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Here’s a simple -- but often overlooked -- strategy to help increase your odds of bagging the elusive ten-bagger You know the term. You’ve seen them explode. You might have even ridden one of the waves. But how do you find that elusive ten-bagger stock? This is probably one of the most common questions I get asked. Unfortunately, there is no “sure-fire” recipe to follow. Hundreds of variables affect the share price of a company. And these variables change every day, meaning the recipe of a 10-bagger changes as well. But the good news is that certain ingredients remain relatively constant. And it’s these ingredients that I base my selection criteria for resource stocks on: Management, Location, Financials, Share Structure, Price, and Push. Today, we’re going to talk about Price and how to use it to help you identify a potential “ten-bagger”. The first thing you want to do is to look at how cheap the stock is. Is it under $1.00? Under $2.00? The lower the share price, the easier it can skyrocket quickly. But the key is to not go too low. Your risk increases exponentially as shares get cheaper. That’s why I’ll typically only look at stocks that trade above $0.15. Now, take the current share price and multiply it by 10. This gives you the share price the stock needs to hit to become a “10-bagger”. Ask yourself: is this new valuation in line with your stock pick? Meaning, if your stock pick was at $2.00, is a $20.00 valuation realistic? Maybe, but probably not. But if you’re taking about a stock that trades around $0.25 or $0.50, the odds of it hitting $2.50 or $5.00 are much higher — especially on the heels of some favorable news (a new discovery, drill results, resource estimates etc…). Take Ventana Gold for example, last January the stock traded for $0.39. But then the company made a major discovery, and in only six months shares skyrocketed to $4.00 – giving investors ten-bagger gains. Of course, these kind of opportunities don’t come around every day. In fact, you’d be lucky to see a handful in a year. So it’s very important that you remain patient when hunting for one of these wealth multipliers. But when you do find one, remember: Don’t get greedy. Always take profits on the way up. A prudent strategy I stress is to take at least half your capital off the table once a position doubles. That way you’re only playing with the houses money and you can’t lose.
Roger Gaines |
