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3 Steps to Find Your Path to Profits

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Investors are always looking for the next best thing. Where is the next Amazon or Google or Tesla?

Seeing these stocks with multiple thousand dollar price tags per share has a way of making day dreamers dream that much bigger. If there is anything to be learned from the dramatic runs in those big dollar stocks, it is one simple concept.

All of those stocks were “cheap” at one point. Cheap can mean different things to different people, but a lot of investors think of cheap in terms of share price. That isn’t the best way to judge the valuation of a stock, but it’s just a fact that many people focus more on share price than anything else.

I want to share my formula for finding exactly what those investors are looking for.

Run With The Herd

The recent phenomenon of the Robinhood trader has really taken hold of the market. The lack of a commission cost drove a lot of money from savings accounts into the stock market. The pandemic also played a role in that it gave many people the chance to watch the market all day and learn from it.

Before long there was a massive herd of investors that were blindly fumbling over themselves rushing to buy shares of stocks that have dipped…even though they had declared bankruptcy. The lesson here is that not all dips are buyable.

Another lesson is that running with the herd works very well if you are in the lead. If you are the last in line, there is a good chance the herd is already headed in another direction before you even get to a full stride.

Likewise in the investing world, it can be good to be in the herd but you have to trust the leader will give you good signals. You have to trust that the leader of the pack will find the next green pasture before it gets over run. You have to agree with the ideas presented…at least most of the time.

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Cheap Buys and Good Buys

So how do I marry the ideas of buying the next hot idea with getting it at a good price and trusting the herd will follow? It’s a delicate dance, but we do it all the time.

1. We look for stocks that have low price points. That helps attract the herd.

2. We focus on good growth stories, something that has legs. Value investors are in the mix too, but more often than not a stock needs growth to move from single digits to double digits.

3. Finally, we don’t just select the hot names of the day, we build a portfolio of stocks that offer diversification if one sector gets slammed. 

Defense And Offense

As much as we are always on the hunt for the next best thing, we also have to play some defense. Not all the stocks out there will be winners and the key is to let go of the ones that are showing early signs of being losers.

Cutting losers early and letting winners run is a cornerstone idea for success. When you are down 10% in a stock you will see that it can quickly become a loss of 20% or 30%. Those negative returns will do great damage to the overall performance. Keeping losses manageable is a key to overall positive portfolio returns.

One of the ways to identify a stock that could be a loser is to closely follow the trends in earnings estimates. This will give you a heads up as to where industry experts believe the stock is heading. More often than not, a stock will move up when estimates move higher. The best way to track that trend is the Zacks Rank.

Leverage The Rank

Earnings are a primary driver of stock prices. Good earnings reports can send stocks straight up, while bad “prints,” as they are called, can send stocks much lower. The key is to pay attention over time where the industry experts believe the earnings are heading.

The Zacks Rank is a tool that does just that for you. It helps separate the wheat from the chaff and indicates which stocks have the best earnings estimates revisions. Keeping one eye firmly on the Zacks Rank can give you the heads up you need to get out of a stock that is seeing negative revisions. On the other side of the coin, look for a solid Zacks Rank for future potential investments.

The path to profits is littered with potholes, but there is also a solid roadmap to help you get you where you want to be. Low-priced stocks often hold great potential but it is important to stay vigilant on the earnings prospects. Getting out of a bad play that you like can be hard to do, but trusting the Zacks Rank is an essential key to profits.

Position Yourself for Profits Now

One of the easiest ways for you to avoid costly mistakes and position yourself for substantial profits with single-digit stocks is to see the recommendations we're holding in our Zacks Stocks Under $10 portfolio.

We select a diverse group of companies on the verge of big upward moves and get in when the Zacks Rank and other proven indicators point to success ahead. Then we ride them long and high. For example, we've recently closed out positions with gains such as +109.4%,+117.8% and+142.9%.¹ And Monday morning, I plan to add at least one exciting new stock to the portfolio.

Over the past quarter, this Zacks Rank #2 (Buy) has shares that have risen +81.9% and are up +238.2% over the last year, compared to the S&P 500 that has only moved +15.4% and +21.5%, respectively. Plus, over the past two months, 3 earnings estimates moved higher compared to none lower for the full year, boosting this precious metals company’s consensus estimate from -$0.01 to $0.14 in the past 60 days. That’s a huge spike!

The stock looks to run to new highs with impressive profit potential - and you can be among the first to see it.

One more thing. Get started today and you are also welcome to download our just-released Special Report, 7 Best Stocks for the Next 30 Days.From our proven list of 220 Zacks Rank #1 Strong Buys, our team of experts handpicked these 7 for immediate breakout.

But a word of caution: Your chance to download this bonus report ends midnight Sunday, September 13.

See our Stocks Under $10 and download the Special Report now »

Best,

Brian

Brian Bolan is our aggressive growth expert and the editor of Zacks Stocks Under $10 portfolio.

¹ The results for the companies listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research’s newsletter editors and may represent the partial close of a position.