So let's look back at a handful of the stocks currently leading the market since the current bull market began in 2009. For illustrative purposes, we've chosen to look at eight stocks.
From the list below, we've noted the stock's IPO date, and the periods in which the stocks had their most incredible price performance. You'll notice that just as William O'Neil discovered, all eight of these stocks had their most dramatic runs during a period of no more than three years. The time it took between the IPO and the big run launch was sometimes as little as three months (in case of Solarcity), while some took as long as 20 years (Keurig Green Mountain). One never knows when these big runs will begin, but when they do, they have a life-changing effect on your portfolio.
3D Systems (DDD): IPO date June 20, 1995. Duration: 3Q 2010 to 1Q 2014. 2,259% gain.
Stratasys (SSYS): IPO date Dec 30, 1994. Duration: 4Q 2011 to 1Q 2014. 672% gain.
SolarCity (SCTY): IPO date Dec 12, 2012. Duration: 4Q 2012 to 1Q 2014. 1,004% gain.
Tesla Motors (TSLA): IPO date June 28, 2010. Duration: 1Q 2013 to 3Q 2014. 791% gain.
Keurig Green Mountain (GMCR): IPO date Sep 21, 1993. Duration: 3Q 2012 to 4Q 2014. 828% gain.
LinkedIn (LNKD): IPO date May 18, 2011. Duration: 4Q 2011 to Present. 393% gain to date.
Facebook (FB): IPO date May 17, 2012. Duration: 3Q 2012 to Present. 387% gain to date.
Netflix (NFLX): IPO date May 22, 2002. Duration: 4Q 2012 to Present. 955% gain to date.
What caused these huge runs? It is hard to generalize, but what is indisputable is that something changed at each company. Some big market opened up, providing the catalyst for spectacular growth that caught the attention of the Street's biggest fund managers. It's all about supply and demand. The supply of shares of spectacular growth companies in the stock markets is surprisingly scarce, so these names will always attract the attention (and bidding) of portfolio managers the world over. As a result, company valuations of these fastest growers will expand far beyond most initial analysis.
You'll notice that these names are no longer on the IBD Sector Leader list (with exception of LinkedIn). IBD's Sector Leaders are still in the midst of their big runs. Many of the names we listed above were once on the Sector Leader list but have concluded their big runs (with exception of LinkedIn, Facebook and Netflix), and are now in price corrections. The portfolio managers who caught a portion of these big runs are now in profit-taking mode, and the pullbacks can be quite severe. In the case of DDD and SSYS, the price corrections are especially severe.
But how do you discover these names BEFORE their big runs, not afterwards? The trick for investors is in finding a good screening approach to find and follow these fast growers. We here at Growth Stock Leaders are here to help in that search. In our next post, we will discuss some of our screening tools.
Monday, April 27, 2015
Saturday, April 25, 2015
O'Neil's Key Insight
In addition to being the founder of Investor's Business Daily (IBD), William O'Neil has published several books over the years to help investors navigate the market's ups and downs. In 2004, soon after the dot-com debacle in which millions of investors lost money, O'Neil felt compelled to publish a book to provide fresh insight on trading and risk management. It was entitled The Successful Investor. We highly recommend it.
We've read this book several times. There are many great insights in it. However, one key datapoint that O'Neil shared with his readers came from page 18 (in the paperback edition). In one passage, in which he was trying to convey the risks in holding on to growth stocks for too long, he noted a key insight. Here it is:
"Most people who invest in the stock market think they're going to get rich without doing much homework or by listening to other people. They have no idea of the risks involved, let alone what they must do to lessen these risks. But they plow ahead anyway.
Sure, it would be nice if all we had to do is buy a "good" stock, sit back, and watch it magically go up and up and up. And I'll admit there were times in the crazy bubble market of the 1990s when that seemed to be the case. But, as so many people learned the hard way, it doesn't work like that at all.
What you must realize is that there are no "good" or "safe" stocks. In a way, all stocks are bad-- that is, unless they go up. The only way your selections should be thought of as good stocks is after they prove themselves to be good by going up in price after you buy them. They must produce results.
Yes, there are stocks that go up a lot. They're the ones you should seek out. But even the great stocks don't stay great forever. Our studies of all the best stocks of the last 50 years show that the period of greatest market performance lasts on average only about a year and a half to two years. Some last up to three years. Only a tiny number last for 5 or 10 years."
It is on this last point that we will focus our time and energy. We here at Growth Stock Leaders seek to use screening criteria and stock analysis to find these companies and invest in these stocks before they hit their 1.5 to 3 year period of maximum return.
High growth stocks represent the highest quality of stock. They are ownership shares in the fastest growing companies in the world. Why would anyone ignore the best stocks? Why wouldn't an investor pay a premium for the best growth? We will explore these questions on this blog.
We've read this book several times. There are many great insights in it. However, one key datapoint that O'Neil shared with his readers came from page 18 (in the paperback edition). In one passage, in which he was trying to convey the risks in holding on to growth stocks for too long, he noted a key insight. Here it is:
"Most people who invest in the stock market think they're going to get rich without doing much homework or by listening to other people. They have no idea of the risks involved, let alone what they must do to lessen these risks. But they plow ahead anyway.
Sure, it would be nice if all we had to do is buy a "good" stock, sit back, and watch it magically go up and up and up. And I'll admit there were times in the crazy bubble market of the 1990s when that seemed to be the case. But, as so many people learned the hard way, it doesn't work like that at all.
What you must realize is that there are no "good" or "safe" stocks. In a way, all stocks are bad-- that is, unless they go up. The only way your selections should be thought of as good stocks is after they prove themselves to be good by going up in price after you buy them. They must produce results.
Yes, there are stocks that go up a lot. They're the ones you should seek out. But even the great stocks don't stay great forever. Our studies of all the best stocks of the last 50 years show that the period of greatest market performance lasts on average only about a year and a half to two years. Some last up to three years. Only a tiny number last for 5 or 10 years."
It is on this last point that we will focus our time and energy. We here at Growth Stock Leaders seek to use screening criteria and stock analysis to find these companies and invest in these stocks before they hit their 1.5 to 3 year period of maximum return.
High growth stocks represent the highest quality of stock. They are ownership shares in the fastest growing companies in the world. Why would anyone ignore the best stocks? Why wouldn't an investor pay a premium for the best growth? We will explore these questions on this blog.
Who Are the Market Leaders?
The best source to find out which stocks are leading the market these days is Investors Business Daily (IBD). We favor the approach behind William O'Neil's CANSLIM formula, and fortunately IBD updates and publishes a list of these best growth stocks every day. It's called their Sector Leader list. In today's paper (April 27 edition), this list is on page B6. There are 14 stocks on it. They are:
Akorn Inc (AKRX)
Autohome Inc (ATHM)
Envestnet Inc (ENV)
Fleetcor Technologies (FLT)
Fleetmatics Group (FLTX)
Jazz Pharmaceuticals (JAZZ)
Lannett Company (LCI)
Linked In (LNKD)
Luxoft Holding (LXFT)
Palo Alto Networks (PANW)
Paycom Software (PAYC)
Synaptics Inc (SYNA)
Synchronoss Technologies (SNCR)
Ulta Salon (ULTA)
Collectively, these 14 stocks have returned 9.2% year to date, vs the S&P 500 which has returned 2.6% YTD (through Friday's close of April 24). How did these stocks make the IBD Sector Leader list? By a screening process which takes into account all of the CANSLIM criteria. All of these stocks have already performed spectacularly in the recent past. That's why they are on this list.
But how do we find these type of stocks BEFORE they make the IBD Sector Leader list? That is our goal here at Growth Stock Leaders.
Akorn Inc (AKRX)
Autohome Inc (ATHM)
Envestnet Inc (ENV)
Fleetcor Technologies (FLT)
Fleetmatics Group (FLTX)
Jazz Pharmaceuticals (JAZZ)
Lannett Company (LCI)
Linked In (LNKD)
Luxoft Holding (LXFT)
Palo Alto Networks (PANW)
Paycom Software (PAYC)
Synaptics Inc (SYNA)
Synchronoss Technologies (SNCR)
Ulta Salon (ULTA)
Collectively, these 14 stocks have returned 9.2% year to date, vs the S&P 500 which has returned 2.6% YTD (through Friday's close of April 24). How did these stocks make the IBD Sector Leader list? By a screening process which takes into account all of the CANSLIM criteria. All of these stocks have already performed spectacularly in the recent past. That's why they are on this list.
But how do we find these type of stocks BEFORE they make the IBD Sector Leader list? That is our goal here at Growth Stock Leaders.
Welcome to Growth Stock Leaders!
Hello and welcome to Growth Stock leaders! This blog is devoted to the exploration of the best growth companies in the world who trade in the public stock markets. If you are devotee of William O'Neil's growth stock formula, CANSLIM, then you will find our approach here a perfect complement to your research. We are focused on finding and trading the best candidates for market leadership. We will share with you all of our techniques to do so in the blog posts to follow. Our goal is maximimum opportunity and maximum transparency. Thank you for visiting!
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