Long-Term Stock Winners That Could Keep On Trucking

Barron’s recently had a piece on Walt Disney Co (NYSE:DIS), in which they point out that the stock price is flat over the past ten years. That, of course, is an awful return in which you would have been just as well putting the money under a mattress. When you include dividends, the 10-year stock return is close to 10%, but that still pales in comparison to the S&P 500 Index (SPX), which has returned over 200% from 10 years ago.

I will not be speculating on theme park demand, ESPN subscriber growth, or anything to do with DIS' fundamentals. I’ll be sticking to the numbers, looking only at the stock returns over the prior 10 years and seeing how the laggards, leaders, and everything in between have performed going forward.

The Last 10 Years Indicator 

For the data below, I went back to 2017 using monthly closing prices. I calculated 10-year returns for stocks with a market cap of $1 billion and a share price above $10 at the time I recorded their return. I grouped the stocks into seven buckets based on their 10-year performance. From there, I examined how each bucket performed over the following three months. DIS fell into the third bucket (Up or Down Less Than 25%). Stocks in this bucket averaged a return of 3%, which was in line with the overall average. However, only 43.3% of them outperformed the SPX, making it the second-worst bucket by that metric. Additionally, there was a lot of volatility among these stocks, with a standard deviation of 25%.

The best three-month forward returns came from the stocks that had performed the best over the prior 10 years. Specifically, the two top performing buckets were those with prior 10-year returns between 500% and 1,000% and those over 1,000%. Those two buckets not only had the best average return, 4.3% and 5.3%, respectively, but were also the only groups where more than half the stocks beat the SPX. In short, the best stocks over the next three months were the market leaders.

Three months is a short time frame when you’re considering the prior 10 years. The tables below show how the stocks performed over the next year and two years. For the next year, the bucket with the best average return are the stocks that performed the worst over the previous decade, but this comes with a major caveat. I don’t put too much into this number, because this study will be highly affected by survivorship bias. Since my database only has currently traded stocks, it’s not capturing stocks that ended up going bankrupt or got bought out.

The worst performing stocks over the last ten years would be most affected by this, because those would be the most likely stocks to go bankrupt. So, if you could have been certain that a stock that lost half its value over a 10 year period wouldn’t go bankrupt or get purchased, those stocks averaged a 20.2% over the next year.

Other than that first bucket of stocks just mentioned, the best stocks over the next year were once again the market leaders. The stocks that were up 10 times over the previous 10 years averaged a 20% return over the next year with just over half beating the SPX. Interestingly, the worst performing bucket were those stocks that were flat over the previous 10 years. So, based on that, DIS might not be the best bet right now.

The second table below summarizes the returns over the next two years. It seems the longer the time horizon, the more confirmation we get that market leaders over the previous 10 years tend to keep winning. The stocks that were ten baggers (up 1,000% or more) averaged a return of 52.8% over the next two years, with about 55% of them beating the SPX. Compare that to stocks that were closest to breakeven over the prior ten years which averaged a return of about 13% with only 31% of the stocks beating the SPX.

Stocks Up 10X Over the Past Decade 

The analysis above suggests the best performing stocks over the past ten years tend to do best going forward, especially over the longer term. The list of stocks below have a market capitalization of at least $1 billion and has returned at least 1,000% over the past 10 years. If you’re looking for stocks to invest in, this list could be a starting point for more analysis.