Breaking Down How Stocks Do After Doubling

Taking a closer look at stocks that have outperformed on the SPX in 2020

Senior Quantitative Analyst
Aug 19, 2020 at 8:00 AM
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It feels like the S&P 500 Index (SPX) is up way more than just 5% this year. That is, however, the current year-to-date return. At first, I assumed it was because the index is up 50% off the March lows after the fallout from the coronavirus. But now I’m thinking it’s because I focus more on individual stocks than the broader market, and I noticed the large number of stocks making huge gains on the year. In our database of liquid, optionable stocks, 57 of them have doubled so far in 2020. The next highest number of stocks doubling on the year through this point in time was last year when there were 27 stocks that doubled (the S&P 500 was up about 15% on the year).

The price at which a stock doubles on the year is a key level. It can act as a popular profit-taking point for investors or a psychological target at which the stock is considered to have run too far. Also, it can act as a catalyst, being a point at which traders notice a stock which had been under the radar. With 24 individual stocks having hit 100% since July, I figure now is a good time to see how stocks have tended to behave after hitting their double-price on the year.

Stocks That Have Doubled Since July 2020

I want to get a sense on how stocks act after doubling year-to-date. To make the information actionable, I am going to focus on stocks that double in July or August. Stocks that doubled earlier than that might be far away from their 100% price level. Also, stocks that double earlier in the year may act differently than those that double later.

For this study, I went back to 2010 and found stocks that reached their 100% price target in July or August. Also, since I want to compare stocks based on their sentiment, I only considered stocks with at least 10 analyst recommendations according to Zacks Investment Research. There were 38 occurrences.

The 38 stocks that doubled given these parameters averaged a slight loss over the rest of the year, with not even 40% of them positive. Furthermore, only 42% of them beat the S&P 500 over the course of the rest of the year. Based on that, the 100% price level has been a challenge for stocks going forward.

When you separate the stocks by sentiment, however, you can gain some guidance on which stocks are best to avoid or sell at this point and which you might want to hang on to. The last two columns in the table below group the stocks based on whether analysts are bearish on them or bullish. As contrarians, we believe negative sentiment on stocks have bullish implications going forward.

I defined negative sentiment as less than 60% of analysts recommending a buy for a stock. 17 stocks fall under this category and the remaining 21 stocks I defined as having bullish sentiment. As is often the case, a contrarian viewpoint has been beneficial. The 17 stocks that doubled on the year gained an average of about 2% for the rest of the year with 47% of them positive. That may not sound too impressive, but a lot of the instances must have occurred at bearish times for the market because almost 60% of the stock beat the S&P. I also compared the numbers to stock on which analysts were bullish. Those stocks lost an average of more than 2% for the rest of the year with only a third of them positive. Even worse, only 29% of those stocks beat the S&P 500 for the rest of the year after doubling.

Rest of Year

Here is a list of 24 stocks that have doubled this year since July. Notice I included stocks that do not have at least ten analyst recommendations. I sorted the list by analyst percent buys. The stocks above the demarcation line, have fewer than 60% of analysts recommending a buy. Based on the study above, these stocks have a better chance of outperforming than those below it. The stocks near the bottom of the table are those that analysts love the most and should be avoided.

Stocks Doubling




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