Research. That’s what you want. Good, solid unbiased research. Here’s what I look for before moving in and adding a company to the Confident Trader portfolio:

Choose Industry Leaders

Is the company an industry leader? You’re more likely to find industry leaders in niche or vertical markets when examining companies with total capitalization of less than $400 million. No problem, as long as the company is the leader or the next leader within that niche.

Look for Financial Strength $$$$$

Does the company have financial strength? I look for a couple of things, here. How much cash does the company have on hand? What’s the business’ burn rate? What contracts are in place? What products are about to come to market? You’ll find this information in a company prospectus or right here at Confident Trader.

Share Price Valuations

Low P/E and P/B indicate companies that are reasonably valued by the market. 

Does the Company Have a Sustainable Cash Flow?

Determining this requires a careful look at the company balance sheet. If it’s all outgo with little or no income, I choose a company that’s more reliable.

A small cap that trades 5K shares daily isn’t on the radar screens of stock analysts. Look for companies that are followed by professional traders and brokerages. You’re much more likely to see moves (up or down) on micro-cap and small-cap companies that “have a following.” This insures the stock and the company are mentioned, reported on and hopefully hyped by industry analysts, boosting daily volume.

Look for companies that are small but heavily traded. These are the movers and shakers of tomorrow.

http://www.mesirowfinancial.com/equitymanagement/microcapvalue/default.jsp