Friday, March 25, 2011

Remove the Underperformers from your Portfolio!!!

Michael gave us his criteria for weeding out the cheap companies from the true turnaround gems:
Turnaround Key #1: They Aren't Really Broken! They only appear that way because their stock price is low and they may be receiving negative press. I won't consider recommending a company that is not fundamentally and financially sound.
Turnaround Key #2: They Have a Major Dominant Advantage. The company must also possess a dominant advantage in its own industry sector. Maybe they have a patent. Or maybe a major contract. Or maybe they have a powerful brand that wipes out the competition.
Turnaround Key #3: Minor Flaw Caused 90% Plunge From Normal Price Levels. There is usually a minor flaw that sets off the selling. Could be too much short-term debt. Could be overextended operations. Could be the company missed their earnings target by a couple pennies. But it must be only a minor problem.
Turnaround Key #4: The Big Money Is Quietly Buying! Once the big firms start to realize that a company is financially sound and has upside potential, they jump back in very quickly. They pour big money into a stock, lifting it back to normal price levels

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Thanx :)