When Only 10x Returns Will Do

Three big, overhyped IPOs... The problem with too many outstanding shares... When only 10x returns will do... An often-overlooked financial reality... What the system that called the March 2020 crash is saying now... Why you need to own 10x Investor...

Three of the largest initial public offerings (IPOs) ever occurred within the last 12 months...

And I (Mike Barrett) wouldn't put a dime into any of them.

I'm specifically referring to electric vehicle ("EV") manufacturer Rivian Automotive (RIVN), the "Amazon of South Korea" Coupang (CPNG), and lodging provider Airbnb (ABNB). Combined, their market values on the day they went public totaled about $168 billion...

Don't get me wrong. As a customer, I'm a huge fan of Airbnb. In fact, my family and I just visited my mother-in-law in Tallahassee, Florida. Instead of staying in a cramped hotel room, we got a three-bedroom, two-bath townhouse for about the same price through Airbnb.

I've never been to South Korea, but a survey done earlier this year suggests consumers there love Coupang... When asked which online-shopping platform they used most frequently, 62% said Coupang. Its competitors don't even come close, as not one of them could even muster a 7% response rate.

And then there's Rivian, which is poised to start delivering its R1S SUV soon. Car and Driver says this will be the only other three-row, all-electric SUV currently available besides Tesla's Model X... And it will be cheaper. Considering how popular the Model X is, Rivian's R1S could be a huge hit.

However, as an investor, I have zero interest in Rivian, or Coupang, or Airbnb... That's because it's very unlikely they'll ever grow 10-fold.

I say that with conviction because I've run each of them through my proprietary 10x Investor stock-selection system. I use this system to identify stocks you can buy today that have the potential to earn you 10x your money within three to five years.

None of these three comes close to passing...

For starters, ABNB, RIVN, and CPNG share a common flaw. It's one that I see often with big, overhyped IPOs: too many shares have already been issued for these stocks to realistically become 10 baggers.

Experience tells me that extraordinary winners typically have outstanding share counts under 300 million. As you can see below, these three aren't even close to that threshold...

The basic problem is that the revenue growth and profitability required to reach 10x returns are simply too high for most businesses once too many shares have been issued – no matter how great they might become.

Also keep in mind that the number of shares outstanding almost always continues to rise... particularly for unprofitable companies (like RIVN and CPNG) that need to raise cash. Over time, this creates a headwind for the share price.

In most cases then, you could say the extraordinary return for a big, overhyped IPO has already occurred... It was booked by the insiders who profited from the company going public.

The 10x Investor system also recognizes a simple but often overlooked financial reality...

Capital is always scarce...

Whether you're managing $100,000 or $100 million, there is never enough capital to invest in all of the great ideas you have targeted... So you must be selective.

For my own aggressive-oriented equity capital, that means I want to own the ones with the greatest upside potential over the next several years. Why own a stock like RIVN ‒ which my research indicates has limited upside from its current price ‒ when you can own a different one with clear 10-bagger potential?

Remember, investing is always relative... When you buy stock X, you forgo what might be a far better opportunity in stock Y.

Before I tell you about some of the recent IPO stocks that I am excited about, let's first review what my sentiment diary is telling me right now about the broader market, given the heightened volatility we've seen over the past couple of weeks...

My sentiment diary is an early warning tool I created in 2018, which so far has had excellent results... The diary now has more than 650 entries.

The easiest way for me to describe how my sentiment diary works is with an analogy...

Every time you go to the doctor, the nurse checks three vitals: your weight, your pulse, and your blood pressure. This data accumulated over a period of time becomes an early-warning system.

For instance, if on your next visit, your blood pressure is much higher than it has been in years, or your weight is much lower than it has ever been... the doctor knows these could be signs of a bigger problem in the making.

My sentiment diary does something similar. By tracking market sentiment and technical indicators every day, the diary tips me off to bigger problems that might be bad for the stock market.

In February 2020, I predicted a spectacular sell-off just before it happened...

It was actually an easy call thanks to my sentiment diary. Here's why...

On one hand, investor optimism had reached rarely seen extremes. On the other hand, the market's health was declining.

Fewer than 40% of the stocks in the S&P 500 Index were keeping up with the average itself, meaning the push higher was being driven by a small number of stocks.

This is never a healthy situation. The last time it had happened to this degree was prior to the market's big decline in 2008.

In short, before the market crashed in March of 2020, most investors were oblivious to the fact that optimism was in the stratosphere, while the market's fundamentals were simultaneously worsening.

Add to that a troubling virus problem in China that investors were completely ignoring. It was a recipe for disaster... And I saw it coming because of my diary.

So here is what it's telling me right now...

Sentiment hit an optimistic extreme in mid-November, and the market's health is once again simultaneously deteriorating – just like what happened back in February 2020... And, once again, bad news about the Omicron variant was the catalyst for a deep decline on December 1.

Sentiment has since pulled back sharply from its latest optimistic extreme, which is exactly what the legendary Howard Marks tells us to expect.

Marks coined the "pendulum of investor psychology" measure, which, he says, tends to move abruptly from extreme greed to extreme fear, spending little time in between.

As of this writing, sentiment hasn't yet reached extreme fear. If market fundamentals deteriorate as the Omicron story develops, further stock declines are not out of the question.

With that said, the Omicron news is abruptly turning for the better... Investors are suddenly buying the stocks they couldn't wait to dump last week... And a bottom may be forming.

So, what should you do with this information?

In short, it is a buying opportunity for the right stocks...

For your longer-term capital, the current weakness represents the same kind of opportunity it did during the worst of the pandemic – you should use it to a) add to existing core positions or improve your cost basis in them, and b) selectively add new positions...

Dan Ferris and I are doing both in Extreme Value, where the focus is on beating the market while taking less risk. In November, we added two more elite businesses to our Crown Jewels portfolio, which I wrote about in a July 2020 Digest.

This Friday, we're adding another...

That adds up to 12 stocks we've put into our core wealth-accumulation portfolio since March 2020. Many of them had been out of reach for years... until the pandemic presented us with a rare buying opportunity, and we've been aggressively taking advantage of it.

For instance, back in March of this year, we added elite retailer Costco Wholesale (COST) near $329. Then, on May 14, we shared the recommendation with all Digest readers.

Today, COST is trading around $540. That means you could've made more than 60% in less than a year by simply buying one of the greatest businesses on the planet.

Our newest product, 10x Investor, takes a different approach. Here, we're exclusively looking for ideas that can make you 10x your money within three to five years.

That's right, not 2x or 5x... but 10x. I've proven the system works using my own capital. I've also passed 10x ideas on to my fellow Stansberry Research colleagues.

But no more!

From here on, only 10x Investor subscribers will get my best 10-bagger ideas.

Now, let me give you a taste of why I'm so excited about the 10 stocks included in our inaugural 10x Investor portfolio, rather than overhyped newly public companies like RIVN, ABNB, and CPNG...

Also, any recent weakness or pullback that's still ahead presents an incredible buying opportunity in these 10 stocks, which most retail investors don't even know exist... but large institutions do. In fact, one of them has tripled its position in one our 10x stocks over the course of this year.

Electrification of the auto fleet is a key theme...

This is a massive emerging trend that'll last for decades as hundreds of millions of EVs hit the road. But we're not recommending EV-manufacturer ideas, like Tesla (TSLA).

No, we're recommending small companies that are solving the problems this massive electrification movement will create.

For instance, one of our recommendations has developed a creative, mission-critical safety feature. Key customers are starting to take delivery, and the company expects to reveal the identity of these big customers soon... You want to be in before that announcement is made.

Last year, with the world sheltering in place, Internet service slowed in many residential areas due to extremely high usage... Well, the same thing is occurring in neighborhoods where many residents own EVs.

Imagine what a problem this will be as electrification massively scales! This is great news for another one of our 10x recommendations... In fact, we don't think electrification can become ubiquitous without this technology – and our pick is a clear leader in the field.

Finally, don't overlook the emerging demand for EV charging stations. A third 10x recommendation estimates this could be a $2.7 billion opportunity over the next three years... And its trailing 12-month revenue was only $204 million.

I'm just offering the highlights of what you'll learn in our 39-page, inaugural 10x Investor issue. We've got exposure to multiple sectors that are just getting started ‒ including online gambling, autonomous driving, and industrial drones.

In summary, I never forget that your investment capital is precious. That's why I'm confident the best way to make the most of it is to become a charter member of 10x Investor...

Not only will you get 10 great ideas for life-changing returns ‒ plus any new ideas we add ‒ you'll also receive the monthly research service Extreme Value free for a year... giving you access to the Crown Jewels portfolio I mentioned earlier. There is simply no better way to cover the entire market.

To learn more, click here now.

New 52-week highs (as of 12/7/21): Apple (AAPL), AbbVie (ABBV), AutoZone (AZO), Brown & Brown (BRO), Richemont (CFRUY), Cintas (CTAS), Quest Diagnostics (DGX), General Mills (GIS), W.W. Grainger (GWW), Home Depot (HD), Invitation Homes (INVH), IQVIA (IQV), iShares U.S. Home Construction Fund (ITB), Lennar (LEN), Lam Research (LRCX), McDonald's (MCD), NVR (NVR), Seagate Technology (STX), Teradyne (TER), Trex (TREX), and ProShares Ultra Semiconductors Fund (USD).

Several subscribers wrote in today with praise for our colleague Dan Ferris and his recent Digests on "insane, speculative financial market activity and other excesses." (Catch up here and here.) Tell us what's on your mind at feedback@stansberryresearch.com.

"Loved your Digest article [yesterday]. I'm an old guy and having some trouble understanding the metaverse, but you put it in perspective for me. Chuckled through the whole thing. Thank you!" – Paid-up subscriber Jim D.

"Dan, are you sure these guys really exist and are buying these [non-fungible tokens] or virtual reality property with their own money?

"Maybe [Facebook founder] Mark Zuckerberg is giving someone money to buy this stuff as part of a sucker game." – Paid-up subscriber Al M.

"Thanks, Dan, for showing that the emperor (metaverse) has no clothing (value)!" – Paid-up subscriber M.S.

"I really enjoy reading Dan's Digests. He writes about a lot of interesting stuff, not just stocks." – Paid-up subscriber Rodney L.

"Land on Earth has value as there is a finite supply, but the metaverse(s) are infinite. When one metaverse gets too expensive, just create another! We can't jump to other planets as humans in the real world (yet)." – Paid-up subscriber Ross W.

Here's to 10x growth,

Mike Barrett
Orlando, Florida
December 8, 2021