Finding Big Stock Winners

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  • on September 29th, 2009

The tag line for my blog “Big Game Hunting in the Stock Market” comes from my constant desire to find “Big Stock Winners.” By big winners, I mean newer entrepreneurial companies that are going through a growth period where their stocks can experience HUGE price appreciation. Recent examples include Hansen that went up over +1200% in 2004-05, Intuitive Surgical +420% in less than 2 years, and Taser +2200% in just 39 weeks!

My yearning to find these stocks could be described as a craving or even an obsession. In Jack Schwager’s Market Wizards, David Ryan sums it up best: “The greatest thing about the market is that it is always fun to be looking for that next big winner…trying to find the stock with all the characteristics that are going to make it have a big move…to me it is like a giant treasure hunt.”

Ryan’s success comes from his job at William O’Neil & Co. where he learned and perfected O’Neil’s studies of “Great Winning Stocks.” The research makes absolutely perfect sense to me. If you are going to try and find the next Microsoft, Home Depot or Yahoo, study what these companies had in common BEFORE their stocks had tremendous price advances. I emphasize the word BEFORE because it is key to understand the early stage characteristics of a potential big winner.

The studies of the “Greatest Winning Stocks” are very in-depth but here are some of the highlights:

1) Growth — The most dominant reason behind the success of huge winning stocks is major increases and acceleration in quarterly earnings and sales. In other words, Wall Street wants to see growth! Look for companies that have a minimum of 25% earnings and sales growth because that is what big winners show prior to their advances.

2) New products and services — Look for companies that are revolutionizing the way we do things. If their products are doing well, it almost makes sense that the company’s earnings and sales will grow. Examples include Xerox in the 1960’s, McDonalds in the 70’s, Walmart and Home Depot in the 80’s, Microsoft, Cisco and Dell in the 90’s, and Apple and Google over the past decade. The common theme with all these companies is that they developed products or services that essentially changed our day-to-day lives.

3) Newer/Entrepreneurial companies — Most stock winners went public within 8 years (or less) prior to making their big advance. The point is: don’t be afraid to buy IPO’s or newer companies that don’t sound familiar. Although the companies mentioned above are household names today, most people were probably apprehensive of buying them because they seemed foreign at the time.

4) The average price was approximately $35 per share BEFORE the big advance. The point here is “you get what you pay for.” Don’t be afraid to buy expensive stocks with institutional support behind them.

As I mentioned earlier, the studies on “Great Winning Stocks” are very thorough and discuss details such as relative strength, trading volumes, shares outstanding, and most importantly, the proper technical timing to purchase a stock. If you are interested in learning more, I highly recommend O’Neil’s book How to Make Money in Stocks. It might help you with the fascinating treasure hunt of finding big winners.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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