by Ann Sosnowski
I believe that small and mid-cap stocks still have a good chance of running up in value in 2007. Why? Well, the Russell-2000, the main small-cap index, is pounding its way up the ladder rungs. And large-cap stocks look about to head lower.
Regardless whether you’re looking at a small, mid, or large cap stock (even pink sheets and nanocaps!) there are some specific pieces of information you need to pay attention to. Most importantly, I like high profit margins, quarterly year-over-year growth, and companies that have their debt under control.
But I also have an indicator I call the Hot Sheet Stock Thermometer. It helps me to rank stock buys and risk on any stock in the universe.
On a simple scale of 0 to 100, (0 being the most extreme yes, and 100 being the most extreme no) I ask the following basic questions:
Price Value and Risk: Is the stock a small-cap, mid-cap, large cap, or blue chip? How well does the P/E stock rating forecast growth? Compared to its current share price, how likely is it that investors will turn a profit?
Established Support: How strong is the current price chart? Are established support lines and historical prices continuing to provide support?
Momentum and Volume: Does steady investment continue to propel the stock’s price? Or have investors pulled back from buying, or even started to sell? Are the put/call ratios fairly stable over the long-haul?
Strength: How strong is this stock compared to others in its industry or sector? Is it outperforming or underperforming its competitors? How strong are company earnings and projections?
After rating each one of these criteria, I come up with a number from 0-100. The closer it is to 100, the more risky the stock is to invest in. And the closer it is to 0, the quicker you should buy the asset.