Rules For Finding Tenbaggers

Continuation from yesterday…..What You Ought To Know About Finding Tenbaggers

Rule #2: Operational Improvements:

Again, just because the stock is undervalued or just because it had lost 80% of its value over the last 24 months, doesn’t mean the stock will turn around and go higher. If anything, it is highly probable that the stock in question will remain at the bottom of its trading range for the foreseeable future. Worst, it might go on to lose another 80% before the bottom is reached. Some sort of a catalyst is needed before the position is taken. Typically, necessary changes come from the following areas…

Restructurings, Asset Divestitures, Mergers and Spin Offs
New Products or Services with a Huge Growth Potential
Management Changes

In essence, the company in question must have something that would allow it to grow faster over the next few years. Without such a clear catalyst, an investment in the company would not make sense as it underlying stock has no chance of appreciating. As was the case in our analysis above.

Keurig Green Mountain (GMCR): Introduced a line of Keurig’s coffee system and K-Cups right before the stock price began to surge.
Apple, Inc (AAPL): Introduced a line of extremely popular iPods before its stock price began to surge ever higher. Followed by iTunes, iPhone, iPod, etc….
Best Buy Inc (BBY): Was working diligently on improving margins, restructuring its growth trajectory and trying out new store concepts that would outperform the competition.
Bally Technologies Inc (BYI): Began a divestiture and restructuring process to simplify its balance sheet and to infuse capital into its otherwise dying business.
Chipotles Mexican Grill (CMG): Was already firing on all cylinders and no change or catalyst was needed.

Clue #2: Some sort of a catalyst must be present. Otherwise the underlying business warrants no investments. The company’s management must be introducing new products, restructuring or doing something that has the potential to send the company’s growth trajectory higher.

Rule #3: Bet on Management:

While we paid very little attention to company’s management in our research throughout this book, it is not an accurate representation of how this issue should be approached. Company’s management and its CEO in particular are incredibly important. A CEO with an excellent track record, a strong drive for success and a high ownership percentage will oftentimes work miracles for the underlying business. As was the case with Steve Jobs and Apple Inc. Likewise, a management team with no previous successful track record and/or without a stake in the company is unlikely to do anything worthwhile.

Clue #3: Successful management team with a clearly defined and executable plan of action. A high ownership percentage in the company by the management team is always a big plus.

To Be Continued Tomorrow…..