10 fast-moving growth stocks for bullish investors

by Ben Hobson from Stockopedia |

Forget traditional valuation methods, writes Stockopedia's Ben Hobson, this strategy is a winner.

One of the standout themes in the stock market over the past decade has been the success of strategies that focus on fast growth and momentum. In bullish conditions, investors have gravitated to firms with rapidly growing profits. And while these stocks have often looked expensive, the momentum in their prices has been relentless.

Growth strategies are popular among traders and investors who are looking for quick price moves - but they can also be fearsome. Unlike value strategies, which rely on a gradual correction of market mispricing, growth strategies can be much more sensitive to market sentiment. So they need careful handling.

Some of the masters of this kind of investing are the likes of Mark Minervini and William O'Neil. Both of these Armerican trading gurus have made careers out of buying stocks where earnings momentum and price momentum are both rising fast 

O'Neil's 1994 book How to Make Money in Stocks is an investment classic that followed years of research into the background of some of the best performing shares of all time. Its appeal lies in the excitement of finding companies that are seeing their profits increase but are yet to see their share prices reflect it.

The popularity of this approach meant that O'Neil, a stockbroker by trade, could build a mini empire for what he called the 'CAN SLIM' strategy, which is driven by his online news and research portal, Investor’s Business Daily.

CAN SLIM represents the seven factors that O'Neil looks for in a stock. His strategy blends conventional 'growth' measures such as Current and Annual earnings growth and New product innovation with ‘technical’ indicators like the Supply and demand for shares, whether it's the Leader in its specific sector, whether it has Institutional support allied with overall bullish Market strength.

Importantly, O'Neil tends to disregard valuation measures like price-to-earnings ratios when it comes to analysing shares. His studies of the market found that it was actually those companies that looked very expensive based on these measures that went on to be some of the greatest winners. 

For that reason, the strategy also carries a potentially high degree of risk, which is why he also insists on setting strict eight percent stop-losses on entry points, which limits the financial damage that can be done if the price does fall.

A pre-costs strategy based loosely on CAN SLIM rules tracked by Stockopedia has easily beaten the FTSE All Share over the past three years. But it's important to note that when market sentiment comes under pressure - as it did last October - growth strategies like this can fall sharply. 

Source: Stockoepdia  Past performance is not a guide to future performance

Here are some of the stocks that currently share the characteristics of what O'Neil looks for in his CAN SLIM strategy:

Name Mkt Cap £m EPS Gwth % Q on Q EPS Gwth % EPS Gwth % Forecast 1y 1 Year Relative Strength % vs. 52w High
Churchill China (LSE:CHH) 175.2 92.2 27.6 6.03 55.3 -4.5
Kainos (LSE:KNOS) 750.5 42.2 44.1 24.5 54.4 -9.4
Judges Scientific (LSE:JDG) 221.4 58.2 76 22.7 52.9 -2.5
4imprint (LSE:FOUR) 741.5 84 22.4 15.4 47.5 -9
Elektron Technology (LSE:EKT) 94.9 147 106.5 41.8 32 -3.8
EKF Diagnostics (LSE:EKF) 163.5 374 195.3 40.4 22.9 -9.3
Liontrust Asset Management (LSE:LIO) 399.7 68.1 27.5 56.2 21.3 -2.5
Team17 (LSE:TM17) 350.3 691.2 136.1 26.9 19.2 -8.1
RELX (LSE:REL) 38,240 17.3 16 20.2 18.3 -0.9
Kingspan (LSE:KGP) 7,521 27.9 14.7 16.1 15.9 -6

Source: Stockoepdia

One of the interesting features of this strategy is that it finds stocks from all areas of the market. Just in terms of size, this list ranges from the mega-cap information and analytics group RELX (LSE:REL) to the small-cap operations management business Elektron Technology (LSE:EKT). All of them are trading close to their 52-week high prices, which means that these are some of the fastest moving stocks in the market.

Leading the list is the ceramics group Churchill China (LSE:CHH), which recently raised its full-year earnings expectations - which is a classic hallmark of this strategy. Other fast moving and fast growing stocks include the digital services group Kainos Group (LSE:KNOS), scientific instruments business, Judges Scientific (LSE:JDG), and promotional products specialist, 4imprint (LSE:FOUR).

In summary, O'Neil's focus on a blend of earnings growth and price strength has played well in the bullish market conditions of recent years. But it's still a strategy that calls on investors to keep a close watch over the companies it picks up. Sudden changes in sentiment can see these kinds of shares fall sharply. But as a guide, this kind of approach can be a useful pointer to stocks that are growing fast and starting to capture the imagination of the market.

About Stockopedia

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These investment articles are simply for generating ideas. If you are thinking of investing they should only ever be a starting point for your own in-depth research.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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