If you have just $3,000 to invest, that's a good foundation upon which to start building your portfolio. But resist the urge to bet it all on just one stock. Diversifying your holdings, even when you don't have a lot to invest yet, is a good strategy for a number of reasons, and one is that it improves your odds of picking a stock that delivers multibagger returns.
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Speaking of multibaggers, Square (NYSE: SQ), Kemet (NYSE: KEM), and Dynavax Technologies (NASDAQ: DVAX) have each more than doubled in value thus far in 2017. Let's take a look at why.
Square (up 143.7%)
Payment processor Square may have started out primarily offering a doohickey you can attach to your phone to accept credit card payments, but it has since developed a suite of services including; point-of-sale systems, peer-to-peer payments, and payroll systems, as well as becoming a small business lender. Soon, it may transform into an actual bank.
Square has filed the paperwork to build on its already successful lending program. If it's application to become an "industrial loan" vehicle is approved, it will be able to offer an array of financial and technology products for its customers, elevating its status even further.
The company made more than 49,000 business loans totaling $318 million in the second quarter, up 68% year over year. And while Square made its mark serving small businesses, it has begun attracting larger customers, which is driving growth faster than expected. Its clientele of midmarket sellers -- businesses that generate more than $500,000 in gross payment volume (GPV) annually -- grew 61% in the period and accounted for 19% of Square's own GPV, a sizable jump from the 14% they contributed a year earlier.
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Shares of Square rose 144% in 2017, meaning a $3,000 investment made at the beginning of the year would now be worth $7,311. As you process that gain, recognize that there doesn't seem to be any reasons why Square shouldn't continue growing for the rest of the year and beyond.
Kemet (up 297.6%)
As the world's largest manufacturer of solid tantalum capacitors, and one of the biggest makers of multilayer ceramic capacitors used across automotive, communications, and military and aerospace industries, Kemet may have gotten a boost following the 2016 elections, based on the belief President Trump would increase infrastructure spending. However, the company's acquisition of NEC Tokin, a manufacturer of electrical and electronic industrial parts, gave it a better gateway into Asian markets, especially in the automotive industry.
While fiscal first-quarter sales fell short of Wall Street's estimates at $274 million, Kemet turned a profit of $221 million, which beat analysts' forecasts and reflected a significant U-turn for electronics maker, which posted a loss last year.
Kemet was also added to the S&P SmallCap 600 index earlier this month, causing its stock to spike higher. Being added to a popularly followed index has no direct impact on a company's real value, the boost came from mutual funds and other portfolios that track the index which are required to buy the stock.
If you had bought on Jan. 1, a $3,000 investment in Kemet shares would now be worth over $11,900. Over the past 12 months, the stock is up more than 600%, and the outlook for it still appears favorable.
Dynavax Technologies (up 464.6%)
Quintupling in value is no easy feat for a company. Drug developer Dynavax managed to do just that thanks to optimism about its hepatitis B vaccine, Heplisav-B. FDA approval of the therapy is right over the horizon: Regulators are expected to give it the nod sometime this month.
The reason this is huge, aside from the obvious, is that there are only a few other hepatitis B treatments on the market now, but they're three-dose regimens. Heplisav-B is a two-dose one. Doctors know that keeping patients on track with a medication is much easier when the number of dosages is reduced, which could help this therapy capture a large slice of its market.
The risk here is that Dynavax lacks the financial wherewithal to market the drug itself, and recently announced it was seeking a partner. It's possible it won't find one, though that's unlikely.
Positive developments over 2017 would have turned a $3,000 bet in Dynavax to kick off the year into $16,900 today. At this point, the biggest gains have likely already been made until we learn whether the FDA really is going to sign off on Heplisav-B, and what company -- if any -- decides to partner with Dynavax to help market it.
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