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11 June 2014, 13:13

The four telltale signs of a profit-generating tech stock

The four telltale signs of a profit-generating tech stock - Teletrade We are almost half way 2014 and all the market signals suggest that tech stocks are poised to soar in the second half of the year. Investors who are ready to ride on this new tech wave and position their portfolio accordingly, they will be able to grab some of the biggest profits in history.

But, how do you spot these tech hotshots?

In this article, we are revealing the four telltale signs to help you identify the stocks worth putting your money on. By applying them into your trading strategy, you will be able to tap into the most exciting market trends and capitalize on the companies’ best positioned to bring you significant profit.

So, let’s look at them…

#1. Great leadership

To attain the kind of life-changing profits you dream of, it is not enough to simply spot an attractive company in a hot tech sector. You have to capitalise on the truly commendable industry leaders, the enterprises that are changing the rules in biotechnology, computing, telecommunications, aerospace, industrial materials and other front line high-tech sectors.

These groundbreaking companies generate markets where none existed, overtake prevailing technologies and develop products that consumers never even imagined of, but cannot live without. Ventures this revolutionary and versatile share a common attribute; they all have great leaders behind their wheel.

Pinpointing such exemplary leaders takes effort. You have to examine their business plans, competitive strategies and trend-making initiatives. These executives have the golden touch to help companies broaden their offerings and grow internally, invest in technology breakthroughs, make strategic acquisitions, build fanatic audiences and grow their revenue by millions and millions of dollars in a surprisingly short period of time. Simply put, they are the guys who you could trust with your hard-earned money.

#2. Rock-solid fundamentals

To create real profits, you have to ignore the investment hype and separate the wheat from the chaff. You should know that the views you read in the mainstream financial press and websites are the siren song of Wall Street that will take you on the road to investment destruction. The sad thing is that most traders end up succumbing, which is exactly the desired effect of Wall Street.

If you really want to succeed in financial markets, you need to be able to think for yourself and separate the signals from the noise. You have to focus on the signals that potential winners send out and look for companies with strong fundamentals. There are three profitability indicator ratios that will enable you to separate the prospects from the suspects in the stock market:

  • Profit Margin: Profit margin is what is left over after the company pays all its expenses and taxes. In other words, the “bottom line”. A good profit margin averages around 7%. It is also advised to go through the company’s operating margin. This excludes figures such as amortization and indicates how well a company has control over its costs, as it expands its operations.
  • Return on Equity (ROE): Return on equity is the amount of net income returned as a percentage of shareholders’ equity. This ratio demonstrates how good a job the CEO is doing for the organisation’s shareholders. The average ROE for tech stocks is 10%.
  • Return on assets (ROA): Return on assets gives an idea as to how capable the company’s management is with respect to using its assets (industrial units and gear) to produce earnings. A desirable ROA is 5%.

#3. Consistent growth rates

The one thing to keep in mind that will enable you double your money is find companies that can deliver superior growth on a consistent basis. It is a rule of thumb that organisations that have the strongest growth rates and reinvestment strategies, almost always offer the highest stock returns.

You have to look for companies that their profits grow consistently at an average annual rate of 15-20% or more and offer safety of capital. When earnings grow at such high rates, a stock is on track to double in between two to three years and keep rising in the months and years to come.

In order to accumulate market-beating profits, you have to spot companies with strong financial results that invest in future growth, by taking a significant percentage of their balance-sheet cash and redeploy it back into R&D to create new products, higher profits and bigger shareholder returns.

#4. Solutions to issues affecting millions

Put in your radar stocks in sizzling tech sectors that offer the best possibilities for life-changing achievements. If you want to amass substantial profit, you have to be able to identify the newly emergent, unstoppable trends that have “big money” written all over them, such as mobile TV, big data, cloud computing and synthetic vaccines.

Find the next big thing that could solve a wide range of problems that can affect the lives of millions around the world. Such revolutions might be technologies using DNA for curing diseases, products screening for several conditions at once and delivering test results in a matter of minutes, or tools sifting through billions of daily online transactions to help combat cyber-fraud.

Taken together, these four signs will help you detect the tech stock gems about to fatten your investment portfolio over the next years and make you a much savvier trader. Take advantage of the ongoing, accelerating explosion in technology and invest in the best stocks to make you a fortune.

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