Eleven 'ten-bagger' stocks from the past decade

"The list of FTSE 100 winners over the last decade, in total return terms (i.e. dividends reinvested) contains no fewer than five ten-baggers which have provided returns of more than 900% each. Looking further down the market cap scale and there are a further six ten-baggers in the FTSE 250.  £1,000 invested in JD Sports at the beginning of the decade would be worth £32,000 today," says Russ Mould, AJ Bell Investment Director.

FTSE 100 - Total return 1 Jan 2010 to 18 Dec 2019

Source: Sharepad data, 1 Jan 2010 to 18 Dec 2019

"Three themes emerge from this list of winners:

• Only one of them was in the FTSE 100 on 1 January 2010. That was the London Stock Exchange and even that did not enjoy an unbroken run as a member of the index, as it was demoted in summer 2010 and only rejoined in spring 2013. Four – Spirax-Sarco, Melrose Industries, Rightmove and JD Sports – joined in 2018 or 2019, although Melrose had had a previous spell in the top flight from 2012 to 2014. In other words, if you are looking for the really big winners, you are probably better off by starting to look in the FTSE 250. This harks back to Jim Slater’s assertion that ‘elephants don’t gallop,’ meaning that the established giants of the FTSE 100 simply can’t grow fast enough to necessarily generate these sorts of meteoric returns.
• Second, seven of the ten best performers increased their dividends for each and every one of the ten-year period. This shows the importance of dividend growth. Companies with that sort of record are clearly doing something right, in that they have a strong competitive position, healthy finances and a track record of increased profits and cashflow. It is also just a matter of maths, as a growing pay-out will naturally drag a share price higher over time. The three others – Melrose Industries, Barratt and Persimmon – all still returned substantial amounts of cash to their shareholders. Melrose made a number of large distributions following disposals, while the house builders hugely ramped up their dividends from zero in 2009. Buying a firm with a fat but static yield has not generated the best returns or returns comparable to those stocks with a first-class record of pay-out growth.
• Third, nearly all of these names fit the ‘quality’ or ‘growth’ or ‘momentum’ bill, the styles of investment which have totally dominated in the past decade, trumping ‘value’ and even ‘income’ hands-down. They generate high margins and high returns on capital, thanks to their strong competitive positions and high barriers to entry, and have generally generated strong secular earnings growth even during a period of weak economic progress.

“Such firms have been like gold dust for the past decade. The big question is will they remain so? Encouraged by talk of increased government spending and an end to austerity (not just in the UK, but the USA, Korea, Japan and now across the EU, if Christine Lagarde has anything to do with it) markets are looking more toward cyclical growth – and if there is lot more cyclical growth around, and cyclical stocks look cheap, why would you pay high multiples for ‘quality’ names like these? And note that value has been outperforming quality for most of the second half of this year.”

“Three equally clear themes emerge from the list of losers:

• All were members of the FTSE 100 index at the start of the decade (though Fresnillo is about to drop out), as to prove again that “elephants don’t gallop”
• They all cut the dividend at least once during the course of the decade. None showed consistent earnings growth and issued profit warnings of varying sizes and with varying degrees of regularity.
• The banks had been huge market favourites from 2000-07 and the resource plays in the mining stocks boom of 2009-11. What works well in one decade rarely if ever works well in the next one, simply because valuations become more stretched and investors make the mistake of extrapolating their recent experiences and thinking that nothing is going to change.

FTSE 250 - Total return 1 Jan 2010 to 18 Dec 2019

Source: Sharepad data, 1 Jan 2010 to 18 Dec 2019

“The themes that define the winners and losers mirror those of the FTSE 100.

“For the winners, high returns on capital that can compound over time were the secret to the success of firms like Renishaw, Oxford Instruments and Bodycote, whose specialties and technical expertise give them a strong competitive position and some degree of pricing power, even if their businesses are not entirely immune to the economic cycle.

“The rise and rise of Games Workshop is another example of this. The firm also shows how retail can still work, if you have the right products for your customers at the right price point and provide them in the right channel formats. The company looks after a well-defined community and does it very, very well.

“Some cyclical firms do feature here, though, as the UK economy came back from the brink in 2007-09 and firms such as Howden and Marshalls welcomed an upturn after the crisis that ended the last decade.

“The losers are very straightforward to identify with two predominant themes – debt (too much of it) and commodity exposure.

“Debt hobbled both FirstGroup and Serco and left neither firm with any margin for error once something went wrong. FirstGroup has not paid a dividend since 2013 and Serco has not done so since 2014, although the latter may be on the verge of redeeming itself in this respect.

“Commodity stocks were booming as 2009 became 2010 and the consensus view was that economic growth in China in particular would carry them raw material and share prices higher still. As if often the case, that consensus proved to be wrong. Oil stocks, such as Premier Oil, Cairn Energy and Tullow Oil have suffered accordingly, as have oil services and equipment providers like Petrofac, which have borne the brunt of cuts to costs and capital investment by crude explorers and producers.

“Metal producers have had a tough time of it too as evidenced by the dire performance of Hochschild and Kaz Minerals. Commodity producers, by definition, lack pricing power and thus provide more volatile earnings, cash flows and dividend payments (if they make any cash returns at all). It will be interesting to see if these firms return to fashion if inflation rears its head again and cyclical growth make a comeback in the 2020s – especially as this is not the consensus view at the moment, which seems to be expecting more of the low-interest-rate, low-growth, low-inflation environment that has characterised the 2010s.”

These articles are for information purposes only and are not a personal recommendation or advice.