How To Invest in Superstocks?

How to invest in super stocks?     

First off you have to ask yourself how do you determine superstocks? Superstocks can be explained by four points or four things the superstocks must have.
1.) In order to be a superstock the company has to have a competitive advantage. This means a company must have a strategic advantage over its rival entities within its competitive industry.  Or simply it must be a long way ahead of the competitor and maintain a huge amount more market share than its competitors.

2.) The company must have low risk factors. Which means the company is rarely trouble when the country is going through an economic crisis, or the business doesn’t depend on environmental factors or cost in resources such as oil prices. Also it’s usually helpful if the business wouldn’t be affected by a closure of a store or a renovation of a store because the business itself has a strong fundamental. So business with a strong fundamental will likely be a super stock.

3.) Another key fundamental is that the company must grow in terms of profit grow by about 15-20%. And this trend has to carry on for at least 5 years. This is important because profit growth will increase in share prices, so whether there is an economic crisis or not these companies price would be affect slightly or some stock prices still grow, a superstock must have this because referring to the second point that a business must have a low risk factor so in an economic crisis or recession the company must be able to still generate profit.

4.) A yearly Bases of 15% or more Return in Equity (ROE).  This is important because we need to know how much return on investment the business generates. This separate good CEO to bad CEO. This show how the business it using the money and what return it gets. So a Super stock must have at least 15% ROE over the past 5 years and to make it better the ROE should get to a higher percentage every year as the profit grows. (ROE= Net Profit/Number of Outstanding shares)

PROFIT GROWTH = GROWTH IN ROE AND EPS.

                         

                     

Timing is very important in investing as these separates success and failure, Some people buy the right stocks in a stage which the company has reached it’s peak or some people buy a stock too early and have to wait for long periods until it’s reached its peak. Or some people buy stocks which are overvalued and the share price can’t increase anymore.

So when should we buy a superstock? There is no boundary to when to buy a superstock but superstocks are stocks everyone admires and it’s most likely superstocks will be cheapest in a crisis situation, because in a crisis most investors sell their shares as they see it as too much of a risk to invest at the time. Another simple way is to look at the forward Price per earning or PE ratio, this shows what how the market values the business and a higher PE means that an investor is paying a higher price to a unit of profit PE is the formula to work out the PE ratio is PE=Market value per share/Earnings per share (EPS) or forward PE which is Market value per share/expected earnings per share. So a super stock in order to have a fair value should have a PE of 15 and everything under the 15 is an undervalued superstock.

So if all the superstocks don’t meet that criteria above of having a fair value, you have to try to find the next super stock. This process is very simple but not everyone can do it. It’s simply just observing everyday life everyday usages, new trends but a superstock mean be a long term trend or Mega trends. After you found a potential stock you have to do your homework find out it’s profit growth and ROE for example find out that in the future will it meet the four points ( Competitive advantage, Low risk factor, Profit growth 15% and increasing for 5 or more years, Maintain and increase ROE of 15% for over 5 years.)  Putting all this information together is a simply way in identify the next superstock. This sounds easy but to put this to use is hard as a new superstock can emerge once in a very long period of time.

Superstocks are stocks which can be held forever if brought at a right time and price, but stocks are bought and sold for people to make money off them so when can you sell a superstock. Well a superstocks are companies and every company has it’s age of maturity and it’s going to have a profit growth of over 15% or a ROE of over 15% so therefore it’s not a superstock anymore. Or when the superstock is overvalued or using a PE of 30 as a bench mark is suitable so if the PE of this superstock is more than 30 and there’s isn’t much room for it to maintain its growth and market share that’s also a sign to sell. Or lastly if you’ve spotted a better superstock which will give you a better return this can thus can make you sell this one to buy another stock this is called shifting.