RARE BIRDS

We have received some feedback lately alleging that VectorVest has become a bunch of day traders and we've drifted away from our roots. I'm sorry if we have given that impression, but we still believe in buying safe, undervalued stocks, rising in price.

The essay I wrote on October 24, 2008 called "Blue Chip Bargains" and the wonderful strategy that accompanied the essay reflects the essence of what VectorVest is all about. I don't know how many subscribers have used it, but we have highlighted the strategy in several VV University presentations. We also had a series of presentations under the heading of "Taming the Tiger." These presentations were designed to illustrate how to mitigate risk and make money in a highly volatile, uncertain market. Maybe they were too complex. So let's take a look at a stock picking system that's much more direct.

Let's take a look at good, old American Italian Pasta, AIPC. There it was last night, right at the top of the Stock Viewer screen. I've owned this stock for several months now and it has treated me well. AIPC first appeared among the highest ranked VST stocks on September 4, 2008 and I was shocked. What was AIPC doing up there with the big boys?

I recalled that this stock was a high flyer several years ago, but got slaughtered as its earnings turned south. As of September 4, 2008, VectorVest's Standard Graph showed that AIPC's Price had hit a recent bottom six months earlier and started to go up by leaps and bounds with repetitive high volume explosions. On June 19, 2008, its Price hit a 52-week high at $11.28 per share. And soared again after that! This is exactly what I like to see.

The reason for this performance was revealed by adding EPS, forecasted earnings per share to the graph. EPS had exploded from minus 30 cents a share to plus 54 cents per share on July 8, 2008. EPS stood at $1.61 per share on September 4, 2008, the day I first noticed the stock. AIPC has appeared regularly among the top ranked VST stocks ever since. On December 11, 2008, AIPC with a Price of $22.60 a share had the highest VST of any stock in the database. Last night it stood at $31.88 per share. So how can we find more stocks like this?

The surest way is to simply look at the graphs. I normally look at all the stocks, 32 on my computer, appearing on the opening Stock Viewer screen. It doesn't take very long if you know what to look for. Just to make sure I'm not missing some up and comers, I sort Stock Viewer by RT*CI and look at those stocks too. (AIPC also happened to have the highest RT*CI rating last night). Here's what I look for on the Standard Graph:

In addition to rising EPS, I want to see a smooth, rising price pattern. I can't handle stocks whose prices go up and down erratically. CI does a pretty good job of screening-out these stocks, but I like to look at the graphs anyway. Next, I like to see graphs of stocks with accelerating Price movements. AIPC is a good example of this. If Price momentum has slackened, RT has peaked or is moving lower, I'll skip that stock. I also like to see both the CI and the 40-day moving average steadily moving higher. Thirdly, I want to see new Price highs on high volume. This tells me there are some serious buyers out there. If a stock meets all these conditions, I think it's worth a bet.

In this market, don't have more than half of your capital invested at any time. Based on what I wrote last week, I wouldn't put more than four or five percent of your money into any single stock. And don't be in a hurry to ramp up your buying. Good stocks come along all the time. Even so, a stock that goes up when the market goes down is A Rare Bird.