Stocks climbing to 10 times their original price are rare breeds -- but they're not impossible to find. Especially when you have Fools for friends.
The market's best stocks include companies that have risen dozens of times in value over the past decade. These aren't penny stocks; they're viable companies with sound business prospects, achieving phenomenal returns every year. Finding just one or two of these monstrously successful firms can help you establish a winning portfolio.
Stalking the monster
To find tomorrow's winners, we'll enlist the more than 130,000 monster trackers at Motley Fool CAPS. We've compiled a list of the most successful CAPS members, dubbed All-Stars, whose picks have doubled, tripled, or even quadrupled in price. Then we've plucked out some of their recent picks for stocks they find equally promising.
Of course, this is not a list of stocks to buy -- or, for those monster stocks that our CAPS All-Stars have already found, sell. Just consider them starting points for your own further research of extreme buying opportunities.
In search of Bigfoot
Department stores, like much of the retail sector, have been devastated by the recession and contraction in consumer spending. Macy's reported little magic with a massive $5.4 billion fourth-quarter, before-tax writedown of goodwill, which contributed to a $4.8 billion loss for the year, or $11.40 a share. While management highlighted that the markdown fell near the upper end of the range it had forecast and didn't expect it to impact its business, credit agreements, or bond indentures, Moody's quickly downgraded the department store's credit rating to junk status, citing the continuing weakness in consumer spending and deteriorating credit metrics.
Yet there are a lot of problems with this goodwill impairment. First is the size of it. $5.4 billion is equal to nearly 22% of Macy's revenue for all of 2008 and accounted for 18.6% of its assets at the end of the third quarter, before the writedown. That's huge, and it's simply evaporated from the financial statements. It means Macy's paid exceptionally high prices for businesses, which suggests a weakness in management's ability to assess business opportunities.
In addition, 2008 was the third year in a row with declining sales and net income, even backing out that goodwill impairment. Yet, that didn't stop chairman and CEO Terry Lundgren from pulling in a $900,000 incentive plan bonus on top of a $1.5 million salary and the usual stock option awards.
The pain doesn't look like it's going to end anytime soon, either. Macy's reported same-store sales fell 8.5% in February, in line with rivals J.C. Penney, which was down 8.8%, and Dillard's, off 13% for the month. But Kohl's (NYSE: KSS) saw its sales only dip 1.6% for the same period.
CAPS member wolfhounds looks at the poor results piling up along with the rest and doesn't see it as a case for hope.
Moody's downgraded Macy's debt to Ba2 for good reason. As of fiscal y/e 2009, cash and receivables totaled $1.7B while ST debt was $966. Cash from operations dropped 50% the last 2 years, with a LT debt load of $8.733B. To add insult to injury, inventory levels have barely budged in 3 years indicating management's inability to gauge demand. Oh yes, things are so good Macy's coughed up $15m in compensation to it's CEO in 2008.
A chance for scary growth
It takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions, so start your own research on these stocks on Motley Fool CAPS. You can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. And while you're there, weigh in with your own thoughts on whether you think these are tomorrow's monster stocks.
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