So the stocks studied so far make up the stocks that were up 500% + in a year as of 1/10/2011. I figure this is a good time to point out some of the common traits from a fundamental stand point and the basic characteristics of the stocks. Later this week I will look at the various chart characteristics but for now here's the non-technical points:
1. Each stock was an IPO in the 90's.
2. Each stock was below 100M float.
3. The average volume ranged from 21k to 3.7M. Two of the stocks averaged below 100k daily.
4. Three of the five stocks had a Sector RS of 84 or higher. Sector seemed to have some effect.
5. IBD Composite ratings were all 65+, mostly due to high RS ratings. EPS ratings were no higher than 80 and as low as 12.
6. Fund buying trend for four of the five stocks was up during the run. This appears to be important to the stock's momentum upward and occurs during the biggest moves.
7. The fundamental ratios didn't matter at all - they were all over the place.
8. Earnings and sales growth - two of the five stocks had explosive earnings and sales growth with acceleration, RDCM and LGL. CPWM was a retailer - driven by same store sales, and had good sales for three straight quarters and had 232 eps growth in the holiday quarter. Issue here is that RDCM and LGL were the two stocks with below 100k average volume. But overall earnings/sales growth appeared to matter to a degree.
9. That being said, two of the stocks had future prospect catalysts - one an energy resource company with no revenue and a biotech with its main hope on a drug trial. For those the current earnings/sales did not matter.
On that point, my next post will address the technicals and news catalysts, including looks at the breakouts and bases. Hopefully by Monday/Tuesday I will have that posted.
Let me know if you have any additional observations as always.
Awesome blog, clearly it was a labor of love.
ReplyDeleteAside from float, basing price action and low volume, other criteria you have highlighted are Neglect (no analysts, minimal fund ownership) and Earnings (triple digit earnings growth with 50%+ sales).
My takeaway is that these companies are "hidden gems" that are suddenly discovered (or re-discovered) by institutional investors. And then the buying frenzy begins. Kinda like a 17 year old high school student who can throw a baseball at 110 mph,.... and the talent scouts discover him, and the college scholarship offers come pouring in.
After reading this, what I don't have a sense for is "the other side of the coin", i.e. how often these hidden gems do NOT go on to have huge price growth. For example, if these 5 hidden gems were superstars but there were 95 hidden gems that went nowhere, then this is difficult to trade. In other words, are the stocks you've researched the exception or the norm? If most hidden gems go on to make huge returns, this is clearly a trade-able formula. However, if only a few go on to have huge returns, then we're back to looking at price action only, and we can't really rely on neglect, etc.
Thanks,
BlueSky
swingtrader4, a couple of questions:
ReplyDelete1) How did you get historical IBD ratings data?
2) Regarding "triple digit EPS growth and 50%+ sales growth", is that current quarter versus last quarter, or current quarter verses same quarter one year ago?
Thanks,
BlueSky
swingtrader4, after re-reading your blog, another question, if you don't mind:
ReplyDeleteAt what point in their run-up did these high fliers appear in the IBD-200 composite list (or the top 300 list of stocks from IBD sorted by composite rating)?
Thanks,
BlueSky
Check out "PTX". This stock went from around 4 to current price of 10 in a matter of last 60 days. I am trying to identify such stocks after 1st breakout which happened for this stock on the week of Dec 12th.
ReplyDeleteCurrent stocks to watch which "might" sky-rocket in next 2-3 weeks:
BSET, ORCC, STLY, DSCI, IPCI, BLTI
@bluesky - keep it in perspective, there are about 50 stocks to go. I am just noting things that I saw in the stocks that were up 500% plus. If I find different things as I go I will update that as well. May not be same dynamics that move a stock 200% and 500% so we shall see the answer to your question in some form.
ReplyDelete@bluesky -
1) Historical IBD data was derived from old pdf issues of IBD from 2010. I didn't have all year saved so I decided to stop looking at that.
2)Growth is current quarter versus same quarter last year.
@bluesky
I did not do any analyis of when the stocks appeared in the IBD 200 list. I can tell you these stocks would not have made it into those lists as their low price would have kicked them out (correct me if I am wrong on that but I believe that is the case).
@Is It Possible - Thanks - it's intersting to look at some of these low priced stocks in a little different light. But keep in mind these stocks were low priced partly due to big bear market that occurred 2007-2009. It will be interesting to see what these stocks are under current market conditions.
Hi swingtrader4, really looking forward to the rest of the analysis. I think you can publish a book if not a paper after this.
ReplyDeleteOn IBD and the low price, I recently started using IBD e-Tables (an am definitely not an IBD expert), but when I list the 300 top stocks by composite rating, they include stocks as low as $2 or so...
Thanks,
BlueSky
I need to review o'neil stuff - thought he had a min price level
ReplyDelete