Beat the Market in 7 Easy Steps

Who doesn't want to be a better investor? Volatile markets create some serious opportunities to either make a ton of money, or get creamed in the process.

Thankfully, Wall Street isn't as complicated as financial pundits, full-service advisors, and headstrong fund managers would have you believe. I have a simple seven-step process that will point you in the right direction.

If you're ready, let's dive right in.

Step 1: Wake up.
You've had some grand dreams as you slumber, but surely you need to be coherent to beat the market.

Step 2: Brush your teeth.
If your morning breath rivals mine, you may want to top off the scrubbing with a breath mint or two.

Step 3: Pour yourself a cup of coffee.
Caffeine isn't necessary, but it certainly helps if you're still a bit groggy.

Step 4: Insert bread into toaster.
If you're trying to cut back on carbs, feel free to skip steps 4, 5, and 6.

Step 5: Take toast out of toaster.
If the bread isn't toasted, go back to step 4 -- only this time, actually turn on the toaster.

Step 6: Work the spread.
Butter, margarine, cream cheese, marmalade, or jelly? Hey, they're your taste buds. Choose accordingly.

Step 7: Pick the right stocks.

Now wait a minute, Rick ...
It all seemed so easy until the final step, didn't it?

Well, I don't know about that. Step 5 can get pretty tricky, especially if the bread is lodged in the toaster. However, why should picking dynamite stocks -- instead of equities that will blow up in your face -- be any different than the rudimentary things you do in the morning?

I'm an analyst for the Motley Fool Rule Breakers newsletter service, so clearly, I may be shooting myself in the foot by pointing out how simple it is to beat the market. Bear with me to the end, though, for justification, clarification, and a handful of carrots.

The easy way to pick the right stocks
If there's any silver lining to these hellacious market swings, it's that most stocks have been moving up and down in tandem. You see, this herd mentality is taking place alongside some serious divergence when it comes to fundamentals. Analysts see way too many stocks posting lower earnings this year. You don't want to be there.

Luckily, you don't have to! Let the sorry economy do the vetting for you. If a company is able to grow its earnings this year, it's probably proving its worth as a genuine growth stock. You may have to pay up for a quality growth stock, but it's better to have a stock's improving fundamentals catch up to its share price, than to have its share price come down to meet its decaying fundamentals. 

Picking the right stock is a lot easier if you eliminate the wrong stocks from the equity pool. So which companies will deliver higher profitability this year (in Wall Street's opinion, at least), despite the fierce recessionary headwinds pulling down many of their peers? I'm glad you asked.

Company

This Year's EPS

Last Year's EPS

3SBio (Nasdaq: SSRX  )

$0.48

$0.27

Mindray Medical (NYSE: MR  )

$1.13

$0.96

Research In Motion (Nasdaq: RIMM  )

$3.93

$3.43

Changyou.com (Nasdaq: CYOU  )

$2.71

$2.27

Bristol-Myers Squibb (NYSE: BMY  )

$1.93

$1.74

Celgene (Nasdaq: CELG  )

$2.04

$1.56

Gilead Sciences (Nasdaq: GILD  )

$2.49

$2.06

Source: Yahoo! Finance.

You're naturally welcome to compile your own list. Two of the names here -- 3SBio and Mindray Medical -- are actually recent Rule Breakers recommendations. As a growth-stock service, we look at several traits to single out potential market-thumping investments. Industry-leading profit growth is one of the many important factors.

So whether you decide to screen for the right growth stocks on your own -- or delve deeper by joining the active Rule Breakers community -- you're on your way to a smarter and hopefully wealthier tomorrow.

Go grab a good night's rest tonight. You have a busy day tomorrow, and it all starts the moment you wake up.

3SBio and Mindray Medical are Motley Fool Rule Breakers recommendations. Try the newsletter services free for the next 30 days.

Longtime Fool contributor Rick Munarriz realizes that coffee and toast is not an ideal breakfast. He'll fish around for a banana-stuffed French toast recipe next time. He does not own shares in any of the stocks in this story. The Fool owns shares of Mindray Medical and has a disclosure policy.


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