How to Pick Winning Stocks

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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 …

Question: How do I pick a winner?

Answer: 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 Baidu).

  • ** Stick with stocks that are liquid to avoid gut-wrenching volatility (usually at least 600,000 shares traded per day or more).

  • ** 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 dizzying heights!

  • ** Buy growth stocks with strong RP lines. Relative performance ( RP ) 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!

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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 ( LCC ) , 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,

Elyse Andrews
Editor of Cabot Wealth Advisory



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: LCC , RP

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