A Simple Way To Pick Winning Stocks

| July 23, 2008 | 0 Comments

Just a few weeks ago I was on a shopping mission.  I had two objectives.  First, I was finding a few books for myself.  I needed some summer reading for around the pool.  My second objective was finding a birthday gift for my 4 year old niece.  As you can imagine, the books were easy to find; the birthday gift was much more difficult.

I live just a few short miles from a major shopping complex.  They’ve got almost every store you can imagine.  I made a quick stroll through Best Buy then headed over to Target.  I also hit Barnes & Noble and Borders. Yes, two bookstores.  What can I say?  I love to read.

I stopped at a few other smaller stores in between. . . it was a marathon shopping session.

At some point during this massive hunting expedition I came across a discount store.  I was surprised at just how packed the place was.  I parked a good distance from the entrance.  As I walked to the store the first thing I noticed was the steady stream of customers.  I couldn’t believe the number of people entering and exiting.

I’d been to that store a time or two, but I’ve never seen it this busy. This got me thinking.  The economy is slowing as gas and food prices head higher every day.  How are the discount retail stores doing?

The S&P Retail Index has been falling for the last year.  More recently, the industry rallied off the lows set in the first quarter.  The government stimulus checks drove the excitement, and covered up some of the problems.  Putting that aside, the retail industry looks to be in deep trouble.

The problems continue.

I’m not going to rehash every issue.  You know most of them.  Gas prices are high.  Food prices are creeping up.  Consumer credit is being cut. Folks can’t use their homes as ATMs any more.  Everyone’s looking to stretch their hard earned dollar.

Even the wealthy are suffering.

Did you see American Express’ (AXP) earnings announcement this week?

They missed their earnings numbers in the second quarter.  And when they missed, they missed big.  Management pulled their growth forecast for the year.  They said the deterioration was greater than expected. June was bad. . . even for their “longer term super-prime customers.”

That’s not good for the economy. . . but there is a silver lining.

The discount retail industry is composed of more than 20 different companies.  You can have your pick of the big ones or the small ones.  As I examined the industry, I found a company with a tremendous presence.  They’ve recently increased guidance, and are following through on a stock repurchase program.

The business was performing well, and future milestones gave three opportunities for the stock price to rally.  Then I looked at institutional ownership.  A few of the “smart money” investors were increasing their positions.  Realizing what a great investment I’d found, I immediately looked for undervalued options on this stock.

After finding one, I sent it to subscribers to my trading advisory, Elite Option Trader.

Those that acted on the trade alert are now up almost 60% so far (in less than 20 days).  Not bad for one trip to the shopping mall!

So the point of the story is to really keep your eyes open when looking for investment ideas.  Even with our fancy computers, instant research capabilities, and bundles of analysis software, sometimes the best ideas can be found just by paying attention to what’s going on around you.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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