What companies are tomorrow’s big winners? In our ongoing series, I’m chatting with Fool analysts and advisors to discover the stocks they’re watching and the catalysts that would signal it’s time to buy.
Today, Fool analyst Rex Moore shares three companies that popped up on his screens and one that he recently elevated to his portfolio from his watchlist. (For your convenience, you can now create your own version at MyWatchlist.com, your free customized hub to follow the performance and Fool coverage of the companies you care about.)
Back in the early days of The Motley Fool -- all the way back to when co-founder Tom Gardner still had hair -- David Gardner developed the Foolish 8, a screen to find small-cap stocks growing at a rapid clip (you can find the eight criteria here). That portfolio earned a handsome 13% annualized return since 1998, far outdistancing the S&P 500’s 1.6% annualized gain. Rex altered the screen several years ago in order to add some elements of valuation and management effectiveness. The tweaks were good. The Modified Foolish 8 has brought in a 22% annual growth rate since 1998. With those results, it only makes sense to keep going to the well.
When he ran the Foolish 8 most recently when scouting purchases for his screening-based portfolio, he found a handful of stocks that are on fire. IT service provider iGate
Even after a recent tumble of roughly 18% in the wake of a secondary stock offering, Puda Coal
Even hotter has been athletic apparel retailer lululemon athletica
This is when the real work starts for Rex. He now resorts to old-fashioned fundamental analysis and his go-to metrics to run all the candidates through a process of elimination. Specifically, among his small caps, he likes to see a company with a business model that is not easy to replicate. You can follow along to see which of these makes the jump from watchlist to portfolio at Rex’s Rising Star portfolio.
And one he bought
While he admittedly has an affinity for small caps, Rex chose to follow the tenet of Wharton professor Jeremy Siegel and pursue a corporate El Dorado for his first purchase, an established organization that can anchor a portfolio for decades. After examining an array of corporate stalwarts, he decided that Coca-Cola
Coke is probably not going to be cheap -- Jeremy Siegel wrote in The Future for Investors that we should be willing to pay 20 to 30 times earnings for the solidity and stability of El Dorados -- but there are times when shares are more appealing than others.
And that’s why it pays to watch. You can make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click below to start following one of the stocks mentioned above:
Roger Friedman doesn't own shares of any companies mentioned, but they're all now on his watchlist. The Fool owns shares of Coca-Cola, which is a recommendation of Motley Fool Inside Value, Motley Fool Global Gains, and Motley Fool Income Investor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.