Today I’m going to show
you how to find the best-performing small-cap stocks of 2014.
Employing the approach
in 2013 helped spot some huge winners…
Puma
Biotechnology, for example, jumped 452.2% in 2013, on a series
of positive results and news related to its various clinical trials programs –
a classic disruptive technology.
Tesla
Motors is another great example. The luxury electric
automaker trounced earnings estimates way back in the first quarter of 2013,
which led to analyst upgrades… and, of course, a 344.1% gain for
shareholders.
And then there was Netflix, whichgained 279.6%
after the company crushed fourth-quarter 2012 earnings, proving the company had
righted its ship.
All very different
businesses and industries, but one thing in common: sparks. They come in
different shapes and sizes, but they all do the same thing: make you a lot of
money.
This year’s first batch of gains can come quickly,
too. Plug Power (NASDAQ: PLUG) generated a spark on
Jan. 2, confirming it had met fourth-quarter 2012 order targets.Shares jumped 34% that following morning… and
were up another 35% by the next afternoon.
And here’s the thing:
Sparks are easy to find, too. No need to study ambiguous chart patterns, watch
24 hours of business news channels, or pore over valuations.
All it takes is five
simple steps…
Step
1: Get Access to the Entire Stock Market
Start by opening a free stock screen, such as the one located at FINVIZ.com. I don’t have any relationship with the folks at
FINVIZ.com – I’m mentioning FINVIZ because it’s free, easy to use, and it
allows us to screen for recent performance.
Step
2: Target the Small-Cap Universe
For the purposes of screening for small-cap opportunities, you can limit the
screen to companies with a market cap between $300 million and $2 billion. This
will limit your choices to smaller companies (that still have plenty of upside)
while at the same time screening out companies that are too small – and too
risky.
Step
3: Look for an Igniting Spark
Set the screening parameter to only include companies that have experienced at
least a 20% move over the last week. I know a 20% move in a week sounds like a
lot – and it is – but we’re targeting companies that could deliver 200%, 300%,
400%, or more in a 12-month period, so letting the market demonstrate its
conviction early on is a fair trade-off.
Step
4: Isolate Your Target Group
Once you have your list of results (there were only 11 results when I ran the
exact same screen recently), take a moment to check in on each company using a
handful of news/research sites. I like to use IBD, Yahoo Finance, MarketWatch,
and Money Morning, but you can use any source as long as you’re comfortable
that the news feed is thorough.
Look for news stories
that could explain why the stock moved over 20% in the last week. If the move
has long-term legs, it will probably have at least one recent story that could
explain the move. If the stock has been climbing for longer than one week, you
might need to look at older news stories to identify the spark.
When looking for news
events, focus your attention on the most powerful sparks.
Here’s a list of the
ones I target for readers of my Small-Cap Rocket Alert:
§
Quarterly earnings that beat expectations
§
Upward revisions or analyst upgrades
§
A new game-changing contract
§
The announcement of a heavy-hitting
institutional investor establishing a position, a research report (from a
reputable company) that indicates the company has a top-of-class disruptive
technology, or a management change. Perhaps the company is just a leader in a
sector that is turning around (think solar stocks in 2013).
Step
5: Confirm the “Sparks”
Finally, once you think you’ve got a winner, with a legitimate spark, take a
moment to make sure the company’s fundamentals are in order – increasing
revenue and net income, stable or improving margins, and a reasonable debt
level.
And
remember…
If
you’re focusing on a biotech company, many of the small firms
don’t actually have a product on the market yet (that’s why they’re in the
clinical trials process in the first place). That means they might not have any
revenue or earnings. If that’s the case, make sure the company has enough cash
to run operations for 18 to 24 months. Otherwise, the company might have to
issue more stock to raise cash, which can drag the stock down.
This process is by no
means the only way to identify small-cap winners with profitable sparks, of
course. But it is one simple method you can use at home to help you tune out a
lot of the noise.
The payoff is often
huge.
http://moneymorning.com/2014/01/06/find-best-small-cap-sparks-90-seconds-less/
Disclaimer: This article was posted
with the permission of a third-party contributor and the opinions
contained therein do not necessarily reflect those of Smallcappower.
Smallcappower does not endorse any investment advice provided by
these third-party contributors. Please consult your investment
advisor before making any investment decisions.
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Smallcappower, Ubika Communication and Ubika Research are not registered with
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do not provide nor claims to provide investment advice or recommendations to
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