Synta Pharmaceuticals Corp. (SNTA): Under $6 Pharma Stock Gearing Up for a Potential 67% Breakout

Stock picking is both an art and a science. I first started investing in the pre-PC era when information was difficult for the average market player to access. Investors needed to rely on corporate reports individually mailed via snail mail, newspapers and thick books of market data sometimes available at libraries.

I’ll never forget painstakingly plotting out a price chart on special graph paper with a pencil and ruler. If you wanted a daily chart for a month, you needed to go back to a newspaper or data book to obtain the daily numbers and place each one by hand on the chart. It was a brutally slow method of analysis. Investors were starved for information.

Today, the opposite is true. Since the advent of the Internet, investors have been overwhelmed with charts, news, information and data. Stock picking today involves eliminating useless information and drilling down into the important metrics.

The question is, just what are the most important metrics when it comes to finding profitable investments?

Every day, I like to run screens to locate stocks poised to potentially make a profitable move. The metrics I search for are both fundamental and technically based. I consider this part of the stock picking process the science since it deals with hard data.

The art comes next when it’s time to predict how a stock will perform provided the current economic environment. Remember, all the metrics can be wildly bullish on an individual stock, but environmental factors can quickly squelch upside potential.

Before I get to today’s pick, here are the three top factors I screen for to narrow down the stock universe to just a few names:

1. 50-Day and 200-Day Simple Moving Averages

I screen for stocks pressing up against their 50-day or 200-day simple moving averages (SMAs). A breakout above these averages will attract investors as technical trade programs are often keyed to a breakout (or breakdown) of these levels.

2. Insider/Institutional Buying

I only consider stocks that insiders and/or institutions are purchasing. If I notice more selling than buying, I avoid that stock. The theory behind this is that smart money at institutions and insiders at the company have more information than the average investor. If they are buying, it could signal a potential move upward on information/research not yet in the public domain.

3. Positive News

Positive news can be any news story that has the potential to lift the stock price. I view good news as a catalyst that will entice other investors to purchase shares, thereby sending the price higher. The opposite is also true when it comes to shorting a stock.