There have been 1,700 individual U.S. stocks (with starting market caps of at least $200MM, inflation adjusted) which have tripled in a 12-month period since 1962. Many of these individual stocks tripled in more than one 12-month period, so we have 7,500 or so separate observations of a stock tripling in a 12-month period.
Tripling your money quickly is pretty good. So what do these three-baggers have in common? Three key things.
- They are clustered around specific dates/markets. Here is a time series of the number of stocks which triple from a given start date. The spikes occur coming out of bear market bottoms (early 80’s, 2003, 2009) and during the tech bubble (1995-2000).
- They are very concentrated in certain sectors. Below is the breakdown of which sectors had the most three-baggers. Tech dominates, which is no surprise. Health Care and Consumer Discretionary stocks are also well represented. Even if you remove 1997, 1998, and 1999 from the sample, Tech still has the most three-baggers. Recently, its been all biotech companies. Utilities and Staples stocks rarely triple. Consumer Staples have been the best performing sector long term, with smooth and very steady returns across decades, but they are rarely the highest flying stocks. Tech, meanwhile, has been among the worst performing sectors over the long term. The tech sector is often characterized by a few massive winners and lots of losers. Picking those winners ahead of time–with any consistency–is extremely difficult.
- Three-baggers are, on average, very small and very expensive at the start of their run. While some stocks tripled from high starting market caps (Oracle and Sun Microsystems both tripled despite starting market caps in the tens of billions), most stocks that triple in a 12-month period are small. The average starting market cap (adjusted for inflation into today’s dollars) for a three bagger was $1.2B and the median market cap was $423MM. Value has outperformed growth by wide margins in most markets, but the growth stock category delivers far more three-baggers. The median three-bagger begins with a valuation (based on sales, earnings, free cash flow, and EBITDA) that is more expensive than 77% of all stocks on the start date.
So, if you are enticed by the idea of quick, lottery-like returns (which I am sure most people reading this site ARE NOT), then you have a tough task ahead. You probably need to sort through thousands of small cap stocks. Your best odds (if history repeats) are in technology or biotech stocks, many of which are hard to understand and have binary outcomes (outcomes which themselves may be due to random chance). You”ll probably have to buy with little-to-no margin of safety, because these companies tend to trade at very expensive valuations.
Good luck, you’ll need lots of it!