Stocks that climb 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 that have sound business prospects and achieve phenomenal returns. And they happen to share some common traits: They're small, obscure, and ignored. Finding just one or two of these monstrously successful companies can help you establish a winning portfolio.
Stalking the monster
To find tomorrow's winners, we've enlisted the help of more than 135,000 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
Back in March, every stock looked like a bargain. Over the past six months, each of the picks illustrated above turned in a monster performance. Even the "worst" of the bunch, Fluor, beat the market's own big move up by nearly 2-to-1.
But that's what you'd expect from a five-star CAPS-rated stock. It might be more surprising to see the lower-rated Walter Energy beat out all the recent picks for top honors, appreciating in value by more than 170%.
While Walter Energy's ascent really began back in December, it truly got going after it spun off its investment-management arm. Now the company can concentrate more on its core business, which includes producing and exporting metallurgical coal for the global steel industry, as well as steam coal, coal-bed methane gas, and metallurgical coke. Stripped to its essentials, Walter now has a market cap similar to those of competitors Alpha Natural Resources (NYSE: ANR) and Massey Energy (NYSE: MEE).
A lump of coal for Christmas?
After ridding itself of the investment arm, Walter Energy will have its fortunes more closely aligned with those of its competitors. Following Alpha Natural Resources' earnings report, which showed slacking demand affecting coal shipments and a profit decline of 77%, highly rated CAPS All-Star ypcheng expected Walter would follow suit:
After a bad earning report from [Alpha Natural Resources], [Walter Energy] will have similar report because the worldwide recovery is not [imminent]. The stock came up from 25 to 48 in 30 days. It is overbought. ... That said, this is a good company. Once it goes below 40, one should bet the other direction.
Walter Energy's own earnings ended up reflecting that same weakness, as metallurgical coal and coke sales volumes dropped by 38% and 73%, respectively.
However, China's steel industry is beginning to rebound as a result of the country's spending spree, and the U.S. may have hit a bottom in steel. The hope is that the second half of the year and beyond will be much brighter because of the trickle-down effects of the many stimulus packages enacted around the globe.
Lighter shares of green shoots
But news from other markets paints a bleaker picture for Walter. For example, it generated 18% of revenue from sales to Brazil in 2008. But Brazil's second-biggest steelmaker, Usiminas, said local steel demand could plummet by 30% in the third quarter, even though prices are stable and have the potential to rise. It looks as though any recovery may take a little longer to play out for this coal miner.
Walter has been producing generous amounts of free cash flow over the last year, and it sports an enterprise value of just 8 times free cash. So the stock seems to be undervalued. With analyst expectations of 86% earnings growth over the next five years, Walter Energy definitely seems like a bargain stock.
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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