Joe Fahmy, trader and blogger at JoeFahmy.com, outlines several growth stocks in one of his favorite sectors.
I believe the best way to outperform the market is to select individual stocks. I’m not a fan of ETFs or diversification.
As an individual investor, if you have the time and want to put in the effort, you shouldn’t own more than 20 stocks. Personally, I like to keep a concentrated portfolio of about six to 12 stocks...and I watch them very closely.
Again, you have to be willing to put in the time. If you don’t want to, put your money in an S&P 500 fund and leave it for the long-term. Trust me, 500 multinational companies is plenty of diversification.
If you are interested in individual stocks, I highly recommend researching one of my favorite growth sectors: 3D printing. Rather than give you a long explanation, just watch the following video. It does a great job of explaining 3D printing.
The 3 main stocks I follow are 3D Systems (DDD), Stratasys (SSYS), and Proto Labs (PRLB). (By the way, DDD acquired Z Corporation, the company featured in the video). These stocks share many characteristics of big winning stocks from the past. Here are a few reasons I like them for the long-term:
- Strong earnings and sales growth. Fundamentally, these companies are growing rapidly, even in a challenging economy.
- Strong technicals. These stocks have held up very well and have displayed great relative strength during the market correction that began in April 2012.
- They are newer, entrepreneurial companies. Most people are afraid to buy stocks they’ve never heard of, but don’t be scared of new companies! Of course, do your homework and make sure they fit your investment criteria.
- High short interest. When you click on this Nasdaq link, you will see that their short interest has been rising...as the stocks are going up! It reminds me of big winners from the past such as Taser (TASR) and Monster Beverage (MNST). People kept doubting them and they just continued to rise.
- In a recent conversation with a very sharp money manager, he told me that many high-level investors and venture-capital funds believe this sector is in its early growth stage. In other words, if it’s good enough for the big money and for people who are smarter than me...it’s good enough for me.
Full disclosure: I own positions in all three stocks. Because it’s too early to tell who will eventually become the leader, I’ve been trading all three, and I’ll let the technicals lead me to the winner.
I try not to predict; I simply follow the large institutions since they are the ones who move these stocks and the overall market. If I’m wrong, as always, I’ll simply stop myself out and move on to the next group of stocks. Also, keep in mind that these companies report 2nd quarter earnings soon, so look up the dates and adjust your positions accordingly.
As I mentioned earlier, if you want to buy any of these stocks, do your homework and make sure they fit your investment philosophy. If you don’t have a philosophy, I strongly suggest you get one!
Remember, your ultimate goal as a trader is to make confident decisions on your own, and trade with complete independence. The purpose of this blog is to help people with idea generation. If you trade any of the ideas mentioned on this site, always use stops to protect your portfolio in case the positions turn against you. Good luck trading!
Joe Fahmy is a trader and blogger at JoeFahmy.com.