The Traits of Winning Stocks

Traits

• Only buy stocks in a market uptrend– Take defensive action as a downtrend begins

• Market direction

– History shows 3 of 4 stocks simply follow the direction of the general market, either up or down. SO you must learn to follow, not fight , the current trend

– You do not need to be fully invested in the stock market at all times. Make money when the market is trending up – and protect your profits when the market starts trending down

Traits

• Focus on companies with big earnings growth and a new, innovative product or service– Big, accelerating earnings growth is the #1 factor to look for in a

stock• C – Current quarterly earnings per share

– Earnings should be strong and accelerating in recent quarters. Plus, to prove the company has the ingredients to sustain that growth, look for solid sales growth, a high return on equity and industry-leading profit margins

Traits

• A – Annual Earnings per share– To help make sure the current quarterly growth is not a fluke, also

look for strong annual earning growth over the last 3 years.

• N – New company, product/service, industry trend, or management– Focus on companies with something “new”; an innovative product

or service in high demand, a new CEO, or a game changing industry trend

Traits

• Buy Stocks being heavily bought by institutional investors. Avoid those they’re heavily selling– Primarily mutual funds but also hedge funds, banks, pension

funds, insurance companies, and other large “institutions” account for the bulk of all trading

• They provide the buying power or fuel a stock needs to make a big, sustained upward move, They sell, its their heavy dumping of shares that drives a stock down.

Traits

• S – Supply and Demand– At key buy points, the best stocks will have above average

increases in volume. That shows fund margins and other professional investors are heavily buying that stock

• L – Leader or laggard– Focus on the top-rated stocks in the top-rated industry groups. A

stock becomes a true leader by showing strong earnings and innovation

Traits

• I – Institutional Sponsorship– Refers to ownership of a stock by large institutions, primarily

mutual funds. Look for an increasing number of funds owning a stock in recent quarters, plus ownership by a few top fund managers that have out performed the market over the last one or two years.

• Bottom line: make sure some mutual fund managers are moving heavily into a stock before you buy.

What about P/E Ratios?

• A low P/E ratio is usually a sign of weakness, not strength– Investors who fixate on low P/E rations miss out on virtually every

big winner– If you focus only on low P/Es, you’re essentially taking the best

merchandise off the shelf and restricting yourself to the clearance bin.

Short Term Trading Strategies

• Swing Trading – when you buy a stock and sell it several days later, you are swing trading. – The idea is to sell when the stock price reaches a predetermined

target. During certain market conditions, this strategy can be successful

• During bull markets leading stocks in sectors such as biomedical or technology.

Trading Strategies

• Position Trading – long term traders– You buy a stock and hold it for a few weeks or months

• Trend Trading – – Uptrend – stock going up– Downtrend – stock going down– Sideways trend – stock staying steady

• Yelp– Expected 2014 earnings growth: 22 cents per share, compared

to 4 cent loss in 2013– Expected 2014 sales growth: 39%

• Tesla– Expected 2014 earnings growth: 606%– Expected 2014 sales growth: 29%– Skeptics who questioned whether electric car maker Tesla

Motors (TSLA) could ever be a real business got their eyebrows singed in early April.

Top Stocks of 2014

• KEYW Holding – Expected 2014 earnings growth: 295%– Expected 2014 sales growth: 15%– As I recently wrote in another column, cybersecurity is one of the biggest risks

out there to our national defense, our government and you. Like the six companies I mentioned in "6 ways to invest in cybersecurity," KEYW Holding (KEYW) is experiencing robust growth because of this trend.

• Black Diamond – Expected 2014 earnings growth: 375%– Expected 2014 sales growth: 20%– Black Diamond (BDE) sells outdoor gear -- rock climbing equipment, skis, ski

poles, bindings, helmets, backpacks, tents, boots and lanterns. Its brands -- Black Diamond, Gregory, POC and PIEPS -- have has a reputation for quality, style and innovation. Think of Black Diamond as Lululemon (LULU) for outdoor adventurers.

Top Stocks of 2014

• KB Home – Expected 2014 earnings growth: 305%– Expected 2014 sales growth: 26%– Housing is heating up again, so homebuilders are putting in some

scorching growth. KB Home (KBH), which builds in California, Arizona, Colorado, Florida and six other states, should see 41% earnings growth this year, say analysts. Sales rose 59% in the quarter ending Feb. 29, driven by higher prices and robust demand. Net orders rose 40%.

Top Stocks of 2014

• Eagle Materials– Expected 2014 earnings growth: 74%

– Expected 2014 sales growth: 45%

– Eagle Materials (EXP) is a low-cost producer of gypsum wallboard, cement, concrete and paperboard. The rebound in housing helps in two ways: Sales and prices are both up.

• Trulia – Expected 2014 earnings growth: 298%

– Expected 2014 sales growth: 38%

– Homebuilders and their suppliers aren't the only ones getting an adrenaline shot from the housing rebound. So is Trulia (TRLA), which offers a website and mobile apps that help home shoppers research house listings and neighborhood stats on schools, shopping and crime.

Top Stocks of 2014

• Bonanza Creek Energy – Expected 2014 earnings growth: 52%– Expected 2014 sales growth: 35%– Bonanza Creek Energy (BCEI) cashes in on the fracking

bonanza. In "fracking," or hydraulic fracturing, energy companies use advanced technology to extract oil and gas from rocks and rock formations. It's controversial -- environmentalists don't like it. But it is paying off big time for energy companies. Exhibit A: Bonanza Creek saw earnings rocket 267% last year on a 115% production increase.

Top Stocks of 2014

• Scorpio Tankers– Expected 2014 earnings growth: 298%– Expected 2014 sales growth: 52%– Scorpio Tankers (STNG) is a tiny shipper. It has just 14 tankers

that move refined petroleum products such as gasoline, heating oil and naphtha from refineries around the globe to customers.

– But this tiny company is growing rapidly. It just raised hundreds of millions of dollars, which will help it more than triple its fleet size by the end of next year. It's adding 33 tankers, which explains why analysts expect such huge sales and earnings growth in 2014.

Top Stocks of 2014

• Santarus– Expected 2014 earnings growth: 65%

– Expected 2014 sales growth: 27%

– One way to hedge against skyrocketing health care costs is to own shares of the companies making money selling expensive drugs. Big pharma companies are one way to go, but they're already so big, it's hard to grow fast.

– To get at the really rapid growth needed to propel a stock a lot higher, you have to go with the smaller drug companies, including Santarus (SNTS).

– Its Glumetza, which helps treat type 2 diabetes, has been a main growth driver for the past few years, says Kevin Cowell, an analyst with Oberweis Asset Management. The company also sells Zegerid, which is used to treat gastrointestinal problems like reflux; and Fenoglide, which treats high cholesterol.

Top Stocks of 2014