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Editor's Note: Small-cap stocks are expected to outperform under the policies and reforms enacted by the Trump administration, but not all small caps are worthwhile. Taking a minute to review Sid's simple five-step strategy for unearthing the best bets could pay off big in the year ahead. Take a look…
Today I'm going to show you how to find the market's best-performing small-cap stocks.
Here's the thing: Sparks are easy to find. There's no need to study ambiguous chart patterns, watch 24 hours of business news channels, or pore over valuations.
All it takes is five simple steps…
Step 1: Get Access to the Entire Stock Market
Start by opening a free stock screen, such as the one located at FINVIZ.com. I don't have any relationship with the folks at FINVIZ – I'm mentioning it because it's free, easy to use, and it allows us to screen for recent performance.
Step 2: Target the Small-Cap Universe
For the purposes of screening for small-cap opportunities, you can limit the screen to companies with a market cap between $300 million and $2 billion. This will limit your choices to smaller companies (that still have plenty of upside) while at the same time screening out companies that are too small – and too risky.
Step 3: Look for an Igniting Spark
Set the screening parameter to only include companies that have experienced at least a 20% move over the last week. I know a 20% move in a week sounds like a lot – and it is – but we're targeting companies that could deliver 200%, 300%, 400%, or more in a 12-month period, so letting the market demonstrate its conviction early on is a fair trade-off.
Step 4: Isolate Your Target Group
Once you have your list of results, take a moment to check in on each company using a handful of news/research sites. I like to use Investor's Business Daily, Yahoo Finance, and MarketWatch, but you can use any source as long as you're comfortable that the news feed is thorough.
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Look for news stories that could explain why the stock moved over 20% in the last week. If the move has long-term legs, it will probably have at least one recent story that could explain the move. If the stock has been climbing for longer than one week, you might need to look at older news stories to identify the spark.
When looking for news events, focus your attention on the most powerful sparks.
Here's a list of the ones I target:
About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof.