Do home runs get hit when the odds are stacked against the hitter? They sure do, and it may surprise you to learn that they occur more often when the hitter is down in the count. But does this happen in the investing world as well?
In the midst of a corrective market, most investors are thinking about protecting their cash more than trying to “double” it. I consider a home run, a 100% return or more on the initial investment, and I wanted to take a look at when and how home runs get hit.
This article will share with you why a slugger down in the count can still hit plenty of home runs. The same can be said of investors as we head into 2019.
Late Inning Heroics
If you’re a baseball fan, you may remember Kirk Gibson’s famous home run for the Dodgers. Bottom of the 9th with two outs, after falling behind in the count, Gibson worked the count full against the best reliever in the game. Of course, you already know he hit a two-run homer that propelled his team to victory in the 1988 World Series.
Many pundits have said we are in the late innings of a bull run in stocks that started years ago. That is not to say that we are losing 4-3 with one man on in the bottom of the ninth (with a full count). As investors, our backs are never up against the wall... but there is something to be said for the bull run being extended.
The takeaway from this point is that late cycle names can still provide the big returns that we are looking for. The key is to look for the right type of name.
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Pine Tar And A Smooth Swing
In keeping with my baseball theme I wanted to talk about another famous home run from the summer of 1983. George Brett hit a two-run shot into the stands in the bottom of the ninth. In a controversial call, the umpire called Brett out after determining he used too much pine tar on the bat.
So how does this fit in the idea of investing? It is a simple case of sticking with your process. Hear me out on this one... I know this is a stretch... but it still works. You see, the pine tar on the bat doesn’t make the ball bounce off the bat as if it were corked. It simply helps the batter hold onto the bat a little better.
This process worked for Brett, and it is important that investors develop and maintain a process. You need to be consistent. To me, more home runs are hit with growth stocks than value stocks, so find a process that turns up good growth names and STICK to it.
Going Deep On Growth
I wanted to tie in the Francisco Lindor home run from April of 2018 to this article. That homer was special as the game was in Puerto Rico, the birthplace of Lindor. I could have used that hit in any of the above sections, but this is what stood out to me.
On Lindor’s first at bat, he nearly homered to deep center. He had worked the count full and on a 3-2 pitch, a breaking ball found the meat of the plate. Later in the fifth inning, Lindor found himself in the same spot and connected. It was as if he knew that pitch was coming.
It would not be a surprise to learn that Lindor, like wise investors, studied the tendencies of his adversaries. Knowing, or at least being confident in the idea of what is coming next can give an investment a huge advantage. We lean on a group of people that do the same thing. This group is sell side research analysts that create and share earnings models with clients.
The Zacks Rank comprises revisions in those research estimates, giving investors a head start on the names that can provide the best pop. I like to call these stocks “the hanging curveballs of the stock market.”
The idea of hitting a home run on the baseball field is a great one. But many of us are past our prime – and even in my prime reaching the warning track was a fantasy. That said, I believe we are about to see a lot more hanging curveballs coming at us from the stock market.
We may be late in the cycle, but we already know that home runs can still be hit then, too. As I look for home runs, I am focusing on the future leaders for 2019 and beyond. I want to see good growth prospects and a strong Zacks Rank.
Like George Brett, I am going to stick to my process of rigorously scanning the list of Zacks Rank #1 (Strong Buy) and Zack Rank #2 (Buy) stocks. I am also going to focus on stocks with a strong Growth Style Score to help me weed out the stocks that are not good growth plays.
Finally, like Francisco Lindor, I am going to work the count full and look for my pitch. When that pitch comes I am going to have the confidence that comes from doing the work day in and day out.
How to Find Todays’ Home Run Stocks
A good way to use these three ideas to find big winners for your portfolio is look inside my recommendation service, Zacks Home Run Investor.
As I mentioned earlier, my definition of a home run stock is one that returns +100% or more to investors. We’ve recently closed gains of +100.1%, +161.0%, and +214.2%.1 And we could see several more triple-digit winners in the months ahead.
I start with strong Zacks Rank stocks which have high probabilities of substantial gains over the next 3 months. Then I add growth metrics so our selections stand a good chance of beating earnings and outperforming the market. This long-term strategy looks to start fast and keep soaring for many quarters to come.
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Brian is our aggressive growth stock expert with a reputation for double and triple-digit gains. He is the editor of the Zacks Home Run Investor.
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.