My book,Fundamental Analysis and Position Tradingpictured on the left, has an entire chapter dedicated to how to double your money. Plus it has two chapters on 10-baggers, stocks that rise by ten times their initial value.
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-- Tom Bulkowski
$ $ $
This article discusses fundamental criteria shared by stocks that double.
For the last year, I have been working on my fifth book (pictured above). Part of it covers fundamental analysis, or picking stocks based on value. I just finished a chapter on stocks that doublein price within five years and I thought I'd share the results with you. I used data from 1992 to 2007 on almost 1,000 stocks, but not all stocks covered the entire span. Fundamentalswere provided by Value Line.
Here is the list of common elements.
Start with small cap stocks, those with market caps (shares outstanding times stock price) less than $1 billion.
Stocks priced between $5 and $20 have the highest frequency of doubling.
Look for low price to book ratio, below 2.5.
Find stocks that are reducing capital spending (cap ex).
Price to cash flow below 8 is good, below 2 is better.
Focus on stocks that do not pay dividends, but this is a 60/40 thing.
Look for companies cutting their long term debt.
Increasing net profit helps but it's not that important.
A price to earnings ratio below 25 is good, below 20 is better.
Keep the price to sales ratio below 1.0.
Look for return on equity between 8% and 14% but be flexible.
I picked the items I liked and did a scan for those fundamentals and found 31 stocks. Here's what I looked for:
Small caps,
Stocks priced from $1 to 20,
Price to book value less than 2.5,
Price to cash flow less than 2.0,
PE ratio less than 25 and
PSR less than 1.0.
Preliminary testing showed the criteria performed well. I would add a test for reduced capital spendingsince that helped boost performance.
After looking at the stocks that this criteria found, I can see why they are priced so cheaply. Most of them are trash, but you can do your own scans and see what you can find.
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For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
How the Rule of 72 Works. For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72 ÷ 10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.107.3 = 2). The Rule of 72 is reasonably accurate for low rates of return.
The 2% rule is a risk management principle that advises investors to limit the amount of capital they risk on any single trade or investment to no more than 2% of their total trading capital. This means that if a trade goes against them, the maximum loss incurred would be 2% of their total trading capital.
Over the past decade, you would have done even better, as the S&P 500 posted an average annual return of a whopping 12.68%. Here's how much your account balance would be now if you were invested over the past 10 years: $1,000 would grow to $3,300. $5,000 would grow to $16,498.
The Henssler philosophy is that any money a client needs within 10 years should be invested in fixed income securities, and any money not needed within 10 years should be invested in high‐quality, individual common stocks or mutual funds that invest in common stocks.
Hobby: Flower arranging, Yo-yoing, Tai chi, Rowing, Macrame, Urban exploration, Knife making
Introduction: My name is Madonna Wisozk, I am a attractive, healthy, thoughtful, faithful, open, vivacious, zany person who loves writing and wants to share my knowledge and understanding with you.
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41,000 or 38,500 by 06/01/2024
on 5/1/24
pictured on the left, has an entire chapter dedicated to how to double your money. Plus it has two chapters on 10-baggers, stocks that rise by ten times their initial value.
