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 by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. 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've enlisted the help of the monster trackers at Motley Fool CAPS, the 180,000 member-driven investor community where informed opinion is translated into stock ratings of one to five stars. We'll be peering in on the picks of those who have successfully chosen stocks that doubled, tripled, or even quadrupled in price, and this week All-Star member bean1999 gives us SodaStream International (NASDAQ:SODA) as his next monster pick. He made his mark with Netflix, which rose over 300% after he picked it to outperform the indexes, compared with the S&P 500's 20% increase.
Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this as a starting point for your own research of extreme buying opportunities.
Debt and equity
There are times in a company's existence when it faces a make-or-break moment. The Segway made its debut amid much hype about how it would transform the way people got about, but it failed to catch on with a mass audience and has become a niche product. Research In Motion is launching its new BB10 operating system, and its success (or failure) determines whether the BlackBerry maker gets relegated to the dustbin of history or will be able to command a premium for its hardware division when it puts it up for sale. Biotechs routinely go all-in on a single drug or compound that determines their ultimate fate.
SodaStream's upcoming Super Bowl commercial probably won't bankrupt the company should it fail, but the opportunity to break out of its niche market into mass consumer consciousness is huge. It certainly doesn't want to fumble the ball the way Groupon did last year, when it insulted huge swaths of the public with its ads seemingly mocking the troubles of the Tibetan people. That might not have contributed to its subsequent lousy financial performance, but it did nothing to help matters, either.
The do-it-yourself soda jerk has a chance to capitalize on a captive audience, and while it doesn't need to throw a Hail Mary pass to score a touchdown, a successful march down the field may go a long way toward convincing many skeptics about its ability to move beyond a limited market opportunity. Of the 673 CAPS members having weighed in on SodaStream, 85% see it outperforming the broad indexes, but more than a third of the analysts whom CAPS tracks and who've also registered their opinions see it coming up short.
Fill up the cart
With a growing distribution network partnership that includes Bed Bath & Beyond and, more recently, Wal-Mart, SodaStream is approaching a critical mass of acceptance. The Wal-Mart account is probably the most important in growing the business and represents a bit of do-or-die marketing in itself. A memorable Super Bowl ad will have consumers looking for the device the next time they go shopping.
Because Coca-Cola, PepsiCo, and Kraft Foods will also be marketing non-alcoholic beverages during the game (let alone all the beer ads that will be shown), there is the chance SodaStream gets drowned out. At around an estimated $3.7 million to $3.8 million for a 30-second spot, that's an amount equal to about 9% of all the profits it made over the past 12 months, and 8% of its entire 2011 advertising expenses. So it's not an insignificant amount.
Such a deal!
SodaStream has a way of confounding the experts, handily beating Wall Street's expectations for eight straight quarters. Last year there was some concern that growth was slowing, but that hasn't been borne out by reality, and as flavor deals with both Kraft and Campbell Soup have helped boost sales, there's a growing consensus it will continue to do so.
SodaStream can move the goalposts with its high-profile marketing, though there's lots of debate about whether the money spent on a Super Bowl ad is cost-effective. Baylor University suggests one ad costs a company about $76 per 1,000 viewers while the rest of the year it's just $22. And because it's a broad audience of 160 million viewers, you're not exactly engaging in your target market. The ads may increase mind share, but not necessarily profits per share.
Even so, I imagine so long as SodaStream doesn't shoot gerbils out of a cannon at a wall, as Outpost.com did years back to the great consternation of many viewers, it should be able to put points on the board nonetheless. I haven't gotten over my skepticism of its mass appeal yet, but let me know in the comments box below whether you think SodaStream will get sacked or will emerge a Super Bowl champion.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond, Coca-Cola, Netflix, PepsiCo, and SodaStream and owns shares of Netflix, PepsiCo, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.