Aside from positioning into takeover plays, the first half of 2011 should be about “Growth at a Reasonable Price” (GARP). To accomplish this task, you can sift through thousands of ticker symbols, like a babboon’s ass on a needle, or you can set up screens, like a gentleman. Either way, you’re going to want to look for stocks with the following criteria:
Avg. volume over 500k. Trading is hard enough as it is. You do not need the headache of fucked up liquidity traps.
ROE over 10%
Quarterly Revenue Growth over 20%. Most websites use yoy comparisons. I think that’s flawed. Inside The PPT, I use the last two quarters versus the same period one year ago.
Market Cap over 250 mill. Anything less is simply gambling.
And, finally, I use rudimentary fundamental analysis by grading PEG, Debt/Eq, p/b, p/s and profit margin metrics, all done using my fucking toolbox. If you do these things correctly, you will find a lot of bullshit Chinese names. Scratch those fuckers out, for they are mostly fraudulent. After that, you will have a solid list of companies, all worth buying based on fundamentals. Now comes the hard part.
When to buy?
Well, you have two options:
1. You can dollar cost average into focus names, sort of like I did with FTK.
2. Or, you can keep them on watchlists and buy them when the fucking trading robots throw cocaine on them and snort them into their chambers.
As for me, I will be putting a portfolio together for 2011. Aside from the trading that I do, day in and day out, I need a little bit of normalcy, especially since my pie is getting bigger. I can’t keep sloshing in and out of equities like this, else I will die of a panic induced stroke by the age of 35.
What sort of names will this screen produce?
Naturally, the list is constantly changing, as fundamentals improve and/or deteriorate. But, just to get an idea, had you went about your business using this screen, in 2010, you would be long names like PCLN, OPEN, APKT, AAPL and a slew of fucked up education stocks (COCO, ESI, CECO). Be careful not to get sucked into “value traps.” The education stocks were classic value traps in 2010. Typically, smart money foresees danger before the unwashed. If a stock or sector is trading at ridiculously cheap valuations, there is a reason. In this case, Congress ass-raped the criminal enterprises who offer fucked up education for exorbitant fees, rightfully so.
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