1) With a good stock search engine, find the companies that have been beaten for the last year without any bankruptcy filing or major lawsuits.
2) Find within all of those companies the one that have year over year revenues increase
3) Find now the one that have a book value close to the share price (or more)
4) Make sure there is enough daily volume to create liquidity whenever you want to sell
5) Find the one that have been very stable (stock price without too much recents changes)
6) When the volume starts picking up you just got your STAR
One great example could be this one Toyota. With all the recalls they had recently and the coming lawsuits no doubts that company will be battered. As of today (Feb 15th 2010) their value has dropped by more than 25 Billions Dollars (before market value was over 92$ with 1,72B shares and now is about 75$. Do you honestly think that those recall are worth 25 Billions $ ??? Then guess what, they may even drop further. So i would wait till the storm is over and buy them at about 60$ on the rise. That is a perfect example of a coming STAR. (on august 31st it went intra day to 66$ and was a good opportunity)
ALWAYS do your research on EVERY company you buy (due diligence) and NEVER NEVER invest more money than the one you can afford to loose.
