10x Return Stocks – Super-Spike (Part 2)

In part 1 of this article, we discussed the Crashed-and-Recovered 10x return stocks. In this article, we will discuss the Super-Spike 10x return stocks.

Super-spike 10x stocks

Super-spike stocks are stocks which returned 10x to their investors over a rather short period of time, but could not sustain the momentum and tumbled back to a lower price levels. In general, these are companies that took advantage of a trend, and profit expectation was at an extreme during their highs. However, once the trend changed or receded, the companies found that their revenue streams or high P/E multiples rapidly faded away. However, unlike the crashed-and-recovered 10x stocks, these companies could not, or have not been able to find a new source of revenue streams to maintain the high growth they once had.

MEMC Electronic Materials 10 year chart

MEMC Electronic Materials 10 year chart

To illustrate these stocks with a graph, we can look at MEM Electronic Materials, Inc. (NYSE: WFR). MEMC is a supplier of silicon wafers of which every semiconductor chip is made of. The stock had a low of $1.05/share in the past decade, and reached as high as $94.02/share in 2008, while currently trading around $13/share. The rise of the stock over the past decade was generally the recognition that everything is turning electronic and there’s a high demand of silicon wafers. However, its meteoric rise from 2006 – 2008 was mostly a side effect of the commodities bubble, causing extreme expectation on makers of solar panels, made with the same materials supplied by MEMC. The company also got actively involved in manufacturing and servicing the solar energy industry during that time.

Once the financial tsunami popped the commodities bubble, MEMC stock just crashed. This is not to say that MEMC is a washed-out company. In fact, Sun Edison, a subsidiary of MEMC, recently signed a contract with CPS Energy to deploy 30 megawatts of utility-scale solar in Texas, and also received a commitment for about $60 million of solar financing from JPMorgan. Nonetheless, to reach the old high again, it will probably take a much longer time frame, and another frenzy in the interests of solar energy again.

Other than MEMC, many of the super-spike stocks, some not necessarily returned 10x but a high multiple nonetheless are oil related companies such as Frontier Oil Corp. (NYSE: FTO) or Tesoro Corporation (NYSE: TSO) that got popped by the commodities bubble; fashion companies such as Bebe, Inc. (NASDAQ: BEBE); or technology companies that could not develop a new product to replace the previous hot product yet such as Trident MicroSystems (NASDAQ: TRID).

There are also many of these super-spike stocks which could not survive the aftermath, and got acquired for a low price, or just withered away. Many internet or telecom equipment companies behaved this way after the dot-com bubble burst, as well as many financial companies which got busted after the financial tsunami.

In part 3 of this article, we will discuss the True-growth companies that every investor is fond of and brags about.

This article originally appeared at benzinga.com.


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