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Stock Picks Bob's Advice
Saturday, 13 December 2008
A Small Change to my Stock Selection Strategy! Using Ecolab (ECL) as an example!

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

For the last several years I have been selecting stocks in the same general fashion.  I check the lists of top % gainers first---generally avoiding stocks under $10---a strategy I picked up from the IBD CAN SLIM approach---and screen these stocks further.

Before deciding on any of these stocks, I generally look at the latest quarterly report hoping to find a company reporting growing revenue and growing earnings and possibly even beating analysts' expectations and raising guidance on future results.  (For Ecolab (ECL), the information is here.)

If this looks good, I generally head over to the Morningstar.com page and check on the "5-Yr Restated" financials.  I continue to look for steady revenue growth, earnings growth, possibly dividends with maybe some dividend growth, stable or declining outstanding shares, positive free cash flow and possibly growing free cash flow, and a balance sheet which shows more current assets than current liabilities.  (Ecolab's (ECL) "5-Yr Restated financials.)

From there, I usually refer to the Yahoo.com finance page and research the "Key Statistics" on the stock, hoping to find a relatively low p/e, acceptable PEG ratio, and possibly a short ratio over 3.0. (Ecolab's "Key Statistics"). 

Often I will utilize my Fidelity.com site to check the Price/Sales ratio relative to the company's peers, and the same with the Return on Equity for a look both at valuation and profitability. 

Finally, I like to check the "point & figure" chart from StockCharts.com to see if in my own amateur perspective, the chart looks as encouraging as possible and the stock price isn't instead in some sort of 'free fall.' (Ecolab's "point & figure" chart).

My timing of my purchases is still directed by sales of my own holdings as they reach appreciation targets or a sale of one of my minimum of 5 holdings which directs me as well to find a replacement and purchase a new stock.

The size of my purchases is now defined by the size of my other holdings.  If I am purchasing a stock that is not one of the five minimum, then I purchase shares that amount to 125% of the average value of my other holdings.  On the other hand, if this purchase is done 'under duress' that is, made mandatory by my own need to own at least five positions, then that 1-5 position purchase is much smaller, at 50% of the value of the remaining holdings.

What I have changed is not my reference to the top % gainers lists, but rather my willingness to not feel bound to that list and to instead purchase a stock that generally otherwise fits my criteria and is a 'high quality' company much like Sysco (SYY), which except for some recent accounting questions raised by Barron's is a great company to own and a company that I recently chose to purchase shares.

I use Ecolab (ECL) as another example.  It is a similar company to Sysco (SYY), and I suspect they actually compete in the hospital market.  However, Ecolab concentrates on cleaning supplies and Sysco has a greater emphasis on restaurant supplies and food.  I do not currently own shares in Ecolab (ECL) but I do own shares in Sysco (SYY).

Anyhow, I wanted to clarify my slight nuanced change in my stock selection criteria.  This blog and my own strategy is absolutely a 'work in progress' and I am glad you chose to come along on this journey.

If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 12:29 PM CST | Post Comment | View Comments (3) | Permalink
Updated: Saturday, 13 December 2008 12:30 PM CST

Friday, 19 December 2008 - 1:24 AM CST

Name: "Mark "
Home Page: http://www.stockpursuit.com

Bob, I lost your email and didn't see it on here. I moved my site in your blogroll from investmentquest.net to www.stockpursuit.com I was wondering if you could update the link to my new site. thanks

 

Mark 

Friday, 19 December 2008 - 5:12 AM CST

Name: "Alan"
Home Page: http://www.tradememe.com

Isn't avoiding stocks under $10 a little too harsh ? There are many good undervalued companies right now.

 

Wednesday, 7 January 2009 - 9:29 PM CST

Name: "Robert Freedland"
Home Page: http://bobsadviceforstocks.tripod.com/bobsadviceforstoc

Avoiding stocks under $10 is indeed harsh.  But we live and invest in harsh times and if one is to use a % limit on losses, as I do, the volatility in the market shakes me out so to speak with an 8% loss before I can even turn around. 

You are absolutely right, that in termns of 'value' there are many find investments under $10.  If you choose to invest in them, you shall require a different strategy that involves 'holding your nose', 'closing your eyes' or whatever you want to call it, and staying put even though you may find yourself accumulating a loss.  If you do your homework right, this is indeed a good approach--just not mine.

Thanks for commenting and reading my blog.

Bob

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