3. Price Momentum
: Some stocks are stuck in a rut with no escape. You do not want to own one of these. I know of many stocks that have traded within a narrow range for 10 years or more. With such a small chance for upside potential, the threat is always looming of being blindsided to the downside.
For this reason, I don't like having these "tapped out" stocks in my portfolio. What causes a stock to get stuck in a rut? Obviously, companies with no growth belong in this category, but what about a market-share leader?
Unfortunately, most market-share leaders are not great stocks to own because they have already reached the top. A company with nowhere to go but down represents a bad stock pick.
: Wall Street has turned into a game of analysts trying to estimate quarterly earnings data and companies striving to meet or beat those estimates. When a company can beat expectations, the stock benefits to the upside. The analyst community has become so sophisticated in its methods of projecting future earnings, that it has become more and more difficult for companies to deliver. Find a company that consistently exceeds expectations.
: The future by definition is uncertain. Investors hate uncertainty, and yet it is inherent in the system. So the key is to find stocks with positive uncertainty rather than negative uncertainty. What is positive uncertainty? Positive uncertainty arises when a company shows a trend of innovation that leads Wall Street to believe that more success might be around the corner.