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While there are plenty of reasons to be cautious after the market's powerful run, there is still plenty of opportunity for stock pickers.
And since I've been focusing lately on refining my screening discipline, I thought it was time to turn this discussion forum away from the fun of macro obsessions and toward just rolling up our sleeves and getting down to work.
My screening focus for the past few weeks might seem radical to some, but I think it will be a key play in your game plan for the next year: I am looking for "New Highs Plus High Growth."
I want to find stocks that are market leaders, or about to become so. It's sometimes hard to buy stocks making new 52-week or life-time highs. But what else drives the market higher?
And here's another important thing to keep in mind: these market leaders with strong growth are being pushed higher by two forces...
1. Institutional stock pickers with rigid fundamental criteria and lots of cash
2. Hedge funds and other momentum players of all sizes just following the market leading strength
Here are two places to begin any such search...
When I ran these screens this morning, 5 familiar names came up on both that made me both smile and wince. Here they are, with my reasons for joy or pain...
Advent Software (ADVS - Snapshot Report): I own it in FTM Trader :)
Conn's (CONN - Snapshot Report): I owned it in FTM for a 13% win, but let it go too soon before another 13% gain last week (smile and wince)
Jazz Pharmaceuticals (JAZZ - Snapshot Report): It was my number one pick for Zacks Confidential on May 20 at $58 and a sub-10 forward multiple with rip-roaring EPS and sales growth. And I didn't buy it. By May 31, it made new highs at $70. Smart screening, dumb execution.
Pilgrims Pride (PPC - Snapshot Report): I'm not a disciplined value investor, but I sometimes wish I was because then I would not have turned away from PPC when it came up on a few screens I ran this year. I stared coldly at this chicken producer at $9 in February through April after its double from the November lows and thought "This thing isn't going anywhere." The move to $12 in May on stronger volume was painfully accentuated last week with the 20% surge above $14. Turns out I was the real chicken.
Saia Inc (SAIA): This trucking company is an amazing Zacks Rank investment story. A #1 or #2 Rank last fall, I ignored "boring trucking" while some of us here bought it. Take a look at the 1-year chart and you will see an 18-wheeler hauling up a 45-degree incline like nobody's business. It remained a #1 or #2 Zack Rank the whole time as it doubled by May, while I sat back waiting for a pullback and the thing never even looked at its 50-day moving average. That's power baby!
Remember what all these stocks have in common:
They've been a Zacks #1 or #2 consistently for some time.
Their price performance has been market leading.
As of Monday morning's pre-open screening, they are all #1s and have recently made new highs.
Market leaders lead. Strength begets strength. New highs beget new highs. End of story.
Well, not quite. Let's modify the basic new highs screen here and ask for even stronger fundamental growth. The screen results below have these 6 criteria:
Price over $5
Volume over 200k
Zacks #2 Rank or better
0-5% below 52-week highs
25% EPS growth projected
25% sales growth projected
(click on image to expand)
Look who popped up again, my friend JAZZ. Must... find... entry.
Two more names worth noting...
SodaStream International (SODA - Snapshot Report): I remember this on some screens too. Just went from $50 to $70 in May.
Financial Engines (FNGN): Same story. Saw it on screens in the first quarter and thought it was kinda sleepy. Just went from $34 to $44 in May.
I love tracking my investment and trading mistakes. Not because I like to wallow in regret. But because I like to learn from them. My mistakes are golden because they usually confirm and reinforce the principles and value of solid stock screening and developing a disciplined method that keeps you profitable and sane.
So tell me what you are screening for lately. Did any of these names cross your radar this year? I showed you mine, now you show me yours.