Find a Stock that moves 1500%

Instructions:

1. Use any of your favorite stock investing software. This example assumes excel based system.
2. Calculate the lowest close for a stock in last 260 days. If a stock has less than 260 days data calculate lowest close for those many days.
3. Calculate percent change from lowest close and select stocks which had 100% plus growth
4. Find the highest price in the 100% move and only take stocks which are within 25% of that highest price.
5. So this is your trading universe of stock which have made significant move of 100% or more and are as of today within 25% of the high during the move
6. Use a significant one day move scan on these stocks. e.g. say a 5% move ( 100 * (C - C1) / C1) >= 5 AND V >= 1000 AND V > V1)
7. Buy next day with 1% risk and stop below the low of previous two days bar
8. Trail with a stop
9. If you get stopped buy again on next breakout
   
10. Enjoy your profits

From StockBee

More on PE and PEG

This post contains general notes on PE and PEG metrics

Stock should have a "good" PE ration

I use the word good, because this depends on the sector that the stock is in. There is no generic number, but generally the lower the PE the better.

Calculation can be done one of two ways, (however this is normally available on any financial site)

• P/E = share price divided by earnings per share
• P/E = market capitalization divided by net income

Be aware there are a number of different types of P/E numbers:

• Current P/E - uses the past 12 months
• Forward P/E - uses predicted earnings per share

If a company sells a division for substantially more than its book worth, this will affect the P/E.

Many people prefer to use free cash flow rather then P/E for valuation.

Note: P/B (Price to Book) should only be used for those companies with negative earnings. I don't like companies with negative earnings so I didn't learn much about it.

Note: P/S (Price to Sale) should only be used for those companies which are unprofitable. I don't like these companies so I didn't learn much about it.

From The Motley Fool - P/E definition
From Yahoo Finance - P/E By Sector

Rule: PEG Less then 1.0

A PEG of less then one generally is a good sign that a company is undervalued.

Calculation: P/E divided by rate earnings will grow (a guess)

A PEG of 1 = A fairly valued company
A PEG below 1 = An undervalued company
A PEG above 1 = An overvalued company

PEG is not helpful when the earnings estimate is 0 or negative

From The Motley Fool - Usefulness of PEG

Stocks to Watch 2007.08.07

PUDC - google

Price: $1.87
Recommended on caps site, This is a wild guess in the dark as I have not learned anything yet.

Fundamentals:

• Free Cash Flow: 10.2 Mill
  
• Market cap: 181 Mill
  
• Debt: 38.71 Mill
  
• Enterprise value: 209.51
• True Value: $2.18 / share
• P/E: 16.1
  
• Sector P/G Rating: 14.5
• 5 year earning estimate: Unknown, not given
  
• PEG: Unknown due to earnings estimates
  
• Operating Income/Loss: +22 Mill
  

Questions to be Asked

• Y - Company has Positive Cash Flow
  
• Y - Stock is priced under $10.00
• Y - Stock is under valued - Est. value is $2.18
  
• Y - Is Small Cap Stock under 1 Bill market cap
  
• Y - PE is below sector average
• Y - Last quarter was profitable
• Y - YTD was profitable
  
• Y - Last Year was profitable
  
• NA - Has positive quarterly estimates (Can not find)
  
• NA - PEG is less then 1.0 (Can not find)
  
• NA - chart patterns (None found)
  

PSPT - google

Price: $9.40
Recommended on caps site, This is a wild guess in the dark as I have not learned anything yet.
After evaluating this stock, I decied that it wasn't that great a pick. Mostly due to the fact that the true value of the stock is not that high. Not an undervalued stock.

Fundamentals:

• Free Cash Flow: 15
  
• Market cap: 227.09
• Debt: 0
• Enterprise value: 114
  
• True Value: 114/23.56 = 4.75
  
• P/E: 13.36
  
• 5 year earning estimate: 22
  
• PEG: .60
• Sector P/G Rating: 22.65
  

Questions to be Asked

• Y - Company has Positive Cash Flow
  
• Y - Stock is priced under $10.00
• N - Stock is under valued - Est. value is $5.0
  
• Y - Is Small Cap Stock under 1 Bill market cap
  
• Y - PE is below sector average
• Y - Last quarter was profitable
• Y - YTD was profitable
  
• Y - Last Year was profitable
  
• Y - Has positive quarterly estimates
  
• N - PEG is less then 1.0 (Only if profitable and has earning estimates)
  
• ???? - chart patterns

ISV- google

Price: $9.40
Recommended on caps site, This is a wild guess in the dark as I have not learned anything yet.

Fundamentals:

• Free Cash Flow: -16.5 - .32 = -17MM
  
• Market cap: 129MM
• Debt: 9 MM
  
• Enterprise value: 128 + 17 + 8 = 153MM
  
• True Value: 153/93.82 = 1.82
  Stopped Researching at this point as I did not like what I was seeing so far...True Value seems to indicate a lot for a stock
  

Basic Chart Patterns

Regular Chart Patterns - Learn them

Please note: I am not a financial advisor, take all you read here with a grain of salt.

Head and Shoulders - picture

Signals that the price will make a downward move after having moved up in past periods.

Inverse Head and Shoulder signals the opposite

Cup and Handle - picture

Signals that the price will continue in an upward direction after the handle after having moved down in past periods.

Pattern should be a nicely rounded formation, similar to a semi-circle.

The valley should be between one-third and two-thirds the size of the previous upward movement

Double Top, Double Bottom - picture

Sometimes called "Twin Peaks"

Double Top (M) - Signals a downward direction change after moving up in past periods

Double Bottom (W) - Signals an updated direction change after moving down in past periods

Symmetrical Triangle - picture

Signals a consolidation to a given price. Once consolidated it may move in original direction, but it can go in the opposite direction.

Ascending Triangle - picture

Triangle shape, the top of the triangle will be straight. Each "side" of the triangle should be "tested"/"touched" multiple times.

Signals the price is to take an upward direction.

The optimum point to get in on this is right before it moves above the top of the triangle.

Descending Triangle signals the exact opposite.

Wedge - picture

Looks a lot like the symmetrical triangles, however they tend to last over longer periods of time.

Good Question: What's the difference between a wedge and a triangle

Gap - picture

A gap doesn't signify much as far as price trending, other then drastic changes in price.

Triple Top - picture

Trend has to test the same limit 3 times

Trend has to fall to the same support 2 times

Each test of limit will be marked with declining volume

Signals a downward direction

Triple Bottom - picture

Trend has to test the same limit 3 times

Trend has to fall to the same support 3 times

Signals an upward direction

Be careful as this looks just like Triple Top but signals an upward trend.

References:

Investpedia

Summary 2007.08.07

Summary of my investment strategy

• Must be priced under $10.00
• Must be a Valued Stock
• Must be a Small Cap Stock
• PEG must be less then 1.0
• EV/FCV ration below 10.0
• Look for chart patterns (see previous post)
  

Definitions

Value Stock

A stock which is currently selling below it's true value. This stock is predicated to at least rebound to it's current level. (Investpedia - definition)

Small Cap Stock

Companies with market values between $100 million and $2.5 billion to qualify as a small cap. (See previous post)

Investing Strategy: Could it be this simple? Part II

In a previous post I reviewed a strategy called the Foolish 4. It appeared to be a very simple investing strategy which historically beat the Market.

However it turns out that even though it historically beat the market, it has not done will in the following years 2000 to 2008. I'm not sure why but I found that interesting.

I guess it just shows the age old truth: Past performance does not indicate future performance.

Investing Strategy: Could it be this simple?

It should be noted that this strategy is no longer recommended.

Could it be this simple? Here are the rules:

• Get the square root of the stock price
• Take the 5 highest
  
• Drop the top one
  
• Invest 40% into the lowest priced
  
• Invest 20% into the others.
  
• Hold for a year and then reallocate.

Historically this strategy returns 28%

This is the Foolish 4 Investing Strategy, it's from the Motley Fool bunch.

It's a child product of the Dogs of DOW investing strategy.

References:

The Motley Fool - Foolish 4 Investing Strategy
The Motley Fool - Farewell to Foolish 4

Stocks to Watch: What is this?

As part of the learning expirence, I will putting stock "picks" up. They will be listed to the right of this blog.

I will make an entry about why the stock looked promising. After one month, I will make another entry stating how that pick is doing.

An Example Template:


Symbol - google

Price: $??.??
Notes and observations about the stock

Fundamentals:

• Free Cash Flow: Cash Flow from Operations - Capital Expenditures
• Market cap: Current Share Price * Total Shares Outstanding
• Debt: Total Liabilities + Short Term Liabilities
• Enterprise value: Market Cap - Cash + Debt
• True Value: Market Cap / Total Shares
• P/E: Researched
  
• 5 year earning estimate: Researched and Best Guess
  
• PEG: P/E divided Earning Est
  
• Sector P/G Rating: Researched
  
• Operating Income/Loss: Total Income

Questions to be Asked

• Y/N - Company has Positive Cash Flow
  
• Y/N - Stock is priced under $10.00
• Y/N - Stock is under valued - Est. value is $?.??
  
• Y/N - Is Small Cap Stock under 1 Bill market cap
  
• Y/N - PE is below sector average
• Y/N - Last quarter was profitable
• Y/N - YTD was profitable
  
• Y/N - Last Year was profitable
  
• Y/N - Has positive quarterly estimates
  
• Y/N - PEG is less then 1.0 (Only if profitable and has earning estimates)
  
• ???? - chart patterns

Screening Stocks

Screen-Based Investing.

Many quantitative analysts use "screens" to select their investments, meaning that they use a number of quantitative criteria and examine only the companies that meet these criteria. As the use of computers has become widespread, this approach has increased in popularity because it is easy to do. Screens can look at any number of factors about a company's business or its stock over many time periods.

While some investors use screens to generate ideas and then apply fundamental analysis to assess those specific ideas, others view screens as "mechanical models" and buy and sell purely based on what comes up on the screen. These investors claim that using the screen removes emotions from the investing process. (Those who do not use screens would counter that using a screen mechanically also removes most of the intelligence from the process.) One of the proponents of using screens as a starting point is Eric Ryback, and one of the most famous advocates of screens as a mechanical system is James O'Shaughnessy.

Things to check out:

Caps

Yahoo Stock Screener

How to read charts

10 Commandments of Investing

3 Wise Men Said

Picking a Great Stock - Lesson I

Summary of the Rules:

• Invest in Small Cap Stocks Only
• Company must have had a "surprise" of 20% or more in last quarter
• Seeing Lots of Volume? Beware of institutional traders
• Stock must have an EV/FCV/G ration below 1.0
• PEG should be less then 1.0
  

Let's review them one at a time...

Rule: Company must have positive cash flow

The more the better, nuff said.

Information to do the calculation can be found on "statement of cash flows"

The calculation: Cash flow from operations - capital expenditures

From Motley Fool - Free Cash flow defined

Rule: Invest in Small Cap Stocks Only

Small caps give investors the edge, because institutions tend to ignore them and analysts don't cover them. By the time anyone realizes they're there, they've already grown much larger, and appreciated in price.

Companies with market values between $100 million and $2.5 billion to qualify as a small cap.

"The greatest gains from stock investing are to be found not among the Googles of the world, the well-known, much-loved and overanalyzed large caps. They're found in the tiny corners and crevices of the market, where analysts have yet to tread."

The Motley Fool

Rule: Company must have had a "surprise" of 20% or more in last quarter

Seek companies that had an earnings surprise of 20% or more last quarter, but also have the prospect of growing earnings at least 20% annually for the next five years, according to analysts.

The Motley Fool

Rule: Seeing Lots of Volume? Beware of institutional traders

Many investors say volume is where the large institutional traders leave their footprint on the market.

From Yahoo Investing

Rule: Stock must have an EV/FCV/G ration below 10.0

In other words, I want my small caps to sell at bargain-basement prices. An EV/FCF ratio of 10 or less gets my attention real quick. Anything pricier than that, I need to take a good hard look at the company's growth rate and EV/FCF/G ratio.

Calculation looks like the following;

Free Cash Flow = Cash flow from operations - capital expenditures
Market cap = current share price * total shares outstanding
Debt = long-term debt + short-term debt
Enterprise value = market capitalization - cash and equivalents + debt

From The Motley Fool

• Free Cash Flow
• Enterprise Value

After some consideration, I decided to remove this rule. I believe that the guess part leads to areas where I can make errors in judgment. I do reserve the right to come back and examine this. (Plus I'm not sure I understand all of this one)

Rule: PEG should be less than one.

A ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows:

Calculated as a stock's P/E ratio divided by its projected year-over-year earnings growth rate. In other words, the ratio measures how cheap the stock is while taking into account its earnings growth. If the company's PEG ratio is less than one, it is considered to be undervalued.

From Investpedia - Definition

Rule: Are you investing in a Value Stock or a Growth Stock?

Value stocks are trading for less than their apparent worth and have potential to get back to and surpass there apparent worth.

Growth stocks are trading higher than their apparent worth but have potential to outgrow there current worth.
From Investpedia

Summary of the Rules:

• Invest in Small Cap Stocks Only
• Company must have had a "surprise" of 20% or more in last quarter
• Seeing Lots of Volume? Beware of institutional traders
• Stock must have an EV/FCV/G ration below 1.0
• PEG should be less then 1.0
  

References

• The Motley Fool - The Science of Stock Picking
  
• The Motley Fool - 7 Steps to Finding Gems
• Investpedia - Stock Picking Strategies (still reading)
  

Stocks to Watch 2007.08.03

Stocks I noted watch on Friday 08/03/2007:

CHNG - google

Price: $6.65
Recommended on caps site, This is a wild guess in the dark as I have not learned anything yet.
This is an OTC stock which may cause problems when trying to trade.

WRLS- google

Price: $6.26
Recommended on caps site, This is a wild guess in the dark as I have not learned anything yet.
I noticed that it only had 12 thumbs up which is very low. Could be a pump and dump

TGB- google

Price: $5.10
Recommended on caps site, This is a wild guess in the dark as I have not learned anything yet.

What, Why and How

I've decided that I want to learn all I can about stock investing.

This blog is going to help me do that, as a courtesy I thought it might help someone else to see how I went about this.

When I am done, I will be able to:

• Read a stock chart and point out past trends and milestones in the chart.
• Predict the direction a stock will move with 75% accuracy
  
• Pick a productive trading action once a week.
  
• Build a program that will assist me to do the prior tasks.

All stocks that I invest in will be held for 1 month minimum.

Let's see what happens!