Trolling for Money-Making Stocks

 | Sep 06, 2013 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

tsla

,

gtat

,

mei

,

ubnt

An element of being a good money manager is knowing the "tricks of the trade". There are certain thought processes that are time-tested ways to finding money-making ideas. No approach guarantees positive returns, of course; the idea is to go "where the fish are biting". Getting in the vicinity of good ideas creates far better opportunities to put a real winner on your hook.

One trick is to look for relative strength. Stocks that are going up tend to continue up, but even more importantly, stocks going up when the market is going down can be especially fruitful investments. These trend "non-followers" typically have a unique situation that is driving either substantial growth or value realization. While every stock that went up during the correction may not continue to be a winner, it is worth looking at why they went up and which moves may be sustainable.

The table below lists all the exchange-traded stocks above $500 million market cap that gained over 20% during the August correction. During this same period, the S&P 500 declined 4.48%. You should be asking: "What is up with these names?"A few names are "old familiars" like Tesla (TSLA), which blew away numbers as it achieved profitability long before expected. Although the tech sector is generally in a funk, this group had the highest representation of "hot" names. Some are tied to the revival of the solar panel industry, such as GT Advanced Technologies (GTAT). Some like Ubiquiti (UBNT) simply blew away numbers -- its gain came early in the month, when a huge beat sent the stock up 28% overnight. No need to chase sexiness however, as old school standby Methode (MEI) also posted strong gains.

Healthcare was also well-represented, although these names are much tougher to call. Many saw one time events such as drug approvals or solid results from clinical trials. Almost by definition, investors own them because they are uncorrelated and offer big upside if you are "right". However, what you never see are all the ones that decline because of failed trials, for example.

This list is your map to the fishing hole, take a deeper look at homework time and see which of these names are "biting".

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