Growth Stocks

Growth stocks are companies that are experiencing accelerating earnings and sales growth on a quarter to quarter basis as well as over an extended period of time. Understand that a company can boost its earnings per share (EPS) results by cutting costs, and occasionally, by divesting money-losing operations. But such strategies can go just so far. Over prolonged periods of time, strong rates of EPS growth start with strong rates of sales growth, which is why its inclusion in the formula is necessary to spot growth stocks early on in the process.

In order to qualify as a Growth stock the company needs to have the following characteristics:

• The companies effective tax rate is greater than 24%.
• The EPS (earnings per share) growth rate for the current quarter is greater than the trailing twelve month (TTM) EPS growth rate.
• The TTM sales per share growth rate (SPS) is greater than the thee-year cumulative average SPS growth rate.
• The TTM EPS growth rate is greater than the TTM SPS growth rate.

Momentum Stocks

Momentum stocks are turbo charged growth stocks. The earnings of these companies are growing at increasingly higher rates. Momentum stock investing can be very rewarding but be forewarned that it is also very risky. A bad quarter or negative earnings warning can see the stock's price plummet very rapidly.

In order to qualify as a Momentum stock the company needs to have the following characteristics:

• The companies effective tax rate is greater than 24%.
• The EPS (earnings per share) growth rate for the current quarter is greater than the trailing twelve month (TTM) EPS growth rate.
• The TTM sales per share growth rate (SPS) is greater than the thee-year cumulative average SPS growth rate.
• The TTM EPS growth rate is greater than the TTM SPS growth rate.
• The price/earnings growth rate (PEG Ratio) is less than 1.

Value Stocks

Value stocks are companies that are trading at a discount in the market relative to its future earnings potential. Typically these companies have had a series of problems, which has caused them to fall out of favor. The trick in selecting these stocks is to identify those whose problems were temporary, the core fundamentals of the company remain strong and the negative situation is turning around.

In order to qualify as a Value stock the company needs to have the following characteristics:

• Price to earnings ratio (P/E) ratio well below that of the market.
• The total assets of the company exceed $50,000,000
• The price is less than 4 times the book value.
• The current ratio is greater than 1.
• The price to cash flow is less than 12.
• The percentage of long term debt is less than 25% of the companies capitalization.
• The price to trailing twelve months sales per share is less than 6.

CANSLIM Stocks

Developed by William O'Neil of Investor's Business Daily, CANSLIM is a method of screening for stocks based on the folllowing seven characteristics. It should be noted that typically, only 2% of the database will qualify as buy candidates using these screening applications. Also, when the Market Edge "Market Posture" is bearish, there will not be any selections since the M part of the formula requires a favorable market environment.

In order to qualify as a CANSLIM stock the company needs to have the following characteristics:

• C=Current Earnings: Quarterly earnings per share are up 25% or more.
• A=Annual Earnings: Five year average compounded earnings growth rate is greater that 24%.
• N=New Highs: The stock is within 15% of making a new 52-week high and is breaking out of a period of consolodation.
• S=Shares Outstanding: The number of shares outstanding is less than 50 million shares and there has been a recent increase in trading volume.
• L=Leading Stocks: The company is a market leader reflected by a Relative Strength Value (RSV) of 80 or higher.A RSV of 80 means that the stock outperformed 80% of all other stocks in the data base during the past year.
• I=Institutional Ownership: Institutional sponsorship should be minimal but there should be at least one major institution with a sizeable position in the stock.
• M=Market Conditions: The Market Edge "Market Posture" should be Bullish.During periods when the posture is bearish, there will not be any selections.

Short Sale Candidates

Short Sale Candidates are former Momentum stocks whose earnings have stopped growing at an increasingly higher rate. Investing in momentum stocks is risky since when the momentum reverses the stock's price can plummet very rapidly. Momentum stocks are great on the way up but once they disappoint they can become good short sale candidates.

In order to qualify as a Short Sale Candidate the company needs to have the following characteristics:

• The EPS (earnings per share) growth rate for the current quarter is less than the trailing twelve month (TTM) EPS growth rate.
• The TTM EPS growth rate is less than the TTM SPS growth rate.
• The price/earnings growth rate (PEG Ratio) is greater than 1.

Bottom Fishing

A Bottom Fishing approach is designed to identify stocks that have been beaten down for whatever reason and are trading at or close to their 52-week low.This can be a dangerous strategy since statistics show that the majority of stocks that are making new 52-week lows continue to make new lows as the company's troubles become apparent to the street. The ideal situation is to isolate stocks whose fundamentals are improving, are trading near their lows but have been under accumulation for a period of time as the smart money crowd establishes positions in anticipation of a

In order to qualify as a Bottom Fishing stock the company needs to have the following characteristics:

• The Close is above 10.
• The Close is within 20% of its 52-week low.
• The current ratio is greater than 1.