Famed money manager Peter Lynch called them "10-baggers," stocks that climbed to 10 times the value he paid for them. They're a rare breed, but not impossible to find. Especially when you've got Fools for friends.
If you look back over the market's best stocks, you'll find companies that have risen in value over the past decade by 3,000%, 5,000%, and even 24,000%. They're not penny stocks, but viable companies with sound business prospects -- companies that are achieving phenomenal returns every year. You need to pick only one or two monster stocks to have a winning portfolio.
Stalking the monster
So where can we find tomorrow's monster stocks today? At Motley Fool CAPS, we track the opinions of more than 70,000 investors who are working every day to help collectively identify those winners. Thousands of stocks are rated by both novice and professional analysts. The opinions of the best stock pickers are weighted more heavily in determining a stock's CAPS rating of one to the maximum five stars.
Investors at CAPS are rated as well, and we call the best of them All-Stars. We've compiled a list of these top players, who, like Peter Lynch, have already found monster stocks -- companies that have doubled, tripled, or quadrupled in price. Then we've given you some of their recent picks for stocks they consider equally promising.
|
Player |
CAPS Rating |
Monster Stock |
CAPS Score |
Recent Stock Pick |
CAPS Rating |
|---|---|---|---|---|---|
|
knudfool |
93.80 |
Terra Nitrogen (NYSE:TNH) |
296.41 |
Duke Energy (NYSE:DUK) |
** |
|
Hetephere |
97.06 |
CF Industries (NYSE:CF) |
254.02 |
Nuance Communications (NASDAQ:NUAN) |
***** |
|
thelelander |
87.00 |
SunPower (NASDAQ:SPWR) |
283.09 |
Ceradyne (NASDAQ:CRDN) |
***** |
Of course, this is not a list of stocks to buy -- or, for those monster stocks that the CAPS All-Stars have already found, to sell. Rather, it's a jumping-off point for doing additional research.
Nuances of speech recognition
Voice-recognition leader Nuance Communications has seen a fairly dramatic rise in its stock as it has pursued a growth-by-acquisition strategy. Seemingly seeking to roll up the entire category under its broadening umbrella, Nuance has become something of a difficult investment to evaluate, as those acquisitions can often lead to indigestion. Moreover, Google (NASDAQ:GOOG) has entered the market, complicating the competitive situation, and Microsoft remains an ever-present threat.
Yet that has not deterred the more than 4,600 CAPS investors who see the speech-recognition specialist as outperforming the market. In fact, just less than 4% of players think it will underperform, while more than 97% of all All-Stars think it will continue to beat the overall market. For example, top-rated CAPS player TheGarcipian is willing to see Nuance forgo some short-term profits to build out an extensive network:
I thought they had (and still have) an interesting acquisition model, and having lived through several acquisitions in my high-tech job, I know that these acquisitions have a success rate very similar to that of marriages in the USA: 50%. The fact that Nuance has been able to continue its acquisitions and have those add to the bottom line so quickly is testament to the excellent management here.
The numbers are a mixed bag, but I half-expected that for a business that is building out and trying to gain market share at the expense of profits. While they are cash-flow positive, the margins are either negative (Profit Margin = -3.2% as of 10/12/07) or in the single digits (Operating Margin = 8.2%). They've recently increased their debt load (D/E = 59%), and their EnterpriseValue-to-EBITDA is very high at 45.4.
None of these numbers are good by themselves, but when coupled with this management's talent for buying & integrating key technologies and given that they have a wad of cash equal to one-third their annual revenue, I think we will see rising margins, growing EPS, and generally positive improvements in the Balance and Income sheets, all of which should continue to raise the stock price. The key, however, is management. Let's hope that they make no missteps.
A chance for scary growth
Now's the time for you to weigh in on Nuance, or any of the other stocks these All-Stars see as achieving monster growth. Agree with their views? Tell us on CAPS. If you don't agree, let us know that too! If you've got an opinion, then this is the place where your voice counts just as much as everyone else's. Let's hear whether you think these are tomorrow's monster stocks that have been uncovered today.
