Good evening Ken. I like to take a moment and post about BUYING and HOLDING as I discussed with you on the phone this past weekend.
What to look for?
Stocks with increasing earnings in sectors that are coming into play.
Sometimes these stocks are about as exciting as watching grass grow.
I know that sometimes I lack discipline and I don't stick to this formula. Sometimes I jump in on the daytrade express, and sometimes I chase after the fast buck, but buying and holding stocks with improving bottom lines can't be beat.
These aren't sexy plays at all. The gains aren't going to be overnight triple digit. On most days, these stocks are up or down 1/8, but give them a little time and they pay off.
To illustrate the process at work, I've previously mentioned the following stocks and their respective sectors:
GOU - Canadian natural gas
NAFC - Food
AVL - Defense
First, identify the sectors, then pick stocks with dramatically improving earnings within those sectors.
You would hardly notice it, but the above stocks are on a quiet tear. NAFC and AVL reported last week. Both stocks hit 52 week highs today. GOU reports in early May. I think we'll see the same results.
I'd love to discuss sector ideas on this thread. If anyone spots a new trend developing, please post what you see. I'll continue to post boring plays from time to time, in case anyone is interested.
How can you find stocks/sectors gaining earnings momentum?
I use IBES, First Call, Value Line and Starmine for ideas. IBES info is available for free at the Naz site:
earnings.nasdaq.com
The other sites are not all free. First Call info I get from my broker's web site. I borrow Value Line from a friend who subscribes. Starmine is available for free at www.starmine.com (registration required).
Using Ditch's EEE as an example: EEE comes up on an IBES' earnings upgrade list. It's listed in the list titled ANALYST FORECAST CHANGE - INCREASE FOR WEEK
earnings.nasdaq.com
Scroll down and click on ANALYST INFO for EEE, and then click on MOMENTUM, and then click on FORECAST as well as the other sections as a good start to due diligence.
EEE's earnings have been upgraded but there is a very wide discrepency between the analyst's offering an opinion. It is preferable, IMO, when the range of estimates is narrow, as the earnings forecasts within a narrow range obviously will be more accurate than wide ranging forecasts.
Look at the big picture. How is the sector performing?
Take a look at the sector chart. Forbes' site used to have sector charts available. I couldn't find it tonight. Sector charts are still available for free at Timely:
207.61.23.99
Look for trend reversals in the making, or a steady uptrending 200 day MA, or other good patterns.
Back to EEE - Timely also has a Canadian homepage:
207.61.23.99
For a (TA) sector comparison for EEE, lets look at OIL & GAS PRODUCERS on the TSE (nice chart, steady uptrending 200 day MA):
207.61.23.98
...and then at EEE's chart (needs to break above 200 day MA then a fill the gap at 2 1/2 is a cinch):
207.61.23.98
To complete your DD, compare fundamental ratios such as PEG, PE, cash flow, debt, etc. with the stock's peer group. This information is available at most financial web sites including Yahoo.
Look for upcoming developments that may be a catalyst or a problem by glancing over the 10k and the news releases to complete your DD.
The above is a general review on spotting earnings trends, comparing an individual stock's performance to its sector and using TA to pick an entry point.
Much more can be said about each one of these topics. Not enough can be said about sticking to the game plan.
Sergio |
