Many of the best-performing stocks of the past – the ones that have turned $10,000 into more than $1 million for hundreds of investors – are businesses you’ve been patronizing for years.
Momentum stocks are, by definition, the fastest-growing companies and the most rapidly moving stocks in the market.
There’s nothing mysterious about them…
Quite simply, they lead virtually all other companies in terms of sales growth, operating margins, profitability and “relative strength.”
How do you identify these momentum stocks before they make their historic upswing?
Here’s all it takes…
First, you pinpoint the characteristics that all these stocks shared before they skyrocketed – and there are only a few. Then you carefully screen all the publicly traded companies available for purchase today. You isolate the handful that share these criteria and are therefore likely to rise 10-fold or more.
Then you invest in this select handful of stocks… and wait. If history has demonstrated anything, it’s that share prices ultimately follow earnings. But not earnings alone…
The Big Winners of the Past Will Help You Identify the
Big Winners of Tomorrow
Alexander Green, Chief Investment Strategist of The Oxford Club, spent 16 years on Wall Street as an analyst and portfolio manager. During that time, he developed a simple investment premise: Find stocks that have risen substantially in the past, determine their characteristics, and find current stocks poised to make the same moves.
That simple idea led to years of studying complex historical data. In the end, several key indicators emerged from the haze of Wall Street promising to isolate the few whiz-bang stocks ready to really move a portfolio.
While these are estimates based on the big movers of the past, here are a few of the factors that will help you identify the next momentum stocks likely to rocket upward in price:
- They have rapidly growing earnings of more than 25%. It’s no secret or surprise that earnings growth drives stock prices.
- They consistently beat Wall Street earnings estimates. Stocks are priced to reflect future earnings as determined by analysts’ estimates. There are two reasons a stock can repeatedly beat estimates. First, the company can simply grow faster than anyone anticipated. Second, the company’s management can “underpromise and overdeliver.” A company’s management can boost share prices at almost any time by projecting high levels of growth. But when the real earnings don’t follow, the stock gets hammered. By resisting that temptation and providing conservative estimates, the long-term results from a quality management team are much better.
- The average percentage increase in earnings for the current (or, in these examples, the preceding) quarter is at least 34%. If the last quarterly report showed an earnings increase around 35%, we know we’re on to something.
- Profit margins exceed the industry average. Companies that can keep costs lower and prices higher make more money. Again, sometimes the best investment decisions come from the simplest business fundamentals.
- They have a relative strength rating of 85. (Relative strength rating is a technical indicator commonly referred to as RSI.) This means the company is already outperforming 85% of the stocks in the market.
- Their relative strength has been growing for at least the past six months. This is another important indicator based on the RSI to ensure that the performance of the stock is strengthening.
- They have an average of at least 5 million shares outstanding… And they have average daily volume that exceeds 75,000 shares. These two factors are to ensure adequate liquidity and market visibility.
- They have a median stock price of $26. Before their big move, stocks often trade in this area. While not a strong indicator on its own, it can help isolate the stocks ready to break out.
- They have a P/E ratio of 31 or more. Investors too often refuse to buy stocks with higher-than-average P/E ratios. This leads to missing out on high-growth opportunities. For example, The Oxford Club recommended Amazon.com (Nasdaq: AMZN) when it had a P/E ratio around 60, but thirteen months later, we closed our position for a 143% gain.
Momentum Stocks Make for Monumental Gains
When you boil it down this way, it may seem as though the process of picking momentum stocks is a purely numerical exercise. But like most things in life, it’s not that simple…
First of all, you must know exactly how to apply the qualifications to different sectors of various industries under contrasting market conditions. For example, an average energy company might have a 25% return-on-equity while the average financial company returns 14%. Properly framing these differences is vital.
Second, you have to have access to a proprietary database that contains the relevant data on more than 14,000 publicly traded companies. Information is more readily available than ever before. But now, with the mass of data, the true difficulty is handling and sorting through it all.
Third, you have to be qualified to interpret the mountain of quantitative and qualitative information. This is not an automatic trading system, but a screening mechanism.
Finally, you’ll need to be willing to spend the time and effort to screen the potential candidates.
With the information here, you’ve gotten a head start on identifying your own momentum stocks. While looking at the mass of financial data on a company, some key points will scream out at you now that you know some of the million-dollar characteristics of our favorite stocks.
Fortunately, as a subscriber of The Momentum Alert, you can simply sit back and wait for Alex’s next recommendation.
Alex is more than willing to handle the heavy lifting for you. He’s spent decades identifying the specific momentum stocks that meet all the criteria and provide the greatest potential for explosive gains.
