Last weekend I answered some of the questions that came in to
Cabot Wealth Advisory through our reader survey, found at the
bottom of each issue. Today, I'm answering one more …
How do I pick a winner?
Obviously no one can predict exactly which stocks will become the
next big winners, but the editors at Cabot have spent the last 40
years developing a system that puts the odds in your favor. Here
are some tips that will help you pick high-potential growth stocks:
- ** Search for strong sales and earnings growth (especially
triple-digit sales growth).
- ** Search for revolutionary products with major benefits
(like First Solar, Crocs, Green Mountain Coffee Roasters and
- ** Stick with stocks that are liquid to avoid gut-wrenching
volatility (usually at least 600,000 shares traded per day or
- ** Find a company that has a big idea ... one that has few if
any limits on its future growth potential. It's these big ideas
that create an atmosphere that can push a growth stock to
- ** Buy growth stocks with strong RP lines. Relative
) studies are a superb way to identify successful companies and
to avoid problem companies. You should buy stocks that are
consistently outperforming the market. This is a good indication
that they are under accumulation, week after week, month after
month, and that the companies are succeeding. The best investing
tips come from the performance of the stocks themselves. So
ignore hot tips!
This spring I wrote a few issues of Cabot Wealth Advisory about
travel stocks, as I had been doing a fair bit of flying in a short
period of time. One of these stocks I featured then came back up on
my radar this week.
The company is
U.S. Airways (
, which I wrote about on March 20. LCC hasn't exactly taken off
like a rocket since my original write-up, but the stock has managed
to do something unique. It stood up well during the market's brutal
spring-summer correction and even moved to high ground recently,
thanks to a strong earnings report.
Here's what Michael Cintolo wrote about the stock in a recent issue
of Cabot Top Ten Weekly:
"U.S. Airways has come a long way since it fell into Chapter 11 in
the aftermath of September 11 and was gobbled up by America West
Airlines. After cutting costs and shedding debt, the company's
stock soared, booking five appearances in Cabot Top Ten Report in
2006. But the airline business makes swimming with sharks look like
a tea party, and the decline that began with rising fuel prices in
2007 started a string of 10 consecutive quarters with reported
losses that just ended with U.S. Airways' Q2 report on July 22 that
beat expectations with earnings of $1.34 per share. Revenue also
picked up by 20%, which reflects the improving health of the entire
airline industry. Rebounding demand for air travel is helping, as
are higher fares and a menu of new fees. As we wrote when U.S.
Airways appeared here in March, the economics of the airline
industry are too competitive and too sensitive to fuel and other
costs to justify good long-term investments. But for aggressive
growth investors, its present prosperity makes it attractive.
"LCC was trading well above 60 in late 2006, but started its
descent as soon as 2007 began, falling to below 2 in late 2008. The
stock spent 10 weeks (March through May) correcting from 8 to
strong support at 7, then jumped to 9 in late May and soared above
10 in June. After a late-June correction from 10.5 to 8, a great
earnings beat on July 22 pushed LCC back above 10 on increased
volume. This return to double digits may help to restore the
stock's luster for institutional investors. A pullback to 10 would
make an attractive buy point as the stock readies for its assault
on that recent high at 10.5."
As I wrote back in March, I wouldn't bet the mortgage on an airline
stock, but clearly, LCC is showing signs of strength.
Until next time,
Editor of Cabot Wealth Advisory