In my last two educational articles, I discussed some economic and technical indicators that you can use to determine opportune times to get in ….and out…of the stock market.
That is a very important decision because most stocks tend to move in the same direction as the overall stock market.
I’m confident that if you adhere to the readings on those indicators, you’ll avoid the big downturns and profit from the big upturns in the stock market. But, you won’t know which stocks will outperform most other stocks or which stocks will generate the bigger returns during periods when stock prices (in general) are rising.
So, in this article I’ll review some of the criteria that I’ve used over the past 20 years to select stocks poised for big gains, including a few 10-baggers and numerous other stocks that rose sharply after I bought them (or recommended them to other investors and stock market speculators).
Those stocks include TASER International (TASR), which rose more than 8-fold from the time that I recommended it for purchase on September 30, 2003 to April 15, 2004, Intuitive Surgical (ISRG), which rose more than 17-fold from the time that I purchased it on July 13, 2004 to December 10, 2007, and Baidu (BIDU), which appreciated approximately 470% after I purchased it on September 9, 2005 to November 9, 2007*. (Please Editorial Contributors’ Disclaimer below*)
Other examples include the following: IPG Photonics (IPG), which rose by 222%, Lululemon (LULU), which advanced 112%, and OpenTable, which gained 84.6% after I recommended those stocks for purchase on October 29, 2010.
All of the stocks mentioned above had the following in common:
- New Types of Products or Services: The underlying company was offering a revolutionary product or service.
- For example, during 2003 TASER International was selling the first electrical “stun” gun that could be used by law enforcement agencies to incapacitate a person without causing injury or any long-term adverse effects.
- Intuitive Surgical was offering the first robotic surgical system – the da Vince Surgical System – that placed computer-enhanced technology between the surgeon and patient, enabling surgeons to perform advanced minimally-invasive surgery in a manner that had never before been experienced.
- Baidu had recently launched a Russian search engine similar to America’s Google.
- Limited Competition: The underlying company had very few, if any, competitors at the time that it began offering its products/services.
- Strong Financial Condition: The underlying company was very strong financially – it had low levels of debt and was able to pay its recurring bills from cash savings or trade accounts receivables.
- Rapidly-Growing Revenues and Earnings: The underlying company was growing its revenues and earnings at rapid rates, and it appeared to be in a position to continue to grow its revenues and earnings at fast rates during the foreseeable future.
- Publicly-Traded for Less than Five Years: The stock had been traded on public stock exchanges for less than five years.
- Undervalued Relative to the Company’s Earnings Growth Rate: The company’s stock was trading at a discount to its earnings growth rate. Specifically, the stock’s price-to-earnings ratio was less than the company’s average annual growth in earnings.
- Institutional Demand: The trading volume for the company’s stock began to rise sharply prior to big increases in the stock’s price, indicating that institutional investors had begun to buy the stock.
Although identifying stocks that possess the characteristics outlined above is not an easy task, there’s a good chance that your online brokerage firm provides a stock screening service that enables you to search for stocks with those criteria.
Additionally, I’ve found that many of the stocks included in Investor’s Business Daily Top-50 list of stocks, which is posted daily in the B section of Investor’s Business Daily, possess those criteria.
Lastly, my firm is in the process of creating its own list of stocks that possess the criteria outlined above. So, be sure to visit my Internet web site later this month, at www.InvestorsMonitor.com, and to click on the link entitled Stocks to review a list of stocks that appear to be poised for some big gains during the months ahead.
Until next time,
David Frazier is President and Chief Market Strategist of Frazier & Mayer Research, LLC, an independent investment research firm that offers customized research and analytical services to registered investment advisors, hedge funds and high net-worth individual investors. You can check out his latest insights at: www.investorsmonitor.com.