Multibagger stocks is a popular term investors use to describe a return of at least 100%. For example, if a stock doubles in price, it is an increase of 100% or a 2-bagger. If a stock increases by ten times or 1,000%, it is called a ten-bagger. Whatever percentage the stock price rises by is the number of ‘bags’ it holds.
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What Are Multibagger Stocks?
This isn’t to be confused with the other popular investing term, ‘bag holder. ‘ This term refers to an investor holding a position in a stock that has since decreased in price. I can see why this would be unclear, but it is all within the context of how the phrase is used.
As an investor, you want to invest in multi-bagger stocks and not become a bag holder of stock.
Where did the term multibagger come from? Famous investor Peter Lynch coined it in his One Up on Wall Street book.
The term multibagger comes from a reference that Lynch made to baseball. In baseball, the bases are also called bags, and a double or triple is a multi-bag hit. It’s not a perfect metaphor, but you get the picture.
How Do You Find Multibagger Stocks?
A bit of luck and high conviction on great companies is a sure way to find multibagger stocks. They aren’t always easy to find: if they were, then we’d all be rich, wouldn’t we?
The most important element with multibagger stocks is time. Yes, owning multibagger stocks is a long-term investing strategy for the most part. Of course, you can always hit a short-term double on a stock price, but usually, that includes more luck than anything. Here are some things to look for in potential multibagger stocks.
Undervalued Stocks
This doesn’t necessarily read as a low-priced stock. An undervalued stock means how the stock is priced compared to its rivals within the same sector or other multiples like price to earnings or price to sales.
Whatever metric you use to value your stocks, undervalued ones generally have the highest chance of doubling or more.
Being a low-priced stock does not usually matter as much, especially if the underlying business isn’t strong. Psychologically, it might feel like a $5 stock can hit $10 faster than a $100 stock can reach $200. But as we know, this isn’t always the case.
Everything is relative to stock prices, so you’ll need to dive deeper into how that stock is valued.
I don’t mean to say that if the stock traded at a certain price before, it will again. Remember that past performance does not always indicate future performance when it comes to stocks.
This is a common fallacy amongst newer investors and should never be the only reason you buy a stock. When I say past performance, what has the stock done lately?
If the stock has just completed a double in price over the past three years, it might be safe to assume it won’t double again, at least right away. It helps to look at stocks trading in a range for some time and waiting to make that next move higher. Using technical analysis along with support and resistance levels can help identify which stocks are in for a big move.
Future Growth Potential
If a company can’t grow, the stock won’t be doubling anytime soon.
You must know the company you are investing in to understand the chances of a potential multibag.
Sectors matter as well. Oddly, if you’re looking at financials or consumer discretionary, you won’t find many multibaggers.
High-growth sectors like tech are where multibaggers reside. But be warned that not all tech stocks will be multibaggers. This is where looking into the company’s fundamentals comes in handy. If the company has been steadily growing its earnings and is still innovating and releasing new products, then the future growth is there. But if the company only has one product with lots of competition, you might want to look elsewhere.
Time in the Market
Remember the old saying: ‘time in the market beats timing the market.’ Like I already said, multibaggers take time to develop. Sometimes, they can take several years to reach two or three-bagger status. This is why hunting for multibagger stocks is a long-term investing strategy and not usually one for day traders.
Large-cap companies usually take three to five years for any significant price action. Patience is a virtue, but when you master it in the stock market, you are handsomely rewarded. Selling stocks too early can prevent you from ever having multi-baggers in your portfolio!
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Examples of Multibagger Stocks
I am using a time horizon of the last five years or less for these stocks. All these stocks show that if you choose the right company and have patience, you can see incredible gains on your initial investment.
1. NVIDIA (NASDAQ: NVDA)
It seemed like NVIDIA had been just a graphics card company for years, and its stock was a slow gainer. We all knew this company’s potential,, but it was taking a while to formulate those returns.
But did you realize that NVIDIA shares have returned 890% over the past five years? That is nearly a nine-bagger, with most of the growth coming from 2020 and onwards.
With gaming, the Metaverse, data centers, electric vehicles, and cryptocurrencies in its portfolio, NVIDIA could be a ten-bagger in the next couple of years.
2. Tesla (NASDAQ: TSLA)
It is one of the most popular multi-bagger stocks on the market. Tesla saw an incredible run from 2019 onwards. Over the past five years, shares of Tesla have returned 1,630%, good enough for a sixteen-bagger.
The stock has been under some pressure in 2022, but Tesla’s potential is not denied. We might not see another sixteen-bagger over the next five years, but I wouldn’t be surprised if we saw Tesla double or triple again in the next few years.
3. Shopify (NYSE: SHOP)
Another stock that has been a runaway train, Shopify, came out of nowhere to surprise us all. The Canadian eCommerce giant has also seen a correction this year, but that’s just what happens. High-growth companies often see their valuations get ahead of them and nearly always see a cooling-off period. Over the past five years, Shopify has returned 1,051% and is a true ten-bagger stock.
4. Apple (NASDAQ: AAPL)
Having a stock list is hard without the world’s most valuable company. Apple hasn’t provided the recent gains that these other stocks have.
But over time, Apple’s returns have been truly breathtaking. The stock has split five times since 1987, which always masks how well the stock has done historically.
Apple has returned 372% or nearly a four-bagger in the past five years. What’s incredible for Apple is that it does this as a company with a trillion-dollar market cap. If we zoom out more, Apple has returned an unimaginable 235,785% since it started trading.
5. Bitcoin (BTC)
If you want to find true multibaggers, you must check out the cryptocurrency industry. The growth of some of these tokens has been staggering, and the industry is still in its infancy.
The leading cryptocurrency has returned 3,340% over the past five years. That’s a 33-bagger in five years. Since its inception in 2009, Bitcoin has returned 12,511% or a 121-bagger in just thirteen years.
The second-largest crypto, Ethereum, is even more impressive. In the past five years, it has returned 12,598%, and since its inception in 2015, Ethereum has returned 23,465%.
Don’t get me started on meme coins like Shiba Inu or DogeCoin. The gains of those coins surpass even Bitcoin and Ethereum!
Final Thoughts: Next Multibagger Stocks
If only picking multibagger stocks were so easy. To find the next multibagger stocks, you need to be diligent with your research. Find high-growth companies with great management teams and a competitive advantage.
Look for emerging sectors that haven’t already run up to all-time high prices. In those sectors, find the undervalued performers with just as much potential for future growth.
But most importantly, once you have found your high-conviction stocks, you must have patience. We always hear stories about people selling Apple at $10 or Amazon at $50 because the stock took too long to return gains. What about those who sold Bitcoin once it hit $100? How do they feel now?
True multi-bagger gains are made over time, so hold on even if the stock doesn’t go up immediately. These long-term returns we saw above make finding the right multi-bagger stocks worth it in the long run.
