Tuesday, April 1st, 2008
Recovery growth worth exploring in tough market
With markets falling sharply, one thing I’ve been exploring are recovery growth trades.
Traditional aggressive growth trading usually means buying stocks hitting new highs.
The problem is that every hedge fund and momentum shop in the world does that. So it’s always good to be looking for alternatives.
You buy recovery growth stocks when they are trading 30 per cent or more off their highs (usually all-time or 52-week highs).
Richard Driehaus has a small-cap recovery fund that has performed exceptionally well. (Note that his small cap recovery fund has significantly outperformed the mid-cap one. I suspect that’s, in part, because there are more inefficiencies at the smaller end of the market).
I’ve been trawling through Driehaus’s recovery trades and here are a few things I’ve learnt:
* He buys recovery growth stocks when they’re bouncing off their 50-week moving average
* He buys recovery growth stocks after they have fallen sharply then formed a base — or sideways trading pattern — for at least six months
* Some recovery growth stocks have had a few years of price underperformance — forming a long shallow base — and are now starting to rise
* The companies usually have posted a poor quarterly earnings report where growth has slowed or they’ve made a loss. But recent profits are surging back and forecast growth is also strong
Word Count: 212. This entry was posted on Tuesday, April 1st, 2008 at 5:49 am and is filed under Recovery Growth, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
