Where do you look to find stocks with a reasonable chance of doubling over a period of, say, three to five years? Having chewed over this issue in the office, and looked at where your analysts have done well and done poorly over the past eight years, some common themes have emerged. We think they offer some good pointers to individual stock picking and our general approach to investment.
1/10 Out of favour
This is potentially a value investor's most financially rewarding situation—a stock that's out of favour and, with any luck, even hated. Many of our most lucrative investments have risen from the depths of despair. Take Cochlear for example, which we recommended in issue 147. Its woes included a change of chief executive, two profit downgrades, and an inquiry into its selling practices by the US Department of Justice—all within a 10-month period. All of these events pushed the price down markedly, but it recovered. Since our recommendation upgrade, it’s returned 202% in capital growth alone and last traded at $57.58.
Computershare was another company that fell completely out of favour after the dot com boom. But the business itself never stopped growing and, since we upgraded in issue 107, its share price is up 269%.
For the rest of the 10 signs and to read more on Australian stocks, visit The Intelligent Investor at www.intelligentinvestor.com.au.