10 Bagger Stocks: Can You Find One?

In 1989, Peter Lynch, the famed fund manager of the Fidelity Magellan Fund, published “One Up on Wall Street.” I have read this book several times, and it may have been the first investment book that I have read. In this book, Peter Lynch talks about 10 bagger stocks. He has a lot of experience in the subject. The Magellan Fund generated total annualized returns between 1977 and 1990 of 29.2% and owned several ten baggers. 

If you invest in a few 10 baggers in your portfolio, your returns will likely be excellent throughout your investing career. It seems easy these days, too—just buy a tech stock, and it goes up. In reality, though, it is more challenging than the financial press makes it sound.

What is a 10 Bagger Stock?

On page 15, Peter Lynch talks about “Those Wonderful Tenbaggers.” To quote him:

“In Wall Street parlance a ‘ten bagger’ is a stock in which you’ve made ten times your money. I suspect this highly technical term has been borrowed from baseball, which only goes up to a four bagger, or a home run. In my business a four bagger is nice, but a ten bagger is the fiscal equivalent of two home runs and a double. If you’ve ever had a ten bagger in the stock market, you know how appealing it can be.”

A 10 bagger is a stock that has experienced a 900% increase in the share price or 10X. For example, Apple (AAPL) was priced at a split-adjusted price of $0.43 in mid-2001. If you bought Apple stock in mid-2001 and held on to it until mid-2021, you would have had a 10 bagger many times over and likely be a millionaire. 

However, stock selection is only half the challenge of picking a 10 bagger or even a 100 bagger. The other part is having the patience to hold onto the equity even when it is down during a bear market, which is a decline of 20% or more.

Peter Lynch has a whole chapter on “Stalking the Ten Bagger.” He discusses some 10 baggers, but importantly, he also talks about all the 10 baggers he missed by not buying them or selling too early.

Probability of 10 Bagger

Based on a study of Australian and New Zealand stocks over 35 years, there is about a 15% or 1-in-7 chance of becoming a 100 bagger. The chance is about 2.3% or 1-in-50 for a 100 bagger in the same time period. The average time required for a stock to become a 10 bagger is 10 years, but it varies depending on the sector and industry. Similar probabilities are likely to occur in the U.S. stock market.

Examples of 10 Baggers

You do not have to try too hard to list examples of 10 baggers. 

Facebook (FB) was one, especially if you bought it when the stock price dropped after the IPO in late 2012. Facebook had rapid growth and a product no one else had social media. Intuitive Surgical (ISRG) was another. The company is a pioneer in robotic surgery. Netflix (NLFX) was another as the company that led in streaming TV gained scale and had a tailwind from the COVID-19 pandemic. Tesla (TSLA) was another because the company innovated in the electric vehicle market.

However, it is unnecessary to be in the information technology or medical technology space for a stock to become a 10 bagger. It is also not compulsory for a company to be new or near its IPO. For example, Domino’s Pizza (DPZ) became a 10 bagger between 2009 and 2019 even though the company just sold pizza and was around for decades. Domino’s Pizza changed its pizza recipe and was the first pizza chain to launch an ordering app. Customers also ordered pizza in droves during the pandemic, and the price has increased since 2019. Domino’s Pizza has also paid a dividend since 2004.

Other examples of 10 baggers include Regeneron (REGN), Tractor Supply Company (TSCO), United Rentals (URI), TJX (TJX), Ross Stores (ROST), Costco (COST), Amazon (AMZN), Monster Beverage (MNST), Microsoft (MSFT), Oracle, (ORCL), Visa (V), Mastercard (MA), Starbuck’s (SBUX), etc. Some of these stocks are dividend growth stocks as well.

The above list is even more extensive if we go back before the Great Recession to the dot-com boom and bust era or look at acquired companies.

Characteristics of 10 Baggers

Knowing which stock will become a 10 bagger or even a 100 bagger a priori is difficult. The problem is that some seemingly successful companies falter, or the CEO changes, and they lack vision and operational execution. There are, however, some common characteristics of 10 baggers companies.

Innovators

These companies need to be innovators. This means doing something that no other company is doing. This could be a new drug or device in the pharmaceutical or medical technology space, e.g., weight loss drugs, or a new retail concept like Costco or Tractor Supply. The new product or service must replace an old one with something better and usually lower cost.

Disruptive

These companies need to be disruptive. However, it is not necessary to be disruptive to the level of Apple and the smartphone, Tesla and EV cars, or Monster Beverage and energy drinks. The level of disruption also depends on the industry. For instance, Costco is a retailer that offers low prices, membership, and convenience in a warehouse. Domino’s Pizza disrupted its industry by improving taste, quality, and the delivery ordering experience. Monster Beverage was smaller than its peers but had a new concept and first-mover advantage.

Long Lasting Advantage

Lastly, companies need to retain their advantage. It takes years for a stock to become a 10 bagger. A future 10 bagger must retain its edge and competitive advantage to allow for time to pass. This is essentially building and keeping a moat. A company only becomes a 10 bagger or more if it can grow revenues and earnings for many years. This often happens when a company or industry is experiencing a tailwind.

Valuation

Valuation such as the price-to-earnings ratio is also a concern. Overpaying for a stock will limit future total returns and reduce the chance it will become a ten bagger in your portfolio. As a result, it is essential to consider the margin of safety.

Market Capitalization

Many 10 bagger stocks start as a small-cap or mid-cap companies. Although larger companies can become ten baggers, smaller ones have more room for growth.

Final Thoughts on 10 Baggers Stocks: Can You Find One?

To be a successful investor, one does not need an entire portfolio full of 10 baggers. A few 10 baggers combined with good dividend growth stocks are enough to generate solid returns over time. 

Finding 10 baggers is not easy, but it’s a worthwhile pursuit for long-term investors. By understanding their attributes, conducting thorough research, and maintaining a disciplined approach, you can increase your chances of identifying and benefiting from these remarkable investments.

Disclosure: I am long several of the stocks listed in this article.

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