Dynamic Healthcare Technologies (DHTI) Message Board

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Biotech / Medical : Dynamic Healthcare Technologies (DHTI)

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To: russell Leon Rich who wrote (77)	6/22/1997 10:20:00 PM
From: Michael Collins	of 168

Hey Russell what's up? #1 rule: Buy stocks that have earnings and don't buy stupid story stocks (I invested in small biotech companies when I started out and when all was said and done after 3 years I was down about 40% from where I started) #2: diversify- buy at least 5 stocks from as many different industries as possible and up to about 10 (I have 7) No matter how good something looks, things almost never turn out the way you think they will. #3: Buy stocks that trade at a significant discount to the rate that analysts project their earnings will grow over the next 5 years. I have AOL and it is pretty easy to find projections on it (if you ever want to know the projected long-term growth rate on a company, just ask me and I will try to find it for you). Let me give you an example about a stock trading at a significant discount. Let's say stock XYZ is currently trading for $12/share. Next, let's say analysts project earnings will grow 25% annually for the next five years and next year the company is expected to earn $1.25. The rule of thumb that I have read is several places is that stocks "should" trade in line with their growth rates. So in this example XYZ "should" trade at 25X $1.25 or $31.25 in a year. That's quite a bit above $12 but I am conservative and I don't set that as my target. Rather I will use a lower multiple, say 15X next year's earnings to come up with a one year target of $18.75 on stock XYZ. This to me would not seem to be an unrealistic target to a company trading at such a discount to its growth. #3: The company must have a strong balance sheet! I look for a quick ratio (current assets - inventory/current liabilities) of at least 2:1. Also check to see that cash flow from the company is positive and they are actually making money. #4: Check to see what insiders at the company have been doing. Are they buying or selling their own stock? A great place that gives weekly updates on this is at: insidertrader.com It is free also! : ) #5: Set a price target on a stock when you buy it (based on the growth rate) and sell when it hits or at least gets close to that target. Generally, when I sell a stock I'm looking at at least a 30% gain if not 40% or more. If you add all these ingredients up and pick a group of stocks from different industries that fit the bill and have some patience, you should be able to retire comfortably. Don't think about getting rich quickly because that's not what the stock market is for. Aim for 15-20%/year and in the long run it adds up big! It's either get rich slow or lose your butt quick. As far as DHTI goes it looks great based on fundamentals! My only concern is there has been some insider selling though one insider bought recently. Balance sheet looks good and trades at a whopping discount to its projected growth rate. I have it on the waiting list meaning that my portfolio is full but if one of my stocks hits its target I will most likely buy it. I'm going to study the insider trades a little more closely before I make an ultimate decision. Keep in touch! Sincerely, Michael Collins

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