One of the mantras we have here at 5i Research is “never sell a good stock too early.” Of course, it is easy to say but often hard to follow. But of course, you will NEVER get one of those amazing stocks that rises 1,000 per cent, 2,000 per cent or 10,000 per cent or more if you sell after some early gains.
Some investors automatically sell a stock after a 100 per cent gain. We think that is about the worst thing an investor can do. Instead of selling, ask yourself, ‘Why are others buying' Often, they are buying because it is an amazing company doing very well, and selling such a company is almost always the wrong approach. You will never get a triple if you sell after a double.
With that said, let's take a look at five companies whose stocks have doubled this year, and see if perhaps there aren't more gains to come.
Ichor Holdings Ltd. (ICHR on NASDAQ)
Ichor, up 177 per cent this year, designs, engineers and manufactures critical fluid delivery subsystems for semiconductor capital equipment. Why is it up so much The key word is ‘semiconductor' as the sector continues to boom. Despite the gains, Ichor stock trades at just 12X earnings. It has a small net cash position. This week it had another big move on the back of a ‘substantial' new agreement with a key customer. Can it keep going Probably. With the sector showing no sign of slowing down and a very low valuation, Ichor stock is attracting a lot of new investor attention.
Novo Resources Corp. (NVO on TSX Venture)
Novo is up a stunning 870 per cent this year, on the back of gold nuggets found in July, and investors following Eric Sprott (who owns 9 per cent of the company) and Kirkland Lake (which owns 18 per cent). Novo's geologists believe its land is a ‘sibling' of the big South Africa Witwatersrand deposit, and drifted to Australia with continental drift. Despite being very early in its development and geological resource, the company's market cap is now $1.1 billion. Can it keep going Much depends on drill results, of course. But if the company can show there is more gold present, our bet is that investors will fall all over themselves to buy into this story. If not, well, then it will be just another geological flame-out. Risks are high here, it should not be entered into by the faint of heart.
Shopify Inc. (SHOP on TSX)
Shopify was everyone's darling stock until recently when it was attacked by short sellers. The short attack caused a $30 per share drop in the stock, but even with that, the shares are still up 106 per cent this year. Online commerce of course is growing fast, and even the short sellers admit the company has a great solution for merchants. Can the stock keep rising Ask me in early November: All eyes are going to be on the next quarterly release. The company has beaten every quarterly estimate since going public, and another strong quarter will see investors likely relax and keep buying. If the company misses, for the first time, things could turn ugly. The company also says it will address short sellers' concerns in its conference call.
Align Technology Inc. (ALGN on NASDAQ)
Align, which designs and makes braces for the misalignment of teeth, has surged 102 per cent this year. I really have done some good due diligence on this one. For the past 18 months, I have been wearing the company's ‘Invisalign' braces. I will admit they are a bit of a ‘pain' to wear but the results have certainly been good. The key to Align is that, according to analysts, it still only has 5 per cent of the ‘teen' braces market. Obviously, teens are big customers, and if it can increase this market share the stock will likely keep moving. It is not cheap at 57 times earnings, but per-share earnings have quadrupled since 2012.
Square Inc. (SQ on NYSE)
Square went public in 2015 at $9 per share. It is now close to $33, up 140 per cent this year. The company develops point of sale software, and you have likely seen their little white square credit card processing units at merchants. A very expensive stock at 139 times earnings, it is riding the ‘fintech' wave of investor interest. It has beaten estimates in five of its seven quarters. Will it keep moving The sector is hot, but the key to Square is margins. It has been spending a lot of money on marketing and product development. This could hurt margins in the short term. If investors look beyond this, though, the stock should do fine. If investors stay short-sighted, however, any change in margins will likely scare off some buyers.
It is not a process that works for everyone, but we would always prefer to buy a stock showing strength rather than one showing weakness. Of course, in a market that seems to set records every day, this gets a little easier to do.