Potential 10 baggers & how to spot them
Many people still recall today (nearly 20 years later) the ‘phoenix from the ashes’ that was Next Group. The company’s shares went from being priced in the pennies to, at last look, just under £30 — a 600 fold return from the nadir in 1992 — see chart below. To be sure, this is an extremely rare return and for every resurrection there are many more that fall by the wayside. Indeed, such is the lure of the returns seen by Next shareholders that many a pound has been lost by retail investors in recent years trying to buy the next retail recovery play — HMV, JJB, Blacks Leisure, Game Group et al are just a few in recent times that have cost investors dear, and illustrating that for every 1 winner of that magnitude there are many, many more losers...
Next chart Another recent example is that of AEA Technology. Take a look at the chart below that shows the rise that the stock experienced during the latter part of 2011 — from 0.1p to 1p as the company warned on banking covenant breaches and the market then realised that the company’s assets were likely to be worth more than 0.1p even in a fire sale. Extreme risk is the common theme here — remember again the 10-1 odds against bet analogy.
AEA chart
July 2012 | www.financial-spread-betting.com | 9