I once edited a book for an amateur investor who claimed to have made millions in the markets by buying certain kinds of stocks. He called them “super stocks” but I use the more descriptive term “flatliners” to describe stocks whose prices have bounced along at a low point for a long time (and sometimes not so long) before making big moves upwards.
One of the examples he gave was that of Apple, the share price of which had stayed relatively flat for a good number of years – maybe even decades – before going stellar after the turn of the century to become the world’s most valuable company. Look at a long-term stock chart and you’ll see what this looks like, but bear in mind that the apparently flat historic share price could actually have looked quite bumpy at the time.
This author’s ideas intrigued me. I tried them for myself with some success, and the idea of finding such flatlined stocks that are about to break out of their previous price ranges is a cornerstone of my investment strategy to this day.
A recent example of a company whose share price had flatlined for at least a few months, between April and October this year, is retirement homes builder McCarthy & Stone. I’ve previously written about what happened next when the price enjoyed a breakout from its consolidation price range when takeover talk came from US private equity group Lone Star.
Another stock with which I had similar success over a similar timescale was estate agent Countrywide. After this year’s stock market crash caused by the coronavirus pandemic panic, Countrywide’s share price flatlined at a price consolidation level of around 60p per share. Not only did this share price subsequently break out to a higher level, but – after falling back a bit – it then went on to rise steadily higher. I’m still holding on for the rest of the ride.
So, do I have my eye on any flatlined stocks that could yet break out of a current price consolidation? Yes, and one of them – which you might have heard of – is Aston Martin. Although the Aston Martin share price has risen a lot since May, it still looks pretty flat to me on the long-term price charts. That’s why I haven’t only got my eye on it, but some of my money on it too, in my diversified portfolio.
Am I making any predictions about what will happen to Aston Martin? No, of course not. But I know that if this stock does go stellar, I’ll be in it to win it, just like I was with McCarthy & Stone.
The post Why I seek flatlining stocks like Aston Martin that could break out of price consolidation appeared first on The Motley Fool UK.
Tony Loton has shares in McCarthy & Stone, Countrywide, and Aston Martin. The Motley Fool UK has no position in any stock mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020