The Best Stocks To Buy (And Sell) For Mega-Profits In 2017

Now, I'd like to welcome you to Money Morning, where each week, we'll track the latest developments among the six "Unstoppable Trends" that have produced mega-profits.

We'll dig into the little stocks with the most to gain, show you the tactics to squeeze the most profit out of each trade, and establish effective risk-slashing tools to make sure your money is protected.

I am absolutely thrilled you're on board, because you've just ensured that you've got a huge advantage over millions of other investors who are trying to go it alone.

It all comes down to three simple yet profit-packed maxims…

First, buy cheap.

Most investors chase performance, which is why you can open up just about any mainstream investment rag, magazine, or Internet site and see countless stories about "top performers," the "best-ranked ETFs and mutual funds," or even the "best-performing asset classes."

What most investors fail to realize is that chasing performance is a lot like trying to drive a car by looking in the rear-view mirror, and about as effective. Eventually you'll drive into a proverbial ditch… or worse.

What you want to do instead is identify stocks that have yet to catch the public's attention using objective criteria like we do here. This means buying in long before share prices peak, which guarantees the most upside and the greatest profit opportunity.

Consider iRobot Corp. (Nasdaq: IRBT).

Many people might look at IRBT simply as the company responsible for the Roomba – the automated robot vacuum that scoots around and distracts your pets while cleaning your floors. But iRobot is about more than just novelty cleaning products. Rather, they're tapped into something much larger.

According to NPD Group Market Research and iRobot data, the global vacuum cleaner market is a $6 billion opportunity with a compound annual growth rate of 4% to 5% a year. However, the global robotic vacuum cleaner market is growing at a compound rate that's 5X larger, or 20% a year.

The U.S. robotic vacuum market alone is just a notch under $1 billion. Japan represents another $450 million in potential. China's sales grew more than 70% last year, and the total market there may be nearly $2 billion within the next five years, according to Parthenon Analytics.

That's potentially 2X the United States and Japan combined.

Factor in lawn care, wet floor, and dry floor cleaning robots, and you're talking about a global category that's already $13 billion, according to Euromonitor, Mintel, and HBU estimates.

But I don't want you to get stuck on the vacuums alone. Those are just what iRobot produces today.

Try to get past that, because it's tomorrow that matters, and early adopters are key. They're the ones who drive consumer awareness, just like early Apple fanatics who turned Apple from a small startup to a worldwide phenomenon.

To almost everyone, the Roomba is still "just a vacuum cleaner."

That's your opening because markets don't yet reflect the profit potential associated with the next generation smart home hub that iRobot engineers are counting on.

At a Glance:

iRobot Corp. 

Price: $62.74

Market Cap: $1.7 Billion

The company presented at TechCrunch Beijing in late 2016, where CEO Colin Angle announced that the company is well-poised to expand further into the connected home market – an industry forecast to grow at a CAGR of 67% over the next several years.

IRobot's latest product, the Roomba 980, offers two key technologies that are the perfect entry to much more profitable products down the line.

The first is the robot itself. The Roomba 980 uses a technology called vSLAM navigation to power a "spatial context engine." Basically, it allows the vacuum to process any house map it builds as it cleans while also providing actionable analytics.

This means the Roomba can build a real-time database of your house and everybody who lives there, never get lost, and feed that information to a next-generation home "hub."

This, in turn, means the Roomba can potentially help you turn off lights accidentally left on, control temperature, close windows before turning on the AC, act as a security system, or even direct audio/video to occupied rooms.

IRobot's balance sheet is truly fortress-like with some $173.3 million in cash and no long-term debt as of the company's most recent financials. This gives management plenty of flexibility when it comes to critical, ongoing research and development, future acquisitions, and an ongoing $100 million stock buyback.

I think the stock will double within the next five years or less, which gives new meaning to the phrase "cleaning up," doesn't it?

Second, remove emotion

The list of things that could derail markets this year is long and hardly distinguished. There's Russian strongman Vladimir Putin's aspirations to contend with. China's moves in the Far East. Another EU crisis brewing… the Fed and its rate hikes… ISIS…

For most people this is scary as hell because they don't understand that chaos creates opportunity. In fact, it's scary enough that many investors have fled the markets entirely.

Unfortunately for them, the latest Dalbar data shows that emotionally driven decisions cost investors a staggering 233% in lost performance over the last 20 years. That's like throwing away $23,300 for every $10,000 you invest.

Instead, at the center of this chaos is where we make our move, and that's why I've got my eye on Raytheon Co. (NYSE: RTN).

The $43.4 billion defense contractor based in Waltham, Mass., Raytheon provides government markets around the world with state-of-the-art electronics, mission systems integration, and other weapons capabilities.

It's shown a remarkable ability to innovate and change with the times. Believe it or not, the company's original focus was on refrigeration technology. Not many people know that its first product was a revolutionary little vacuum tube that allowed radios and other small appliances to plug directly into an electricity grid, eliminating the need to use expensive, short-lived batteries in everything.

Then the company distinguished itself with the discovery of microwave cooking in 1945 and the rest, as they say, is history.

Raytheon quickly built upon that early success and soon moved into radar systems, missiles, satellites, aircraft, and even spacecraft – markets it still dominates today.

At a Glance:

Raytheon Co. 

Price: $151.40

Market Cap: $44.4 Billion

Most people look at that progression and think the company simply moved from product to product, but that's not true. In fact, the company continually reinvented itself by leveraging increasingly specialized knowledge.

To that end, the former fridge-maker capped a busy 2016 by securing more than $1 billion worth of contracts in the final week of December, including a $600 million contract to upgrade the Patriot missile defense system of an "undisclosed member of the 13 nations" that possesses the technology.

And now, Raytheon's setting its sights on another growth industry: cybersecurity.

Just last autumn, for example, the company launched an NSA-certified, next-generation Ethernet encryption system to protect network communications handling sensitive information, including and up to Top Secret/SC1 status. That's an important move because it gives Raytheon the ability to sell the very same KG-350 Ethernet encryption system to commercial, government, and military customers immediately – and to simultaneously bring hundreds of millions to the bottom line that are not yet priced in.

Last summer, the Department of Homeland Security reaffirmed Raytheon's $1 billion contract to safeguard dozens of federal agencies' data from cybercrime and keep many of its older legacy computer systems running. That's good for profit margins, too.

The "Unstoppable Trend" of War, Terrorism, & Ugliness is, unfortunately, a growth industry. Whether it's cyber espionage, dictators with spigots, or rogue bands of terrorists, companies like Raytheon will always be able to rise to the challenge. They make the world safer – and investors richer, to boot.

Ultimately, companies like this are why we follow Unstoppable Trends – because they're backed by trillions of dollars Washington can't derail, the Fed can't muss up, and Wall Street can't hijack.

Which brings me to my next – and arguably most important – point…

Third, know when to sell

Early in 2017, Sears Holding Corp. (Nasdaq: SHLD) announced a $900 million deal to sell its Craftsman brand to rival tool maker, Stanley Black & Decker.

Many investors saw this move as a sign to pony up and wait for a rebound.

I can't think of a bigger mistake. Sears is one of the most dangerous stocks on Wall Street, and if you own it, it's only a matter of time until you get hosed… if you haven't been already.

I know that brands like Sears are iconic, but that's just not enough these days. The company is hemorrhaging red ink, and you as an investor need to know when to let go of companies like this one.

Sales are in decline and have been for years. Things are so bad that Sears lost $1.6 billion during the first three quarters of 2016, which is triple the losses of a year earlier, in 2015. Gross margins have fallen another 2.5%, even as operating expenses continue to rise. Comparable sales are plummeting.

The company has closed more than 2,500 stores over the past six years and recently announced plans to shutter another 150 Kmart and Sears stores. As of November 2016, Sears had 550 stores with leases expiring within the next few years, according to CFO Jason Hollar in a Fortune interview. Every one of them is on the chopping block.

Even more concerning, Sears is dogged by persistent bankruptcy rumors based on – among other things – a staggering $4.46 billion debt load.

The once-iconic American retailer badly misjudged the shift to online shopping and away from traditional retailing. Executives and investors alike continued to believe that Sears was something special when, in fact, consumers gave up that notion years ago and viewed it as just another place to shop… and not a very good one at that.

Sears is still coming unglued along with the overall retail sector, which, except under very specific circumstances, is dying.

The critical lesson is that there comes a point at which you've got to stop viewing Sears – or any stock like it – for what it's been and view your money for what it could be.

That sounds obvious, but you'd be surprised how many investors can't sort out the difference. I know. There was a time when I couldn't, either.

In the 1980s I owned stock in a small educational software provider named Worlds of Wonder that I was convinced would change the world. Only the world didn't think so. I didn't quite ride the company into the ground like a lot of people are doing with Sears today, but I did take a 50% buzz cut before I came to my senses. Then, I learned from the experience. It wasn't easy. Deciding to take a loss never is, even though sometimes that's exactly what's needed.

What matters now is that Sears (and, arguably, traditional retail as a whole) is done, and even at $9.00 a share, the company's not a bargain, let alone "on sale."

If you've held on all the way down, that's another story. At the risk of sounding like my grandmother, let this be a lesson in why you shouldn't let emotional attachments get in the way of your profits.

This comes down to something I call the Ultimate Trailing Stop, another essential tenet we'll be discussing in upcoming days, which falls under the umbrella of risk management.

I know, I know. Mention the words "risk management" and most investors get a look on their face that's a mixture between bored and terrified. But the most direct path to building a fortune is not losing your money in the first place.

All you really need is a handful of tools – which I'm going to walk you through one by one in the coming weeks – and the discipline to enforce them.

Keith tracks to bring his readers some of the best investment recommendations on the markets today. These trends have been making fortunes for centuries, and they'll likely continue to do so ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.