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Investor sticks to six-point system to pick stocks

Eric Fauteux, 46


Contract officer at Defense Construction Canada

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All-stock portfolio consisting of short-term investments intended to be held under six months and long-term investments such as Canadian Satellite Radio Holdings Inc. , Mitel Networks Corp. , Alico Inc. , Axia NetMedia Corp. and Student Transportation Inc.

The investor

When he began investing, Eric Fauteux followed his mom's advice and put his savings into guaranteed investment certificates. About 16 years ago, he switched to stocks.

He has now developed his own six-step method for selecting stocks. He says his annual returns have been 24 per cent over the past two years.

How he invests

To find stocks to buy, Mr. Fauteux screens according the following criteria:

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1. A positive earnings surprise of 15 per cent or more

2. A stock price close to a two- to five-year low

3. Moving average convergence divergence (MACD) indicator "going in a positive direction," meaning the stock price is gaining momentum as signalled by the short-term moving average trending above the long-term moving average

4. Progressively increasing earnings projections for upcoming years

5. Progressively increasing sales expectations for upcoming years

6. Buying by insiders on the open market within the past six months

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Mr. Fauteux also takes note of any spikes in trading volumes that don't move the price much. "This means someone richer than me has spotted the company and is loading up on the stock."

Lastly, he believes in cutting his losses. "If the stock price trend falls through its psychological floor and reaches lower lows," he'll sell.

Best move

Buying Jones Soda Co. stock at seasonal lows in the winter and selling at the summer highs for several years until 2002, doubling his money or better each time.

Worse move

Buying medical-device company MedMira Inc. at $1 "when it commercialized its AIDS test around 2003." It now trades at less than 5 cents a share.


"Any small, yet unprofitable, company that has progressively increasing sales for 20 or more consecutive quarters is worth owning for several years. It will eventually produce positive earnings and, in due course, reward you nicely." This is what happened to Jones Soda from 2002 to 2007 and Mr. Fauteux is expecting similar results for his longer-term positions in companies such as Canadian Satellite Radio Holdings.

Special to The Globe and Mail

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