Happy new year! As the markets open tomorrow, I hope you guys were able to asses your trades for 2017 and were able to create a new battle plan for 2018 factoring all the adjustments needed to win and stay away from your emotions. For this post, I want share five different stock categories, that vary by leaps and bounds. I will compare them from each other, the pros and cons of choosing this stock category with the hopes that you can relate to one and create a strategy off of it. My end goal is that this helps you distinguish from what’s good and bad and would help you profit in the market this 2018.
Catch me in my live training events! (quick plug)
The heart of why I do this seminars is I want to build a generation of Filipinos with the right foundation in stock investing. I want to bring smart investing to every Filipino around the world! If you would like to know more on how you could time the market checkout the trainings below.
Stock Smarts Cagayan De Oro — January 13 – 14, 2018
Investor Insights 2018 — January 20, 2018
Stock Smarts London, United Kingdom — January 26 – 28, 2018
Stock Smarts Dubai, UAE — February 9 – 12, 2018
Stock Smarts Manila — March 3,4,17,18 & 24, 2018
Here are the Categories.
Category 1: The Real Winners
Rationale: Why is this the real winner? Stocks in this category are stocks where the fundamentals and technicals all match up with each other! This is the best scenario to be in when investing in the market. It’s not true that money cannot be made in big and great companies. Companies in this category are amazing examples of picking a good and growing companies that are inline with the direction of the economy.
SM Prime Holdings Inc.
Stock Price as of December 29, 2017: 37.50
Fundamentals: The company has been consistently growing year after year and has a continued expansion plan that will sustain its valuations even though it is relatively expensive.
Buy Because: Stocks like this are companies that you can hold on to for a very long time because they will just continue to impress investors.
Other possible stocks in this category: ALI , JFC, AC, SM, BDO, and PGOLD.
Category 2: The Turnarounds
Rationale: Companies in this category may have suffered losses in income in prior years but have somehow turned things around. What makes companies in this category good is that they have been battered long enough and have become relatively cheap and the turnaround in earnings is just whats needed to change the tide.
Bloomberry Resorts Corp.
Stock Price as of December 29, 2017: 10.90
Why is this considered a turnaround? Check out the earnings of BLOOM, The company lost money in 2012, 2013, and 2015. Then suddenly in 2016, the company started to turn a profit. Then in 2017, each of the first three quarters of the year posted better earnings results than the year before it. That’s what I mean by a turnaround. The stock is battered so much that when the company starts to bring in amazing results the company looks cheap again thus attracting investors to come in and buy the stock.
Fundamentals: As mentioned above, the earnings of this company has started to turnaround.
Buy as long as: The earnings continue to be positive and the stock remains to be in an uptrend.
Category 3: Pure Technical Trading Play
Rationale: Companies in this category have really bad fundamentals. The companies listed here may not be growing its earnings or may not be earning at all. The only reason you would buy it is because the technicals show you a breakout, a bounce from support or an uptrend. Other than that there is no reason why you should buy this stock. Once sell signals emerge though, you must sell immediately.
Stock Price as of December 29, 2017: 12.2
Why is this just for trading? Check out the earnings of ANI, it has lost money for five straight years. That quite sums it for this stock. Whatever movement you are seeing is based on purely supply and demand.
Sell when: The uptrend is broken.
Other possible stocks in this category: MRP
Category 4: Flat Earnings
Rationale: Companies in this category are earning but there’s nothing compelling or exciting about their earnings. The earnings are not growing and have remained flat for years.
First Gen Corp.
Stock Price as of December 29, 2017: 17
Buy when: Earnings start to change and turnaround and when the trend shifts from a downtrend to an uptrend.
Avoid until something changes
Category 5: Avoid for now
Rationale: Stocks in this category are companies whose business model is not in line with the economy, their earnings have been down and for some stocks even negative. Using technical analysis, stocks in this category have been bearish for quite sometime.
Lepanto Consolidated Mining Co.
Stock Price as of December 29, 2017: 0.151
Why should you avoid for now? LC and the entire mining industry is not where the economy is headed. They have been hit badly by regulations and the predictability of its earnings is hard as they are pretty much connected by global prices. Looking at the company itself, LC has lost money for five straight years. Why would you want to invest in a company that is not making money at all? Whatever possible upward movement that this stock may have, will just be speculation and plainly just short term supply and demand.
Avoid: Until something changes fundamentally and technically
Other possible stocks in this category: APX
I hope this serves as a good reference for you on how you can put stocks into certain categories. Our goal still is to focus on stocks that have good fundamentals and are trending up. You don’t need to speculate and guess on where the market is headed but just use sound strategy when deciding with your own with conviction.