Investors believe they have to select many high performing stocks to generate a good return – this is not the case, as Wealth Within chief analyst Dale Gillham and senior investment analyst Janine Cox outline in this article.
In a portfolio of say just 10 shares, one high performing stock prediction has the power to improve your probability of achieving good growth in your portfolio in the coming year.
Remember, 2022 is drawing ever closer and your window of opportunity to find these high performing stocks is shrinking: now is the time to prepare to make some important decisions.
Having the ability to predict where a stock will be trading in three, six, nine and let alone 12 months is a skill made easier when you have the ability to read a stock chart.
Surprisingly, traders find selecting just one stock to outperform is actually more challenging than selecting a dozen.
It’s all in the research. If you do your research right, you can narrow down the field of so many companies to just a handful that are more likely to outperform.
This is when stock predictions become really exciting. Just imagine you invested in not one but five of the top-performing growth stocks in 2022 and also imagine how they will grow your wealth faster, allowing you to get to your goals sooner.
What makes a good growth stock?
Before you start looking for these companies, the first thing to consider is what makes a good growth stock?
The simple answer is one that trends well in price over the medium- to longer-term as this increases the probability of the stock trending well in future.
A second important consideration is ideally to look for a company with a good earnings growth forecast for coming years.
The market will continue to favour those companies that have forecast higher earnings and can demonstrate the potential for growth, or those companies that are likely to surprise on the upside of earnings forecasts.
Right now, the misconception in the market is that you need to choose risky stocks with lower liquidity to achieve high levels of growth, but this is simply not correct.
You are more likely to lose your capital if you take this approach. The best plan in 2022 is to make decisions to increase your probability of success, not your risk.
On the watchlist
A few stocks on the watch list with good liquidity include:
- GPT GROUP (ASX:GPT);
- Bank of Queensland Limited (ASX:BOQ); and
- Amcor CDI (NYSE:CDI) (Amcor Limited (ASX:AMC)).
GPT
GPT GROUP (ASX:GPT) is worth a mention. Many property stocks are still trading well below their pre-GFC highs, including GPT. The company has a balanced exposure to different areas within the property market.
While office space is a bit of concern: as businesses change the way they operate to live with COVID-19, a significant number of Australians are continuing to work from home.
GPT is suitably positioned with a diverse portfolio of investments.
Earnings growth forecasts appear strongly positive and this aligns with the projections on the price chart, suggesting a continued recovery is likely. GPT is well placed to provide high single-digit and possibly double-digit returns from capital growth and income.
BOQ
While outside of the Big Four Australian banks, Bank of Queensland appears to be in a long-term recovery.
BOQ formed a long-term low in April 2020 and the analysis indicates the bank is now in the early stages of a long-term bullish uptrend. And it is a stock that trends beautifully, which makes it great for trading.
While the share price has been hit hard recently, the fall fits with the previous predictions about how the price chart of BOQ would unfold. Fundamentals are good but not outstanding, however, a strong property market and a rise across the broader Financials sector by year’s end is supportive for growth.
In 2022, BOQ has the potential to trade above the recent high of $9.83 in October 2021, which equates to an upside potential of around 30%.
AMC
Amcor CDI (Amcor Limited (ASX:AMC)) has been trading sideways since May 2016.
Growth opportunities exist in packaging and manufacturing as economies emerge from COVID-19 restrictions.
AMC has a solid growth forecast for coming years and the technical analysis on AMC’s price chart indicates the potential to break out of a long term sideways move to achieve double-digit growth in 2022.
Remember that high performing stocks may have higher than average Price to Earnings (PE) ratios which should not be feared as many will demonstrate a history of solid earnings growth.
The company’s price chart will typically demonstrate a history of trending price action.
The bottom line
So, bringing all of this together, predictions are only useful if you can put your decision about what stock to buy or sell together with solid rules for timing of the entry and exit.
Good rules trigger when the big money is driving the price, so be patient and time your entry well.
- Written by Wealth Within chief analyst Dale Gillham and senior investment analyst Janine Cox.