Editor's note: Beaten-down markets create hated value opportunities... And that's a great recipe for huge gains over time. But to find the winners that could soar 10 times or higher, you need to go where most folks aren't looking. Marc Gerstein at our corporate affiliate Chaikin Analytics joins us with the details...
Let's talk about what we really want as investors...
Yes, we all want to find stocks that go up. But let's try to stand apart from the gazillion other folks who are looking for the same thing...
We really want 10-baggers!
Now, these opportunities are rare. Not many stocks go up 1,000%. So don't expect to find many.
But there are much worse things in life than a hoped-for 10-bagger that turns into a mere three- or four-bagger. That's still a significant gain, after all.
So aiming for big returns is a good habit. And the key to finding 10-baggers is...
An open mind.
This is harder than it sounds. But it's not impossible. To get into that mindset, you just need to avoid some boneheaded pitfalls.
So today, I'll help you get into the "10-bagger hunting" mindset. I'll share my favorite 10-bagger I ever captured. And we'll cover some of the process I used to hunt for it...
The following chart shows the incredible run of Chico's FAS (CHS) in the early 2000s...
I bought Chico's in the spring of 2000. I held my shares as the story played out. And after about five years, I sold – not too far from its peak.
Back then, I wasn't looking for this company in particular. Frankly, I had never heard of it. But it kept finding me. It kept popping up on the screens I had developed.
Still, I almost missed it... That's because I didn't have an open mind at first.
My screens were producing plenty of other good candidates to examine. So I just wasn't interested in a tiny stock with a cute name.
Eventually, I noticed Chico's on the schedule of a micro-cap conference I was attending. And as it turned out, that presentation was the kick I needed to buy...
Chico's is a mall-based retailer of women's apparel. There are plenty of companies that fit this description. But when I found it, Chico's differed from the countless other mall retailers in some interesting ways...
The company sold stylish, comfortable outfits to women in their 30s, 40s, and older. It was much different from the "skinny youth" look that most of the industry pursued back then.
The company's management made a practice of collecting and analyzing customer data. It built marketing programs around the data. Chico's even launched a loyalty program.
This concept is old hat now. But it wasn't in 2000.
Meanwhile, its financial-data profile was great. I won't pretend to remember the details of my screens from two-plus decades ago. But here's a clue...
I projected our not-yet-invented Power Gauge model at Chaikin Analytics back in time. And if our system had existed in 2000, it would have ranked Chico's favorably.
The point is, you don't need to hunt for the next company that can clone humans, foster connectivity between people and rodents, or cure COVID-19 with a single-dose pill.
Bold innovation is great. But sometimes, 10-baggers are hiding in plain sight. They can be everyday companies that are simply getting an edge in the "normal" world.
So, in order to find a 10-bagger, you need to narrow your focus...
Start by eliminating all the stocks that are too well-known. If you've heard the name discussed often, it will be virtually impossible for enough new demand to pull the equilibrium price (the price at which shares demanded equal shares supplied) up 10-fold.
That means the "FAANG" stocks are out. So is everything in the S&P 500 Index. And count out "meme stocks" as well.
The 10-baggers won't come from the stocks you and everybody else have heard of. They come from the obscure corners of the market – like a retailer with a loyalty program in 2000.
These days, I use the Power Gauge to go 10-bagger hunting. Its systematic approach helps me ignore the old standards and focus on new opportunities.
But no matter what approach you use... make sure you keep an open mind.
Editor's note: Just months ago, Marc Chaikin (who created the Power Gauge system) issued a dire warning for U.S. stocks... one that quickly came true. Now, his system is flashing a new warning. But rare pockets of opportunity have begun to emerge – with little-to-no media attention – in the midst of this turmoil.
If you act now, you have a chance to seize them, even as others struggle in the face of this next market shift... Check out his important update right here.
"Meme stock" traders look for big gains in overhyped stocks, ignoring this important rule. Recently, they suffered the consequences. But one indicator could have helped them avoid disaster... Get the story here: This Indicator Could Have Saved Traders From a Rich Guy's Bet.
It's easy to conceive of "the market" as one massive unit. But pro investors look at it differently. With this approach, it's possible to spot advance warning signs for specific groups of stocks... and drill down into the best and worst performers. Learn more in Marc Chaikin's two-part series here and here.