Momentum Investing: The Secret To A Red-Hot Stock Portfolio

The investment landscape isn’t pretty right now.

The federal deficit is ballooning. Credit is tight. Home prices are still falling. The dollar is weak. Fuel prices have jumped. The economy is in the tank. And last year the stock market experienced its worst year since 1931.

Who in his right mind would buy stocks now?

I would. In fact, it’s only because so many investors keep repeating the mantra in the paragraph above - as the national media does endlessly - that they don’t.

And when they realize how many momentum investing opportunities they’ve missed, they’re really going to regret it.

So do yourself a favor and turn off all the talking heads on TV. They don’t know any more than you what the economy will do in the second half… or where interest rates will go… or where the S&P 500 will finish the year.

Momentum Investing: Taking the Guesswork Out of Stocks

Fortunately, when choosing stocks through momentum investing, you don’t have to know. And you don’t have to guess, either.

If you want to make money in the stock market, stop thinking about the economy and the market and start thinking about business.

Not just any business, of course …

• Think about businesses that have tens of thousands of new customers beating a path to their door.
• Businesses that are reporting record sales and profits.
• That have huge order backlogs.
• That have double-digit profit margins.
• Businesses that are growing so fast they don’t know if they can keep up with demand.

In this economy, of course, businesses like these are a rarity. Most businesses are doing lousy. For instance, this is a terrible time to be a banker… or a steelmaker… or a homebuilder… or an auto manufacturer… or retail merchandiser.

But there are other businesses out there that are enjoying the best of times.

Let me give you an example…

Great Earnings Momentum & Double-Digit Profit Margins

I’ve been recommending a small but rapidly growing company with great earnings momentum and double-digit profit margins. It has more than 17 million customers in 120 countries.

Sure, it has competition. But as its CEO says, “We’re way ahead of everyone else.”

• The recent financial collapse has only hastened its business. The company is receiving more than 43,000 new orders a day. In fact, it picked up more than 1.5 million new customers last quarter.
• The company has posted earnings growth of 24% or better every quarter since the recession began in December 2007. It has the technology, the customer base, the market niche and the profit margins to really blast off in the months ahead.

In fact, look at the chart below:

Chart: http://www.investmentu.com/images/iu062409chart.jpg

While the market did a belly flop last fall and is also down for 2009, this stock is up over 230% in the last seven months alone.

Why aren’t you hearing about momentum stocks like this? Because the media thrives on bad news, not good. It specializes in heartbreak and cynicism.

Momentum Investing - Forget The Economy & The DJIA

I, on the other hand, spend my days screening for companies just like the one I just mentioned. It’s called momentum investing for a few reasons:

• It requires you to forget about the economy, “most businesses” and the Dow Jones Industrial Average.
• Instead, you focus solely on companies that are knocking the cover off the ball - and likely to report sharply higher profits in the weeks ahead.

Incidentally, when you’re fortunate enough to uncover companies like this, there’s one thing you really ought to do… Buy them.

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