Chasing multi-bagger stocks 🏃‍♂️‍➡️

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Welcome to Alternate Universe!

In today’s edition:

• Is there a blueprint for great-performing stocks? 🤔

• Job opportunities at recently funded European startups 👇

• Would you marry someone for tax savings only? 😂

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The Crux 🔴

Christopher Mayer’s name kept popping up on my Reddit feed, sparking my curiosity. A quick search led me to his blog, filled with fascinating insights on investing and finance.

In the investing world, Mayer is best known for his book 100-Baggers. The concept is simple yet extraordinary: a "100-bagger" is a stock that multiplies your investment 100 times. While legendary investors like Peter Lynch popularized the idea of "10-baggers," Mayer set out to study stocks that performed far better—100x better, to be precise.

I was hooked.

🐰🕳️⌚

The Book 📕

Initially, I assumed 100-bagger stocks were rare anomalies with no clear blueprint for spotting them. I was wrong. Companies like Monster Beverage, Walmart, Coca-Cola, and Illumina have all achieved this feat. Incredibly, some did it in just a few years—Franklin Resources Inc. holds the record, reaching 100x returns in only 4.2 years.

Mayer explains that identifying these extraordinary companies requires a disciplined approach. The key is focusing on growth-oriented businesses rather than those with merely attractive yields. Low price-to-earnings (P/E) ratios can be a helpful filter, but he warns against chasing cheap stocks without considering quality. Strong economic moats—like patents, brand power, economies of scale, or network effects—are essential. Warren Buffett’s emphasis on moats comes to mind, a theme also explored in books like Modern Monopolies.

Smaller companies, especially those with market caps under $1 billion, often have greater potential to become 100-baggers. It’s simple math—companies like Apple, which have already grown exponentially, are less likely to replicate that kind of performance. Founder-led businesses are another critical factor. Founders often have a personal stake in their companies’ success, giving them an edge over professional CEOs. For fans of founder-led firms, there’s even an ETF with the ticker symbol BOSS.

Patience, Mayer emphasizes, is non-negotiable. While some 100-baggers hit their stride in less than a decade, others may take over 20 years. This long-term perspective can be a powerful advantage for younger investors.

And then there’s luck.

No matter how rigorous your analysis, luck plays a role.

I devoured 100-Baggers in just a couple of days.

It was a great start but I wanted to dig a bit deeper.

The Report 📃

I stumbled upon one of the most fascinating and detailed analyst reports I’ve ever read: The Makings of a Multibagger by Alta Fox Capital.

The report dives deep into the highest-performing stocks over the prior five years, uncovering the shared traits, trends, and catalysts that set these companies apart. To identify these exceptional performers, the team used a rigorous screener with the following criteria:

• Stocks domiciled in North America, Western Europe, or Australia.

• All sectors except energy, materials, and financials.

• Total Shareholder Return (TSR) from 6/8/2015 to 6/8/2020 exceeding 350%.

• Positive trailing 12-month EBITDA.

• Market cap between $150 million and $10 billion as of 6/8/2020.

• Average daily trading value above $200,000.

• Positive year-over-year revenue growth in the most recent fiscal year.

• Actively traded stocks, with the security being the company’s primary listing.

For each stock that met these criteria, the report provided an industry overview, explored why the stock had been overlooked, and offered insights into its future potential.

From June 2015 to June 2020, the S&P 500 returned 55.45%, while the multi-bagger set delivered an average return of 922%, with the top performer achieving an astounding 9,199%.

Alta Fox analyzed industries in the BICS classification, excluding Materials, Energy, and Finance. Healthcare and Technology dominated the dataset due to their high growth potential, while consumer-focused industries were underrepresented. Utilities were absent entirely.

Geographically, the analysis focused on North America, Western Europe, and Australia. Surprisingly, U.S. stocks were underrepresented, while Australia, Sweden, Norway, Germany, and the UK led the pack. Notably absent were Italy, Switzerland, and Spain. Smaller companies significantly outperformed large caps, contributing disproportionately to the top-performing group.

Despite including a range of company sizes in the screener, smaller companies were overrepresented. Companies with smaller market caps provided much higher total returns than large caps.

Key Takeaways 🪙

1. Focus on advantageous businesses: The majority (91%) of top performers had strong competitive advantages and moderate-to-high barriers to entry.

2. Prioritize financial health: 88% of the multi-baggers were in a strong financial position in 2015, allowing for above-market growth.

3. Acquisition-led growth: Many high performers effectively leveraged acquisitions to enhance returns.

4. Avoid overemphasizing valuation: While buying at low multiples is ideal, many top performers began with healthy valuations that expanded further.

5. Consider global opportunities: U.S. companies accounted for 32% of the set but were underrepresented compared to stocks from Sweden, Australia, and Germany.

Dig Deeper ⛏️

• Makings of a Multibagger (Alta Fox Capital)
  

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Headhunted 🦅

Recently funded private companies need talent! Scout jobs at recently funded European startups, ahead of your competition. 💪

1. Next Sense 🇳🇱 - The smart building platform has raised a €11.5m Series A. Now hiring a project manager (link)

2. Planet A Foods 🇩🇪 - Alt-chocolate maker closes $30m Series B. Hiring multiple technical and sales roles (link)

3. Upvest 🇩🇪 - The investment API has raised a massive €100m Series C. Strategy, finance & operations roles open (link)

4. Dealfront 🇩🇪 - B2B sales intelligence platform raises €30m in fresh funding. Open roles in R&D, revenue & marketing (link)

5. Anybotics 🇨🇭 - The robotic inspection solutions scaleup has raised $60m. Engineering & marketing roles open (link)

Interestingness📔

• Startup stock tenders are on the rise

• There’s an ETF for everything these days - the latest? Anti-woke ETF

• The infamous Martin Shkreli and his thesis on Cassava Sciences

• Ozempic pressures in India as competition looms

• Ultra-processed foods fatten muscles even if not eaten in large amounts

📚 New to investing? Grab a PDF copy of my ebook here.

As always, the financial disclaimer!

This is not investment advice. I am not a financial advisor. Make sure to conduct your thorough research before purchasing or selling financial products.