Hewlett Packard, BP PLC, Zijin Mining, Fraser & Neave, Ho Bee Investments, IG Group, Rolls Royce, Citigroup... The list goes on. Every day, I receive a list of stocks that could potentially break up, from a computer program that I wrote. Out of a list of say 10 stocks, 2 to 3 eventually went on to achieve 300% return in several months. I bought Data Dimenions, a South African system integrator with a listed subsidiary called Datacraft that was taken private. Data Dimension was recently taken private at a 30% premium to the last traded price. Nice profit. But I've had many misses to. Take local education centre Informatics. It was trading at 6 cts for several months. My program signalled a buy 2 days before it broke up to 18.5 cts. I cannot possibly buy every stock that is signalled a buy because I would end up with a thousand stocks in my portfolio!
If I filter my program a little stricter, another type of error occurs where all the stocks that are 10x baggers are filtered out. I have to find the "right" filter to administer so as not to omit the important stocks.
That's just for technicals. What about fundamentals? What makes a stock more attractive than another? Is it the potential for M&A? If a stock trades too cheap, its own management may try to take it private or another company may find it attractive to take over. This will cause the stock price to rise to its "fair value". What about its earnings? It matters if you own more than 50% of the company because you will then control the cashflow. But if you're minority shareholder, you will never get a cent of the earnings. It's therefore the dividend that you should be interested in.
There is also a liquidation value of a company. During the last crisis, many stocks with perfectly good fundamentals traded below its liquidation value. That should be a very good indication of value too.
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