Making a List, Checking It Twice

 Stock Market Video

Making a List, Checking It Twice

Do Not Project Prejudice Into the Process

In Case You Missed It

In this week’s Stock Market Video Mike Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader, talks about the market’s two-steps-forward, one-step-back advance since its early June low, and also opines that, should the rally kick into a higher gear, growth stocks are going to have to lift off (as opposed to the defensive stocks that have led thus far). Stocks mentioned include: eBay (EBAY), D.R. Horton (DHI), Lennar (LEN), TransDigm (TDG), (AMZN), LinkedIn (LNKD) and more. Click below to watch the video!

screenshot 7-20-12

Making a List, Checking It Twice

Lists are fun to make and fun to read. I’m a sucker for a Top Ten list of almost anything, from 10 highest-paid athletes to 10 worst cities for left-handed truck drivers. These lists are a great way to get a discussion going, start an argument or make a point. And the outraged responses to such lists when they appear online makes them even better.

Every once in a while, when the MegaBucks jackpot gets big enough, everyone at Cabot kicks in a dollar and we buy a wad of lottery tickets. I know that there are people who have lists of the things they will buy if we win. (I hate to tell them that, at least from a statistical point of view, our chance of winning is essentially the same whether we buy tickets or not. But it’s fun to dream.)

The kind of list I want to talk about briefly is a watch list of stocks that you are interested in. This is not a buy list. It’s more like a group of stocks that have something interesting about them, but don’t have enough pieces in place to get you to the buying point.

There are at least three reasons that you might have interesting stocks and not buy them, but the best one is that the market isn’t ready yet. While the market timing indicators for both the Cabot Market Letter and Cabot China & Emerging Markets Report are positive today, this isn’t anyone’s idea of a roaring bull market. (A quick viewing of Mike Cintolo’s video above will give you the idea.)

But the question I get asked most often when I’m talking about watch lists is, “How the heck do you find growth stocks for the list?” And I understand that, especially for neophytes, the stock market looks like a blooming, buzzing confusion, a sea of little fishes dominated by growth sharks like Apple (AAPL), income whales like Procter and Gamble (PG) and value stocks with low P/E ratios and charts that are as flat as tropical lagoons.

If you are really serious about developing a watch list from scratch, all you have to do is go to your online broker’s site and screen the entire universe of stocks that trade on U.S. exchanges as follows (it’s easier than it sounds): 1) screen only for stocks that trade for $10 or above, which will eliminate the penny stocks and low-priced rabble; 2) screen what remains for stocks that trade at least 400,000 shares a day, on average, which will weed out the hyper-volatile small issues; 3) screen for stocks whose price is higher than it was when the year started, which will give you stocks in uptrends; and 4) screen for stocks whose 2011 revenue and earnings came in higher than in 2010.

When you get done, you should have a list of interesting candidates that you can weed further by investigating stories, by digging into revenue and earnings trends and by seeking out the strongest charts.

This will really work, and the time you spend will pay off handsomely as you follow the progress of the stocks that survived your multiple layers of screening. You will follow their reactions to earnings reports, see how sensitive they are to good and bad news, and get to appreciate the power of an innovative product mix.

As a less-stressful alternative, you might also consider just putting the stocks mentioned in the Cabot video review and Cabot Wealth Advisories on your watch list. It won’t be comprehensive, but Cabot’s editors actually analyze markets and stocks as a full-time job, and I think we’re quite skilled.

Note: I’m trying not to be too self-serving here, so I’m leaving until last the suggestion that Cabot Top Ten Report will do all of this dog-work for you, delivering the ten strongest stocks of the previous week to you every Monday, complete with expert analysis and fundamentals. But now that I’ve mentioned it, you can check out this admirable research aid by clicking here.

Do-Not-Project-PrejudiceHere’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Do Not Project Prejudice Into the Process

A simple admonition to confine your thinking to the facts, while keeping personal biases at bay. Amateur investors typically fail because they haven’t learned to separate facts from personal beliefs. [Editor’s Note: Controlling your prejudices is probably a good idea for almost any activity in your life, not just investing, but I’m entirely too discrete to point that out. I’ll just add that one of my recent favorites among bumper stickers is on the same theme. It reads: “Don’t Believe Everything You Think.”]

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 7/16/12 – Driving Off the Fiscal Cliff

In this issue, I argued that the “Fiscal Cliff” of scheduled tax cut repeals and spending cuts should encourage an interesting policy debate, but probably won’t. Stocks discussed: Intuitive Surgical (ISRG), Green Mountain Coffee Roasters (GMCR) and Baidu (BIDU).

Cabot Wealth Advisory 7/19/12 – Consistency is the Key

In this issue, Cabot Market Letter editor Mike Cintolo passes along some investment tips based on trying to improve his shaky golf game and looks at how earnings season may set the tone for the market. Stocks discussed: TripAdvisor (TRIP) and Zillow (Z).

Have a great weekend,

Paul Goodwin  
Editor, Cabot Wealth Advisory


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