That was my reaction when I was watching the space launch in a TV telecast many years ago. As a kid, I was mesmerized at the scale of fire needed to push the shuttle into the sky.
Imagine the sheer power and intensity to lift such massive weight to outer space!
“When will it stop travelling up, mommy?” asked the 5-year old me.
“As long as the fuel in the cylinders can last, I guess,” she replied. Well, she was almost correct.
Once the space shuttle reach the atmosphere, it continues its motion in the same direction unless an external force acts against it. Word.
Ahem... Newton’s 1st Law.
Later, I began to ponder more things. Like what is the space shuttle made of?
I found out that it requires good quality materials and sophisticated technology.
You see. As the shuttle enters into the outer space, it must withstand the harshest environment that contains harmful gas particles, radiation etc.
Think for a second. What will happen to the space shuttle that is made of poor quality materials as it is orbits into space?
God knows! My prayer constantly goes to the astronauts.
Okay, how is this related to finding quality stocks with potential rocket profits?
THE GOLDEN PIN
Finding quality stocks with strong fundamentals in the stock market is similar to looking for a single pin in a haystack.
In practice, such stocks that display strong earnings and revenues are called growth stocks.
These equities are so rare that discovering one is like you’ve strike a lottery!
Let me explain.
Imagine that in a stock market, there are about 8000 stocks from different sectors and industries.
Super growth stocks numbered up to 100 each day. That is less than 1% in the stock market.
Sure, it can be a pain in the ass to search for them. Sifting through company financial statements, one at a time.
Well, do you know that many think growth stock is a myth? Since it's uncommon, they stop searching for it.
Little do these people understand that there is a quick fix to this problem.
So easy that you think it’s a…Scam. Fake. Ridiculous!
But what if I tell you that I’ve that solution. An answer that can save your precious time and reduce your frustration.
Also, few know about this secret. It’s so unique that the professional traders have been taking advantage of this method for decades.
With that said, I shall reveal this valuable how-to guide now.
Let's find out the definition of growth stocks first.
They are stocks with strong earnings and sales and have the potential to appreciate the most in price.
Next, I’m going to use a stock screener called FINVIZ to find the best equities in the market.
Stock screener is a web-based tool that scans the stock market for those that meet my selection criteria.
Hey, what makes FINVIZ so special?
Well, it is one of the most powerful free screeners around and it is not new. Thus the program is stable. Furthermore, this user-friendly screener searches for growth stocks fast and easily.
Okay, let’s get into action!
Begin by clicking the screener tab on the FINVIZ homepage (finviz.com). FINVIZ offers more than 60 filters that highlight the stocks meet your selection criteria.
Next, on the Filters menu, select “All” to display all of the available filters. Use the associated dropdown menus to select the desired filter values.
Choose the following criteria and value. I will explain the reasons behind the numbers along the way.
Set earnings-per-share (EPS) and sales growth quarter over quarter over 20%. A company with strong growth tends to attract the attention of the large institutional investors. If it displays weak growth, it may not be able to sustain long term profits.
Following that, choose 15% or higher ROE. Basically, it measures a corporation's profitability by revealing how well a company manages its capital and helps you identify the best-run businesses. See, a strong ROE gives trader a sense that it's better poised to continue a solid earnings performance.
Next, select average daily volume over 400K. Thinly traded stocks tend to be extremely speculative and unpredictable. Because there is such a limited number of shares, a large purchase by a mutual fund or another big investor can cause a huge spike in the price In short, they can't buy tiny stocks at large volume as that will move the stock price too much.
Search for debt/equity below 0.3. It indicates the proportion of equity and debt the company is using to finance its assets. It’s measured by the company's financial leverage calculated by dividing its total liabilities by stockholders' equity. Also, beware of a high amount of debt can indirectly inflate return on equity because debt reduces shareholder equity.
Got it? Good.
Guess what. I’ve screenshot the selection criteria below for your ease of reference too.
Here's a case study. I’ve picked a stock from the result of the stock screening above. Ok, I’ll go for one mentioned in the list.
Arista Networks (ANET) is a global company that supplies cloud-networking solutions worldwide and offers technical support services with its extensible operating systems, network applications and gigabit Ethernet switches.
As of 26th November 2016, it has an impressive quarterly EPS and sales of 76% and 33%. Much higher than the minimum requirement of 20%.
ANET also gave a respectable 17% ROE. This indicates that the company manage its money well and operates its business efficiently.
There were huge interest from the market as it displayed that its average daily volume is 675 000.
Finally, the debt/equity ration is a stunning zero. This means that ANET is not liable to any financial instituions to finance its assets.
To understand better, see the image below that shows the chart and performance data of ANET.
Pay attention to the chart. Do you notice that the price is experiencing an uptrend since July?
This shows how a growth stock such as ANET that has solid fundamentals, can skyrocket its price from $64 to $95. In other words, the profit made in five months is 48%!
IT’S A WRAP
Okay, folks. I hope that you have learned this simple technique that you can apply immediately in less than five minutes.
Go ahead and enjoy searching for the strongest stocks and profit from it correctly.
ONE MORE THING
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