Stocks that increase 10 times in value in 10 years or less—known as ten-bagger stocks—are solid investments, if you can find them, contends an article in Barron’s. And the faster the price increase, the better the return: a stock that increases tenfold in 10 years will have an annualized return of 26%, but one that rises 10 times in 5 years (called a five-year ten-bagger) will generate a compounded annual return of roughly 58%.
Out of the 175 instances of five-year ten-bagger stocks since 1980, roughly half (48%) have been in the tech sector, from innovative or disruptive tech companies like Dell, Micron, and Intel. But consumer cyclicals also performed well; at 17% of five-year ten-bagger instances, it was the next most common sector, with brand-name companies such as Home Depot, Bath & Body Works, and Nike. As for ten-year ten-baggers, the most common sector on that list was financials, including Wells Fargo, JPMorgan Chase, and American Express, the article details.
As for the next batch of ten-baggers, tech and consumer cyclicals may not be the place to look at present. Both sectors have posted heavy losses in 2022, with the Technology Select Sector SPDR ETR down 31% so far this year. Higher bond yields, caused by soaring inflation, has hurt future profits, which growth companies, particularly in tech, depend on for their current value. In addition, some trends like the shift to e-commerce have slowed down. But if bond yields stabilize, there may still be some opportunities in tech, according to the article, especially if inflation and global interest rate hikes are near their peaks. At that point, the market will begin to factor in a consumer spending rebound, which would give a boost not only to tech stocks, but consumer discretionary stocks as well.