The Fastest Road to Triple-Digit Gains… Plus 5 Roaring Momentum Stock Plays
An Investment U Research Report
by Bob Williams, Investment U Research Department
There's an old saying that a horse is easiest to ride in the direction its already going or the path of least resistance. This is the methodology of an aggressive style of investing known as momentum investing.
Momentum investing targets companies with rapidly growing earnings, a history of positive earnings surprises and stock prices that have a strong upward price trend. These companies lead virtually all other companies in terms of sales growth and operating margins and annihilate the returns of the broad market and returns offered by its industry peers. In this Investment U research report, we'll review momentum investing as a strategy… and review some momentum stocks worth looking into today. Many of the best-performing stocks of the past-the ones that have turned $10,000 into more than $1,000,000 for hundreds of investors-are businesses you've been patronizing for years. For instance, Wal-Mart (NYSE: WMT) shares rose 40,232% during the last bull market. That's enough to turn $10,000 into more than $4 million. Savvy momentum players were in the stock after the first strong price push. Microsoft (Nasdaq: MSFT) Is Another Momentum Stock Example… You would never think of the software giant as a momentum stock, but at one time it certainly was. The stock rose 61,034% in the 13 years following its IPO. That turned a $10,000 investment into more than $6.1 million. Cisco Systems (Nasdaq: CSCO), the biggest maker of routers and switches for Internet connections, rose 95,667% in the 1990s alone. There were several stops along the way for momentum players to climb aboard. A $10,000 investment here would have allowed you to spend the rest of your life sitting on tax-free bonds. Because $10,000 grew to an astonishing $9.56 million… in less than 10 years. Unfortunately, Wal-Mart, Microsoft and Cisco cannot possibly generate these kinds of returns in the future. They're much too big to grow at that rate now. Momentum Traits… And Five Stocks That Measure Up The following are a few characteristics of momentum stocks that could turn $10,000 into $1 million: - They have rapidly growing earnings of more than 25%.
- They consistently beat Wall Street earnings estimates.
- The average percentage increase in earnings for the current (or, in these examples, the preceding) quarter is at least 34%.
- Large, Institutional buying is prevalent.
- Profit margins exceed the industry average.
- They have a relative strength rating of 85. (That means they are already outperforming 85% of the stocks in the market before they make their big move up.)
- Their relative strength has been growing for at least the past six months.
- They have an average of at least 5 million shares outstanding.
- They have average daily volume that exceeds 75,000 shares.
- They have a median stock price of $26.
- They have a P/E ratio of 31 or more.
When you boil it down this way, it may seem as though the process is purely a numerical exercise. But, like most things in life, it's not that simple. 1. You must know exactly how to apply those qualifications to different sectors of different industries under different market conditions. 2. You have to have access to a proprietary database that contains the relevant data on more than 9,000 publicly traded companies. 3. You have to be qualified to interpret the mountain of quantitative and qualitative information that you uncover. That often takes years of experience. 4. Even if you have the knowledge, the skills, the contacts and the money to ferret out these few stocks, you will need to spend hundreds of hours screening all the potential candidates. Here Are a Few Examples (Please note, these examples are not specific Investment U recommendations to buy): #1 Profit From the Endless Stack of Money Dumped Into Weddings Knot, Inc. (Nasdaq: KNOT) launched TheKnot.com in the summer of 1997 and is now one of the world's leading wedding media and services companies on the planet. That's right, weddings can now be planned in cyberspace. Comprehensive wedding planning information, interactive tools, and tons of resources are all just a mouse click away for any bride or groom-to-be. The Knot has over 2 million unique members and registers more than 4,200 new members a day - that's serious web traffic. This company has done something truly extraordinary: It's figured out a way to tap into the gigantic revenue stream created by obsessive, cash-wielding brides. The revenue is generated from online advertising, e-commerce and publishing of books and magazines. The Knot Weddings Magazine helps couples plan their weddings in over 25 U.S. cities… making them the largest publisher of regional wedding magazines. Two wedding-planning books have also done extremely well combining for sales of more than 100,000 copies. And shareholders are enjoying quite a ride… This momentum stock is up 149% in 2006. Earnings have grown by 259% over the last year and the latest quarter offered an earnings surprise of 44% over analyst estimates. The company is outperforming its own Internet and Software & Services sub-industry by a whopping 187% and the S&P 500 by 136% year to date. There is plenty of track still ahead on this profit train as Knot's price/book and price/sales ratios are still comfortably beneath the industry averages. Earnings are estimated at $0.79/share for 2007, which is nearly 65% growth over 2006 estimates. The Knot's coveted resource is weddings and, as a result, there is a built in, endless demand. This company is on the leading edge of web innovation and online revenue generation and seems poised to keep pushing higher. #2 A New Niche Breed of REITs Is Gathering Steam Medical Properties Trust, Inc. (NYSE: MPW) is a Real Estate Investment Trust specializing in the lucrative and expanding U.S. healthcare industry. The income generation comes primarily from two sources: acquiring and leasing healthcare facilities to operating companies and extending mortgage loans to healthcare operators. The company is in a period of tremendous sales and earnings expansion and currently owns 14 facilities throughout the U.S and has three other facilities under development. The fundamentals for this young company are quite strong and highlighted by a profit margin of 61.69%, which puts it right at the top of the Specialized REITs industry. Over the last 3 quarters, Medical Properties Trust, Inc.'s revenues increased 87% to $41 million and net income increased 86% to $24.6 million; both a direct result of soaring rental income due to the increase in the number of properties owned. The upward momentum in price is undeniable. The stock climbed 55% in 2006. Buyers can't resist a company that is outperforming the market by 45%, beat 3rd quarter earnings estimates by 57%, and has expanded earnings by 35% over the last year. And all that growth still comes at a discount because the trailing 12-month P/E of 19.8 still lags the industry average of 42.3. #3 "Bleeding" the Competition Dry… With No End In Sight Immucor, Inc (Nasdaq: BLUD) develops, manufactures and sells a complete line of reagents, which are a mixture of chemicals used to perform tests on blood prior to a blood transfusion. The reagents determine the blood group and type patients' and will also detect and identify blood group antibodies and platelet antibodies. Immucor also offers automated systems to hospitals, clinical laboratories and blood banks that will assist in blood transfusions by identifying certain properties of the cell and serum components of human blood. As is typical with any momentum stock, Immucor's profit margin of 21.7% blows away most participants in the competitive Health Care Supplies industry, which averages only 8% as a whole. In the last three quarters, Immucor's revenues rose 20% to $51 million and net income rose 59% to $12.7million. BLUD reported 1st quarter 2007 earnings of $0.18 per share. This result beat the $0.17 consensus of the 4 analysts covering the company and beat last year's 1st quarter results by 58.9%. The stock has been enjoying a massive bull run, which has prices up over 85% in 2006. The stock has outperformed the S&P 500 by 71.59% and has run past the Healthcare Supplies industry by 67.48% year-to-date. Immucor's management is really getting the job done; they've grown sales and shrunk costs at the same time - a potent combination for shareholders. With earnings growth of 66.69% last year and growth estimates forecast to be about the same in 2007, momentum could push Immucor's stock price to the moon. #4 A Momentum Stock That's Truly Worth Its Weight… In Silver! Silver Wheaton Corp's (NYSE: SLW) revenue is entirely generated from silver production - the only company that can make such a claim. Silver Wheaten has contracts to purchase raw silver from Goldcorp Inc.'s Luismin mining operations in Mexico and Lundin Mining Corp.'s Zinkgruvan mine in Sweden. The profits are pouring in to the tune of 35.7% in profit margin and 11.48% return on equity. Silver Wheaton's earnings have grown by a staggering 140% in a year; the Company expects to sell approximately 16 million ounces of silver in 2007, growing to 20 million ounces by 2009. Analysts expect the engines to keep firing in fiscal year 2007 with earnings growth estimates around 25%. The latest data shows total proven and probable reserves at the San Dimas mine at Luisman were 3,250,000 tons strong and 890,000 tons at the San Martin at Luisman. The momentum stock is in launch-mode with shareholders capturing nearly a 90% return in 2006 and beating "The Street" by 85.45%. Every pullback in price has been met by stern buying from investors and institutions, who now own 10.5% of the 220 million common shares outstanding - another classic sign of a strong momentum stock. The current earnings boom has been enough to fund an ambitious asset growth campaign. On September 6, 2006, the Company acquired an additional 6% interest in Bear Creek Mining Corporation and again bolstered holdings in November 2006, acquiring a 17.3% interest in Revett Minerals Inc. #5 Institutional Investors Are Gobbling Up Stock Shares of This New Dividend-Payer James River Group, Inc. (Nasdaq: JRVR) owns and manages specialty property/casualty insurance companies that underwrite insurance for businesses. It operates in two segments, Excess and Surplus Insurance and Workers' Compensation Insurance. The company's line of business is a bit on the dull side, but earnings growth of 496% in the past year certainly more than offsets the humdrum details of the insurance business. The James River Group, headquartered in Chapel Hill, North Carolina, markets its products through a group of licensed excess and surplus lines brokers. And the company has the attention of institutions… These financial behemoths are consistently adding James River to their portfolios - 112 institutions own 34.6% of the 15 million common shares outstanding of this relatively young company. And why not? The company is outperforming the market in 2006 by 56.33% and speeding past its peers in the Property & Casualty Insurance industry by 55.78%. Shareholders have been on cruise control since October of 2005 capturing gains of 105%. What's the catalyst for the surge in stock price? Once again, a profit margin that beats the industry average, quarterly earnings, which beat Wall Street expectations by 16%, and future growth that is simply off-the-charts. The company continues to flex its muscle by recently announcing its intention to begin paying shareholders quarterly dividends beginning with a $0.15 Per Share Quarterly Cash Dividend for the First Quarter of 2007. Sifting Through Thousands of Potential Momentum Stocks It takes a good bit of determination to sift through all the data that's out there to find these momentum stock winners. Alexander Green, The Oxford Club's Investment Director, specializes in momentum stock investing… In 2006, he closed out 7 double-digit winners and 3 triple digit winners, including a 309% return in the stock Intuitive Surgical (Nasdaq: ISRG). Overall, Alex has generated spectacular returns in all of the Club's portfolios. In fact, the Hulbert's Financial Digest has confirmed his blistering track record - up 85% in the last five years, compared to 24% of the Wilshire 5000 Total Market Index. To get access to all of his growth stock recommendations, learn more about the benefits of "the club you can't get into." Good Investing, Bob Williams of the Investment U Research Staff Related Articles:View the complete Momentum Stocks white paper in .PDF format Investment Reports Archives
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