You can learn how to find profitable stocks that can help you grow $500 into a real fortune!

Do you dream of finding profitable superstars—those top performing companies that just keep growing, and growing . . . and growing your money into a real fortune, whether you’re investing in stocks, short-term options, or LEAPS?

Do you dream of finding the next Home Depot?

It’s no wonder.

If you had invested $1,000 in Home Depot stocks when it first became a publicly-traded company in 1981, that investment would have skyrocketed to $1,665,000 today. If you had invested in LEAPS contracts on Home Depot stock, you probably would have earned five times that much.

Do you want to know how you can get in on the ground floor of the next IBM, Apple, McDonald’s, Home Depot, or Google when the share price is still affordable and about to become much less so?

You’ve come to the right place. Read on.

Growth Companies

Superstars can be found in every industry. So, where do you start looking?

Start your hunt for growth companies, because they’ll give you the biggest bang for your buck.

Start small in your superstar search. Look for the small companies poised to become much bigger companies.

Potential superstars have five essential features:

1.   A great and unique product or service.

2.   A great potential market.

3.   A great management team.

4.   Great predictability, and

5.   They must be growing with a track record of a high percentage of earnings growth year after year. A company’s earnings growth will tell you how its stock will perform.

In particular, look for a company with rapid and sustainable growth, not a company that expands too quickly without the fundamentals to support it.

Hyper-growth combined with aggressive financing and a flawed business model, for example, is the recipe for a spectacular nosedive on the stock market.

Boston Market (formerly Boston Chicken) comes to mind. When it went public in November 1993, its stock exploded on the market. In 1994, the company was opening a new store every business day. “They have the most aggressive expansion program ever undertaken in the restaurant industry,” claimed analyst Mike Mueller in April 1994. In 1997, the company had over 1,100 restaurants in operation and more than $1 billion in sales. In 1998, Boston Market filed for bankruptcy.

Market Caps, Revenue Growth, and EPS (yes, those are real words)

True superstar companies will have sales and earnings rates that are much higher than the average company over the long-term. How much higher depends on the size of the company.

Start with market capitalization—the total value of the company’s tradable shares. You just multiply the stock’s share price by the total number of shares and voilà, you’ve got the “market cap.”

Small companies with a market cap under $250 million should have at least a 25% revenue growth rate and at least a 30% earnings per share (EPS) rate.

Mid-sized companies with a market cap between $250 million and $1 billion should have a minimum 20% revenue growth rate and a minimum 25% EPS.

Large companies with a market cap between $1 billion and $5 billion must have at least a 15% revenue growth rate and at least a 20% EPS.

Those companies with a market cap over $5 billion should have a 10% minimum growth rate and a minimum EPS growth rate of 15%.

But really, if you want the fastest-growing companies with the biggest earnings potential, stick with companies whose market cap is under $1 billion. The sweet spot is generally those companies with an average market capitalization between $100 million and $250 million, but there are exceptions. Home Depot’s market cap when it launched in 1981 was just $34 million. Today it’s around $86 billion.

Stumbling Companies

When looking to find profitable stocks and Superstars, you must include some companies whose lights have temporarily dimmed. Just because a company stumbles, however, doesn’t necessarily mean it will fall down a bottomless pit.

Many companies with great growth potential will stumble somewhere along the way and their earnings and stock prices will fall. If the fundamentals are still strong—they still have a great and unique product or service, a great potential market, great management team, great predictability, and a history of a high percentage of earnings growth—they may very well regain their superstar status in the future.

So, buy now, when the stock is under-valued and the price is low. The company will cycle back into strong earnings, which will move the stock price up again and you’ll profit.

I’ve used this strategy to identify runaway stocks, those stocks that go from being under-valued to growing rapidly, even wildly, in price, like Netflix (NFLX), QUALCOMM, Inc. (QCOM), JDS Uniphase Corporation (JDSU), and Starbucks Corporation (SBUX).

The key with stumbling superstars is to invest a small amount at first and then follow the stock closely. When you see that its growth has some legs, increase the amount of your investment while the price is still relatively low, buy some LEAPS contracts, and watch your wealth multiply as the stock price goes up and up.

Just as superstars beef up Hollywood’s balance sheets, superstar stocks can beef up your earnings. You just need to know how to find them.

Once you find them, how do you protect your investment from a recession, or a depression, or the hysteric gyrations of a volatile stock market? Read my article, “How to Grow Your Wealth Regardless of the Economy” for some answers.

Want to get your finances back on track and start growing your wealth? 

This post is also available in: Spanish

This post was written by...

Frank Liz – who has written 18 posts on Adimir Institute of Financial Education.

Frank Liz is a futurist, the founder of Adimir Investment University, and the author of the best-selling book The Millionaire Within You and the forthcoming Starving For Answers: How Climate Change, Ignorance, and Greed are Creating a Century of Hunger . . . and What We Can Do About It Now.

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