Revealing My SECRETS for Finding Growth Stocks
“Paul, what’s your secret?”
I get this question all the time. People want to know how to find THE growth stocks. You know, the ones that can soar hundreds, thousands!
So today, I’m opening the curtain.
I’m going to reveal the most crucial elements of how I determine what stocks have growth and America 2.0 potential.
Check out the video below to find out how you can use these secrets, too!
How I Pick Winning Stocks
Today I want to take you behind the scenes and talk about how we go about picking big winning stocks. Many people ask me the secret behind picking these winning stocks. Today, I am going to share that secret with you.
There are five elements to it, two of which I have repeated a lot and many people know. Three of them I have repeated a little and I am going to go through them using an example.
I decided to use an actual example from our current Profits Unlimited portfolio. We have been in Advanced Micro Devices Inc. (Nasdaq: AMD) since July 2018. We bought in at our recorded price of $81.62.
Some folks who subscribed will have prices that are lower. Some will have come in after we put it in and will have slightly higher. Nonetheless, from our recorded price we are up a little more than 400% based on where AMD currently stands. What was the basis of getting in AMD?
If you look at the AMD chart over the last five years you will see AMD is up nearly 2,200%. This is a clear, massive winner. One of the things you will see immediately is that 2,000% is never going to come in a day, a week or a month. It came over a number of years.
If you look at the chart you will also see during this period of time there were multiple 20% corrections, 30% corrections — there was a 50% correction. There were even crashes. You are never going to get a big winner without sitting through volatility.
That’s one of the key elements to this: You have to have a long-term timeframe. We put all our trades in our portfolio for a minimum of one to three years. That’s a minimum. The second element is that we ride through volatility. There are lots of people who use trailing stop losses, stop losses and all kinds of things.
We never do that. We, instead, guide people how to endure through the volatility and set their portfolios up to have a portfolio that can allow them to sit through volatility and make the big money over time. So I went through the first two things people already know about.
You have to have a timeframe that is in years, a minimum of one to three years. Second, you have to be willing to buy into a portfolio. We tell our folks a minimum of five stocks. Set it up where you can sit through the volatility. It is inevitable and it will come at you.
It will be far bigger than you think. It will be 50%, 60%, sometimes 70%. Nonetheless, if you want to make 1,000% or 2,000% you have to sit through it. Now here’s the part I know everybody has been waiting for: What are the other critical parts?
The big thing that really changes for a stock when you have a big winner is that the price-to-sales ratio will start to get higher and higher. AMD is a great example. At the beginning, when it was barely moving, AMD had a price-to-sale ratio of something under 4.
Truthfully, from tracking it, it was well under 2 at various points in time. At that point in time if you were a buyer you were buying in when most people believed AMD was going to be a middling stock and there was nothing to it. However, look what’s happened over the five years.
It gets as high as 12 times in terms of price-to-sales. In other words, every dollar of sales that AMD is generating is now being valued — instead of 1, 2 or 4 — at 8, 9 or 10 or 12 times sales. That’s one of the secret sources of gains. You need to find a stock where the price-to-sales ratio is going to go up.
Obviously you want to buy it when the price-to-sales ratio is low and it can rise. Now the very natural question is: What is going to make it rise? Why are people only willing to pay 2 times price-to-sales five years ago and now they are paying 8 times or as much as 12 times quite recently?
In my judgment, the critical factor is sales growth.
AMD has consistently over the last five years has had very strong sales growth — 20%, 40%, even higher. That is the thing that draws growth investors in and makes them bid prices higher.
You want to see strong sales growth. Now, there is one small catch to this. You have to have that sales growth be something you anticipate. In other words, before it starts to get bid up, to get the benefit of the big gains, you have to know something about the company.
Whether it be new products, services or some change that has occurred that the stock market has not yet priced in. That’s how you are able to buy in where the price-to-sales ratio is 2. Then as the earnings growth unfolds, growth buyers come in and are willing to bid the price-to-sales ratio higher and higher for the same dollar of sales that is coming in through the door.
The place to learn about this and find out about something going on at the company is the fifth element to this.
Read Trade Journals
You need to read trade journals. For example, if you are following semiconductors and chips, EE Times is a fantastic trade journal to read.
They talk about technical developments, technical changes coming, big shifts going on within each company. In truth, if you were following AMD, you would have known several years ago that they had their Ryzen chip, which was becoming the fastest chip available to anybody and they were beginning to take market share from Intel, even in the server market where they had no market share.
Today, AMD is clearly becoming the technology leader. They have the fastest chips out there. Of course, it’s now fives years later and the stock is now 2,200% higher. However, we still own it in our portfolio because these changes can sometimes last long periods of time.
That’s what drives our stock picking. We are looking for these kinds of stocks. In other words, something we can be in for a minimum of one to three years. Second, there is something going on in the stock that makes it worthwhile to sit through the volatility.
In other words, there is something incredible going on that can generate massive gains so you want to sit through the volatility, build your portfolio and endure through it. Then, as I mentioned, you want to buy when the price-to-sales ratio is low in anticipation of it being bid much higher.
Third, you want to anticipate sales growth and have that come through. Some of the places where you can find out about this is through reading trade journals. It’s where I spend a lot of my time looking at things and reading from a non-stock basis.
I am just looking at technical developments and trying to find out what is going on and then trying to see which companies have positioned themselves to benefit.
The five elements to successful big gains and growth stock picking that you can try for yourself at home. Alternately, if you want a newsletter that specifically focuses on that, try Profits Unlimited.
Editor, Profits Unlimited