would tax help like that be worth to you?
Believe it or not, it can be had for the same price as those tax apps. Free.
Details here.
