Are you looking for that elusive 10-bagger? Soaring stocks like that aren’t needed when we can get nice annual dividends from top FTSE 100 shares, but picking up the odd few multi-baggers during your investment career can provide a very nice bonus.
And stocks that multiply tenfold over 10 years are more common than you might think. Here are three, with some thoughts on how we could spot them.
If you can identify a new trend in its early days, you can set yourself up to make some serious money. JD Sports Fashion (LSE: JD), for example, has soared in value not just tenfold, but is up 3,200% over a decade. So a modest £1,000 invested in JD a decade ago would be worth £32,000 today.
Well, actually, you’d have more than that, as JD has also been paying dividends. They only offer very modest yields, but they’d have made a welcome addition over the long term, especially if you’d reinvested the cash in new JD shares.
The sport-to-street clothing market is one that has boomed — so much so that even Marks & Spencer is getting into it, though critics might suggest that’s a little late.
But, while it might be possible to identify new booming sectors, getting the right company can be more of a challenge. JJB Sports, for example, went bust in 2012 (with some of its assets, perhaps ironically, being bought up by JD).
Melrose (LSE: MRO) specialises in buying up underperforming engineering companies, turning them round, and selling them on. The most recent headline acquisition was that of GKN, and it’s still too early to know what the outcome of that will be. But Melrose’s clear expertise in understanding and managing firms in the engineering sector has resulted in a decades-long string of successes.
That’s resulted in a 10-year share price gain of 1,190%. So every £1,000 invested 10 years ago has grown to £11,900, and dividends of around 2% or a little more have added some more to the pot.
It obviously wasn’t possible back in 2010 to know that Melrose would more than 10-bag by 2020, but through buying companies that are the best in their class, we can raise our chances of getting a long-term winner. Melrose is pretty much unique, and enviably good at what it does.
Those first two are FTSE 100 companies today, but my third example is in the FTSE 250. It’s Games Workshop (LSE: GAW), whose shares have recorded a decade gain of 2,570%.
In these days of electronic gaming, Games Workshop is different in specialising in physical wargaming figures, including model soldiers, Lord of The Rings figures, and a whole host of others. Earnings have been soaring — and in the past five years, the dividend has accelerated dramatically, offering yields of around 2.5%.
Of the three stocks here, this is the one I think was probably the most difficult to spot for its multi-bagger potential, and even with the benefit hindsight I don’t know what signs there were back in 2010 that the business would perform so outstandingly well. But there’s obviously a lot of luck involved in chasing multi-baggers.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of Melrose. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.