People may say, “Sell in May and go away,” but the ones who do will be kicking themselves. They will be at the beach when some good opportunities come along, and you and I can profit when they buy shares weeks after we do.
The reality is that good stocks will go up whether we’re in a slow trading market, or even a bear market, almost as well as in a bull market. The trick is to find the companies that have explosive growth potential.
SPARK, AIR AND FUEL
When you start a car, you need spark, air, and fuel. With stocks, the fuel is the earnings per share (eps) growth, the spark is a catalyst, and the air is broadcasting. As we enter July, we have all of those right around the corner.
Earnings will begin in earnest in another week and a half as companies begin to announce financial results for the second quarter. Not everybody will beat numbers, but if you find the explosive-growth companies, you have a catalyst and media hype to cause an explosion just like the one in your car engine.
WHAT TO LOOK FOR?
We have had many winners in the last quarter, which we can review to show you what to look for. The most obvious setups fall into three categories:
- Expansions, and
- Acquisition candidates.
Any or all of these types of ideas can generate profits as long as you have the time and discipline to wait for the best opportunities.
TURNAROUNDS – One stock, let’s call it stock A, just broke to a new high today and is a good example of a turnaround candidate. Its earnings call was just over two weeks ago and it demonstrated that it could cut costs and find niche markets that can jumpstart sales. When looking at turnarounds, don’t even think of buying until you see the capitulation and indications of the business improving.
NEW MARKETS – A good example of this would be stock B, which is repurposing its satellites to offer Wi-Fi as well as cellular data. There have been conversations about partnerships and leasing bandwidth, which could open up a substantial new revenue stream. Stock B’s business is chugging along but a partnership like this would be a big step up.
ACQUISITION CANDIDATES – Sometimes, we look to mid-cap companies for opportunities when the investment is clear and a sizable return can be earned using options. Stock C has an existing partnership with Yahoo to republish its content and would make a nice tuck in acquisition for the larger company that is about to be handed a multi-billion dollar check when Alibaba goes public. We don’t know it will happen, but we know stock C is growing considerably faster than Yahoo is in a related business and with the same type of sales force to reach out to the same customers.
Don’t look at the summer as a slow time for investing; just be selective with your opportunities and then cast your hook into the water. Good companies like the ones mentioned above come along when you least expect them. You have to be ready or have someone doing the looking for you, like I do for readers of my Tech Stock Jackpot service.