How You Can Spot the Next Hot Stock

It’s very exciting to discover and follow a small company that’s achieving great business success. Small- and micro-cap companies are where true entrepreneurialism shines.

One company that I like to mention a lot in this column, LJ International (NASDAQ/JADE) is getting a lot of favorable press these days. Sure, the stock pulled back along with all the China stocks, but in my view, this stock will still show a lot of upside potential over the next year or two.

BusinessWeek Online recently did an article about jewelry stocks and mentioned LJ International as being a little-known maker of fine jewels. The author of the article, Gene Marcial, quoted a research analyst from the investment firm Maxim Group, who rated the stock a buy with a $12 per share target price.

Of course, LJ International already hit over $12 per share, but it’s nice to see more and more research and media coverage being directed toward the company.

This is really the key to successful stock selection. You want to find and own a great company before it gets mentioned in articles in publications such as BusinessWeek Online. This is very difficult to do, but with some diligence, you can find these kinds of stocks in the marketplace.

Everybody I talk to about the stock market always wants to know what the latest hot stock is. No one ever wants to know about a great company — they just want to know what the hottest small-cap stock is right now. I suppose that this is just human nature.

In my view, China stocks still represent the hottest sector of the domestic equity market at this time. Unfortunately, there’s only a handful of great China companies out there that are doing well on the stock market.

You can expect a lot more Chinese companies to list on American stock exchanges over the next several years. The good news is that this gives you a tremendous opportunity to speculate on China’s growing economy. However, we can’t get excited about all of the stocks out there. Most China stocks currently listed on U.S. stock exchanges aren’t worthy of speculation. The future is bright for individual investors in this market sector, but you’ll have to be highly selective with these new listings.