Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I know alot of research goes into choosing stocks. However, I wanted to know, what five pieces of information would give you a good indicator that the stock you're looking at is a potential winner?
I use a mixture of technical indicators and fundamentals with my "longer" term trading (1 month+).
I would like to see the following (not in order)...
1) Strong sales growth that I believe will continue in the upcoming quarters (doesn't have to be profitable though)
2) A great growth plan that is already in the works
3) Strong leadership
4) Chart must show a strong uptrend
5) Must be at a good buy point based on 20/50/200 day moving averages
Low price to free cash flow (must be FREE cash flow, not just simply cashflow)
Low debt to equity
High current ratio (high liquidity)
Must have positive net income. Even better is if EPS is in an uptrend over the last few quarter and years.
Stock can't be in a decisive downtrend (it's fine if it's been flat for most of the year)
What I don't look at (that many people do):
P/E ratios
Overbought/oversold
Chart patterns (they're too subjective)
If you're investing in small cap biotechs, the rules are quite different since they are highly unlikely to make any money.
They trade on events, and yes, there are rules you can follow to minimize risk and capitalize on price volatility around binary events that have a date that can be very well approximated. The profits can easily dwarf what you would gain trading large or mid cap stocks; but it comes with a lot more risk.
1. Good cash balance that will last beyond the binary event you're trading around.
2. Late phase trials - primarily phase III, but phase II trials can make for great trading opportunities.
3. Drugs can have a low risk of failure. Oncology drugs, lifestyle drugs, psych drugs, "novel drugs" are all high risk. If it's an improvement over an existing drug, that's a good candidate; drug delivery and testing companies are usually safe.
4. Phase III trials that closely mimic a phase II trial. The closer the better; therefore, the results are likely to be comparable. No surprises.
5. Large early phase trials; both in size and number. The odds reach 82% approval for companies on their third submission of a drug. That is the peak. I'm not sure how market cap affect that percentage, but I'm sure it does significantly. Still 82% are great odds.
6. Bonus rule - don't be greedy. Rarely if ever would you hold through a binary event. Take you profits and keep moving; on to the next money maker.
What is an Economic Moat?
Economic moat refers to the character and longevity of a corporation's competitive advantage over similar companies competing in the same industry. If Company A is producing excess profits, competitors B, C and D will soon take note and attempt to enter the industry and do the same. As capital flows into the industry, the new competition will erode their profits, unless Company A has an advantage over its competitors.
An economic moat is a barrier that protects a firm and its profits from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders. Without a wide economic moat, there is little to prevent competitors from stealing market share and thus profits.
Strong insider ownership is the percentage of insiders (people working in the company) who have large ownership of the shares outstanding. Comapnies with strong insider ownership (over 10%) means that the insiders are more likely aligned with the shareholders interest than a company who has managers/insiders who have no stock in the company and little "skin" in the game. This definitely has an effect on smaller businesses that are up and coming. I like to see the alignment and strong management ownership in the company to align the interests of the company and mine. If they are going to dilute the shares, I damn well want their shares to be diluted as well.
You can look at spreadsheets all day but the strength of the product and branding is what sells products and maintains a loyal customer base. Sometimes branding/moat tie into each other a little.
When I see kids/adults wearing shirts like Monster energy drinks, or Pepsi shirts. There is strong branding, very strong moat. The company has successfully marketed their product and brand is SOO strong that people are wearing shirts of the company is HUGE in my book.
Quality is huge for me. I am in manufacturing and I know what quality is. Defective products, short life spans, easily marked up products on cosmetic surfaces, poor performance, poor designs, etc are things you don't want to buy and will most likely not keep buying.
When I think of quality, Chipotle comes to mind. Good ingredients, 1 piece flow, fast check out, competitive pricing and a VERY loyal customer base.
I asked lots of friends about why they eat at Chipotle and not Taco Bell (yum brands). They say, quality of the food.
I like companies where people don't even think about spending the money, it's like customers are programmed to just use it or buy it. Like gasoline, utilities, and credit card companies. People might debate if they are going to purchase a certain food or clothing product, but they almost all pay with credit cards, and without even thinking about it. Cash??? what's that? Might as well just take a percentage of GDP and give it to the CC companies.
Large moats could include a company like Boeing, Airbus, really...who is going to compete with these guys in making planes for commercial jets? The FAA, etc. so many barriers and capital required. (I work for united technologies).
1) margin of safety (20%)
2) low tangible book
3) PE ratio
4) growth rate
5) moat
I have found through my investing over the last 10-15 yrs that your first 3 on this list are basically worthless.
I am not trying to be mean or anything like that. I am not personally attacking you I am just sharing my opinion.
Safety is an opinion. It is better to buy when a company pulls back a good bit and that is exactly how I purchase companies. If you want to be safe, look at the technicals and buy doing chart reading when a company is down and perhaps did a tradervic 1-2-3 bottom or a 2B bottom, etc.
When I look at my 10 baggers+ and most of the companies I am up 500-800% etc. They don't exhibit the traits you have above.
The companies I lost money in and sold possessed the traits you say above and growth is obviously an estimate.
I have made tons of money in V, MA, BIDU, SAM, CMG, BWLD, BA, UTX, Goodrich (merged), Arena Resources(Merged), etc.
If you look at these companies when I invested in them, they didn't have great PEG ratio's or good P/E ratio's. They all have solid moats, branding, quality products.
I think if you stick with the obvious picks you see day to day with solid product quality, you will win in the end. Don't worry as much over P/E ratio's and growth estimates. find a quality product that the market likes, is young in its growth and buy it. Hold it through thick and thin and be patient. when the stock is down, buy more of it.
I remember when Visa went public, I purchased some in the beginning and then the stock fell, as is Noodles and company is doing right now, Chipotle did the same as well, yet these have been VERY rewarding holding them over the years when I purchased into that weakness. don't be shaken out of the good companies.
NDLS, watch it, accumulate it and hold it over the next 10-20 yrs and I am betting I will be returned yet again with a 10 bagger
silver and gold bullion is in a secular bull market and is shaking out the weak hands right now, it probably has more downside left, but I am continuing to accumulate it as well.
What is an Economic Moat?
Economic moat refers to the character and longevity of a corporation's competitive advantage over similar companies competing in the same industry. If Company A is producing excess profits, competitors B, C and D will soon take note and attempt to enter the industry and do the same. As capital flows into the industry, the new competition will erode their profits, unless Company A has an advantage over its competitors.
An economic moat is a barrier that protects a firm and its profits from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders. Without a wide economic moat, there is little to prevent competitors from stealing market share and thus profits.
Strong insider ownership is the percentage of insiders (people working in the company) who have large ownership of the shares outstanding. Comapnies with strong insider ownership (over 10%) means that the insiders are more likely aligned with the shareholders interest than a company who has managers/insiders who have no stock in the company and little "skin" in the game. This definitely has an effect on smaller businesses that are up and coming. I like to see the alignment and strong management ownership in the company to align the interests of the company and mine. If they are going to dilute the shares, I damn well want their shares to be diluted as well.
You can look at spreadsheets all day but the strength of the product and branding is what sells products and maintains a loyal customer base. Sometimes branding/moat tie into each other a little.
When I see kids/adults wearing shirts like Monster energy drinks, or Pepsi shirts. There is strong branding, very strong moat. The company has successfully marketed their product and brand is SOO strong that people are wearing shirts of the company is HUGE in my book.
Quality is huge for me. I am in manufacturing and I know what quality is. Defective products, short life spans, easily marked up products on cosmetic surfaces, poor performance, poor designs, etc are things you don't want to buy and will most likely not keep buying.
When I think of quality, Chipotle comes to mind. Good ingredients, 1 piece flow, fast check out, competitive pricing and a VERY loyal customer base.
I asked lots of friends about why they eat at Chipotle and not Taco Bell (yum brands). They say, quality of the food.
I like companies where people don't even think about spending the money, it's like customers are programmed to just use it or buy it. Like gasoline, utilities, and credit card companies. People might debate if they are going to purchase a certain food or clothing product, but they almost all pay with credit cards, and without even thinking about it. Cash??? what's that? Might as well just take a percentage of GDP and give it to the CC companies.
Large moats could include a company like Boeing, Airbus, really...who is going to compete with these guys in making planes for commercial jets? The FAA, etc. so many barriers and capital required. (I work for united technologies).
Find those companies and invest in them.
Thank you so much for explaining that. I know you gave the person above me a few examples of moats can you just give me a few more examples I can check out?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
