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How To Pick Super Stocks

By Jason Markum

Investing in the stock market is one of the hardest things in the world to do. Everyone wishes they had their own crystal ball that helped show them which stocks to pick. Wouldn’t it be great to know in advance which stocks were going to make a ton of money and which were going to turn out to be complete duds!?

Fortunately there are ways for you to get a leg up and lower the odds of picking bad stocks and at the same time increase the odds of picking super stocks and that’s exactly what I’m going to talk about in this article today.

Everybody dreams of finding the next Google or Berkshire Hathaway stock that jumps right off the charts almost immediately. I call these kind of stocks super stocks or superstar stocks and I don’t think I need to explain to you why I call them that!

The problem that most investors have is that out of the thousands upon thousands upon thousands of stocks that are available for them to invest in, only a small handful of them will ever turn into super stocks. Fortunately after doing some pretty extensive research on past super stocks, I’ve come up with five or six characteristics that these guys tend to show.

First they all start out as small or medium-sized companies with annual sales of 20 to $100 million annually. Usually these companies are signaling a lot of growth potential as well.

Next these stocks tend to show a rising unit sales volume. Ask yourself how fast sales should be rising? Most of the time you’re going to want to look at companies whose growth is not less than 12% to 15% a year during a strong recession free economy.

Next look for companies with low but rising dividends. Newer companies don’t tend often to pay out dividends but potential superstar stocks will, early on, and you will notice that their dividends are increasing, even just slightly, from year to year.

Next look for companies with a low debt ratio. Superstar companies are often not saddled with massive debt that some other companies may be saddled with. Usually those companies should not exceed 35% of their total capitalization. If current interest rates are very high than the debt levels should be much lower than that.

Finally look for companies that have few institutional investors. You can find this information from services like Moody’s or Standard & Poor’s. After a growth company has 20% or more of its stock owned by an institutional investor or investors that usually means that everybody knows about the company already. It has been discovered, if you will. This means that many people have already bought in to the stock, meaning that future price appreciation due to excess demand is unlikely.

So there you have five ways to identify a potential superstar stock. As with any investing opportunity be sure to do your own careful analysis before investing any of your own money.

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