What's the key behind successful investing? Finding and investing in those stocks benefiting from catalysts -- triggers that propel share prices higher.

Today's report will uncover the ins and outs of my proprietary StreetAuthority Catalyst Rating system, and show you exactly how catalysts led to gains of more than +800%... helped our portfolio quadruple the S&P... and reveal the latest stocks to be impacted by catalysts.


W

aitsfield, Vermont hardly looks like the sort of place where you'd find one of the stock market's greatest growth stories. The sleepy town in central Vermont is home to less than 2,000 people and doesn't even have a stoplight.

But it's in this little town that Bob Stiller, a serial entrepreneur, started a company that would make him (and some savvy investors) a millionaire several times over.

In 1981, he bought a small coffee roaster in Waitsfield. From humble origins, the coffee roaster began to grow, selling its flavorful coffee beans to more and more customers on the wholesale level. Twelve years later, the company went public, but the road to success was still rocky -- in 1993 and 1994 the company lost a combined $4.7 million, which was no small amount to a still tiny company.

In short, Bob Stiller's company, Green Mountain Coffee Roasters (Nasdaq: GMCR) hardly looked like a success story in the making. But that's because the company hadn't yet found its "catalyst."

That all changed in 2006...

That year, Green Mountain (which was at the time trading at a split-adjusted price of under $10 per share) bought the majority stake of a company named "Keurig." This business with a funny name specialized in making single-cup coffee brewers.

With Keurig's coffee makers, you simply put in a small package containing whatever flavor you would like and within seconds you have a fresh-brewed cup of coffee. With this ingenious system, coffee lovers could have whatever variation they wanted -- not to mention an assortment of hot chocolates and teas -- without the mess or hassle of brewing an entire pot.

The ingenious invention has since spread like wildfire. In just the few years since acquiring this tiny company, single-serve brewers have popped up everywhere... you might have one in your house right now. If not, you're sure to have seen them at gas stations, lobbies for doctor's offices, banks, even car dealerships.

And talk about a catalyst for Green Mountain's shares! 

After making the purchase of Keurig on May 3, 2006, Green Mountain shares soared +827% by 2010.  And what about the nasty bear market? Green Mountain hardly flinched -- in 2008 the stock fell a marginal -5% and gained +178% in 2009.

This stock performance was backed up by extraordinary growth in the company's business thanks to its catalyst. Taking a look back, revenues in the 2005 fiscal year came in at about $161 million, but in just four years, they exploded to $803 million... a five-fold increase.

Meanwhile, net income did even better, rising from $9 million in 2005 to $56 million four years later. That comes out to a +522% increase.

As you can see, catalysts can create massive opportunities... and tremendous profits.

What Do I Know About Catalysts Anyway?

My name is Nathan Slaughter, and I'm the editor of the StreetAuthority Market Advisor.

I've studied catalysts for some time now, and I'm convinced that using catalysts to plan your investment decisions is one of the smartest moves you can make. In fact, it's one of the reasons why my "Top Growth Picks" Portfolio is topping the broader market four-fold (more on this later).

As you can tell from the example above, the secret to making money in stocks isn't just finding a great company. General Electric (NYSE: GE) is a great company. It has its hands in a number of industries... it's the "bluest" of the blue chips... and it considered about as American as apple pie. Ditto for companies like Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE) and Intel (Nasdaq: INTC).

But I can't stress this enough: Great companies don't always make great investments.

Don't believe me? Just look at the numbers.

Total 5-Year Return: 2006-2010

Microsoft +16.9%
Intel -3.7%
Pfizer -3.8%
General Electric -36.5%

All great companies... all tepid (at best!) returns. This is what happens to stocks without strong catalysts.

Now, I've bandied about this term catalyst since the start of this course, but you might still be wondering just exactly what I mean.

If you remember your high school chemistry, catalysts are agents that speed reactions between substances. It works the same way in investing. A stock catalyst is something that creates a dramatic impact on a company's fortunes... and triggers a sudden rush into its stock.

When the right catalyst hits a stock, the Wall Street machine kicks into gear and investors flock to it in droves, furiously driving up the price. Catalyst-driven stocks are like coiled springs, itching to explode.

But too many investors fail to appreciate catalysts and let them power their portfolio to gains. I want to put an end to that.

After reading this course, I know you'll see that investing in stocks powered by catalysts isn't just a better way to invest. If you want to make money, it's darn near the only way to invest.

Meet Nathan

Nathan Slaughter has developed a long and successful track record over the years of finding profitable investments no matter where they hide.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print outlets such as Fool.com and Forbes.

Today, Nathan focuses on using his proprietary catalyst system to pinpoint winning stocks for his Market Advisor subscribers.

Nathan's educational background includes NASD Series 6, 7, 63, & 65 certifications, as well as a degree in finance/investment management.

The good news is that no matter your investment style -- whether you trade in and out of stocks or hold for the long term... invest for income or in value stocks... buy stocks for now or for retirement --  investing with the power of catalysts can help improve your returns.

But before you can profit from catalysts, you need to know where to find them. In our next section, I'll dive into the market's strongest catalysts and also include some specific ideas that could allow you to start profiting today.

Section One: Five Catalysts For Today's Market

I have some good news... investing with catalysts is not hard, and the profit potential is unmatched. Truth is, catalysts are being created every single day -- you just need to know where to look. That's why I want to teach you the most popular catalysts. By knowing what to look for,  you're taking your first step to profiting from one of the most powerful forces in investing.

To be honest, catalysts come in all shapes and sizes. But you can drive yourself crazy trying to identify each and every one. That's why I tend to focus on the "major" catalysts -- I've identified five categories that encompass the majority of catalysts driving stocks higher.

Catalyst One: A Surprise Takeover Announcement. Sun Microsystems was one of the high-flyers during the late 1990s tech boom. But by March of 2009, Sun's shares were languishing under $5 and rumors abounded that the one-time tech darling was looking for a suitor.

In late March, sources leaked news of late-stage negotiations between Sun and tech giant IBM (NYSE: IBM). While terms of the deal were unclear, it appeared IBM was looking to pick up Sun for around $9 per share. Investors who owned the stock in mid-March before the deal was announced made a better than +100% gain nearly overnight as news of the negotiations broke.

But the story didn't finish with IBM. A few weeks later, the IBM deal fell through as the company tried to lower its acquisition price and Sun's board balked at the lower offer. The word was that another buyer was waiting in the wings with a slightly sweeter payout for the company. Sure enough, in late April, software giant Oracle took advantage of the confusion to offer Sun $7.4 billion in an all-cash deal, a premium to IBM's bid.

The result: shareholders who bought Sun at the beginning of March -- just before IBM started bidding for the company --  enjoyed better than +100% gains in just about six weeks.

Strong gains are common for mergers, leveraged buyouts (LBOs), and takeovers, because mergers must be approved by the owners of a company -- the shareholders -- and those owners need to be tempted by an acquirer to sell their stake.

Ernst and Young state that the average takeover premium in the U.S. over the long run is around +24%. That means investors in the takeover target make an average profit of +24% by the time the deal closes, with much of that gain coming in the first few days after a takeover is announced.

This can be even more lucrative in the event that there are multiple parties interested in acquiring a particular firm, as evidenced by the Sun Microsystems deal. But to make a long story short, if you can identify stocks that are likely takeover candidates, then you stand to post big gains when a deal is ultimately announced.

How to Pinpoint Stocks Waiting for "Surprise" Takeovers
But I know what you're thinking... if a takeover announcement is a "surprise," how in the world can you get in before the announcement?

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Chicago, Illinois

Let's get one thing straight -- unless you're an insider in a company, there's no way to be sure that a takeover announcement is coming. But what you can do is put the odds in your favor. You see, there are a few clues that you can use that are usually strong signals that a takeover could happen.

These clues include: companies within an industry with strong deal-making activity, firms that are fundamentally strong, those with low debt levels and strong cash flows, and companies that hold valuable assets such as patents, land, or state-of-the-art factories.

Companies with these attributes make attractive takeover targets... which is one of the strongest -- and fastest-acting -- catalysts on the market.

 Catalyst Two: Improving Business Conditions. For years, Caterpillar's (NYSE: CAT) stock plodded along as slowly as the familiar yellow tractors it builds. But when the bull market in commodities kicked off in 2003, it was like CAT became a whole new business.

Caterpillar's lineup of machinery, including a $5 million dump truck -- a 22-foot tall and 48-foot long beast that can slog uphill with 400 tons on its back -- was essential to the mining and energy sectors. Soaring commodity prices during that time triggered a rush for its products like never before.

The improving business conditions proved to be a strong catalyst for Caterpillar... and proof that catalysts don't only impact tiny, growing companies. Instead, catalysts can create an incentive to invest in some of the market's oldest and most-storied businesses.

In the case of CAT, the improving business conditions thanks to the bull market in commodities such as coal, oil, and gold helped to power the company and its stock higher. But then the recession hit. Much of the gains were wiped out.

That is, until commodities returned to their bull market after the worst of the recession. You can see from the chart what happened then when the company once again had rising commodity prices acting as a tailwind.

There's no doubt that improving business conditions can be open to some wide interpretation. That's why you want to make sure that the improving conditions are based on factors directly benefiting the company -- not a general improvement in the overall economy.

With this in mind, I've identified one stock that could be a trajectory similar to Caterpillar's historic run. With the sharp recession and higher unemployment, shares of payroll processor and employment services company Paychex (Nasdaq: PAYX), might seem like an odd investment. But I think the company is sitting in the sweet spot for improving business conditions.

Rising employment is always one of the last signs of an economic recovery. But with the recession abating, the months and years ahead should see decreases in unemployment rates -- leading to boom times for companies tied to employment, such as Paychex.

Catalyst Three: A Killer New Product or Market. Apple (NYSE: AAPL) was a marginal computer company with a user base of students and designers devoted to its elegant products and easy-to-use software. But on October 23, 2001, Apple introduced a portable music player that could hold an enormous amounts of songs in a small package. Of course, we now know this device as the ubiquitous iPod.

Don't think that Apple invented the digital music player. Similar devices had already been around for a couple of years. But no other company was able to turn the music player into a "must-have"  product the way Apple did with the iPod's ease of use and attractive marketing.

This extreme catalyst, in which Apple practically created a market that it still dominates, has added tens of billions of dollars to the firm's market cap. About 300 million iPods have now been sold, and after the product hit store shelves, Apple shares shot from about $18 (split-adjusted) to over $100.

But Apple wasn't done there. It has been able to continue making killer new products that turn into big hits. This includes the iPhone and the iPad.

But I didn't need to tell you about Apple's story. Not only did you likely know it already, but you saw the impact of having a killer new product earlier in this course when I introduced you to Green Mountain Coffee Roasters.

To be sure, stocks with great new products or markets is one of the harder-to-find catalysts -- but when you do... look out above.

Gaining a new market is the strongest catalyst behind Skyworks Solutions (Nasdaq: SWKS). This company is a leading provider of semiconductors that facilitate mobile connectivity. Translation: It makes the chips that power mobile devices -- anything from smartphones to Apple's iPad.

Needless to say, business has been strong and the shares have responded accordingly. But with the adoption of smartphones still in full swing thanks to products like the iPhone, Skyworks looks like it's still early in its catalyst cycle. That's why I hold it in my Market Advisor portfolios.

Catalyst Four: Government Action. The government is by far the biggest player in our economy. Like a whale in a pond, it sends shock waves through the economy with its every move.

These waves create tsunamis of cash that inject billions of dollars into companies in the right place at the right time.

We see it again and again. Whenever Washington decides to help a new industry get off the ground, the investment profits follow in lockstep. This holds true whether it's the Internet, nanotechnology, wind power, electric cars or any other area.

Amgen's (Nasdaq: AMGN) epic stock gains would never have happened
if the government hadn't invested heavily in biotechnology in the 1980s.

It was a government scientist in fact, working in partnership with Amgen, who made the discovery that led to Amgen's first blockbuster drug.

Anyone who wanted to make a play on Amgen's government connections in the 1980s could have bought in at $7.75 a share. A thousand-share, $7,750 purchase would now be millions. That's what I call a life-changing stock.

When the government began its massive effort to modernize its computer systems in the mid-1990s, Oracle (Nasdaq: ORCL) and Dell (Nasaq: DELL) were the main suppliers. These lucrative contracts kick-started epic growth at both companies, as they branched out to consumers and businesses worldwide.

Investors who got on board Oracle back then brought home gains of +1,185% by the end of the decade. Dell saw their shares skyrocket +7,861% over the same time, turning $10,000 into a sweet $796,100.

A Major Force That's Getting Bigger
I'll be honest, government action wasn't even one of my main catalysts until a couple of years ago. But seeing the money that the government is pouring into the economy to battle the recession, I've quickly found it to be one of the most powerful catalysts I've ever seen.

"Having read hundreds of financial newsletters on an ongoing basis for over 23 years, I can tell you that StreetAuthority's services are among the very best in the business. I am continually amazed at the broad range of in-depth and consistently excellent research that you offer to your readers. Keep up the good work!"

-- Steve Halpern
Editor, Money Show Digest

Since the financial crisis began, the federal government has spent, lent or committed more than $14 trillion to bail the country out. And every time one of those public dollars is spent, a private-sector profit is realized. That means hundreds of billions in profits.

You simply have to identify the areas targeted for the highest government spending... find the companies in those sectors... single out the few most likely to profit... and buy their stocks.


  Catalyst Five: Shifts in the Global Economy. Who could have guessed five years ago that the strongest stock market in the world would be Mongolia -- up an astounding +1,318% in dollar terms from 2006 through 2010?  Or that Peru would be up +493%, Indonesia up +248%... China up +195%... all while our own S&P 500 trailed far behind, gaining just 12%? And keep in mind that a nasty global recession tempered some of those gains in foreign countries. 

It's clear that smart investors are taking their heads out of the sand and positioning their money to profit from the new global economic order. It's nothing against the U.S. In fact, even with the recent increase in government spending and a nasty recession, the United States is still considered the most stable market in the world.

It's just that after the U.S. has grown into one of the most developed markets in the world, the strongest growth is now coming from foreign markets. In fact, three-quarters of the world's GDP growth is now coming from outside the U.S.

And for good reason: More nations than ever are making the right moves for economic growth.

During the past couple decades, for example, the transition to a market-based economy has transformed Chile from an economic backwater to a role model for all of Latin America. The nation now has one of the highest GDPs per capita in the region.

2006-10 World Stock Market Returns
Mongolia: 1,318%
Peru: 493%
Indonesia: 248%
Sri Lanka: 217%
Tunisia: 198%
China: 195%
Brazil: 191%
Data: Bloomberg
*In dollar terms

 


But Chile isn't only country getting its economic ducks in a row. And add to many of these reforms the fact that economic growth is also leading to a rise in the middle class in many nations -- further boosting growth.

It shouldn't be a surprise that one of the strongest catalysts you can use to power your portfolio is this massive shift in the global economy. For instance, the iShares MSCI Brazil Index (NYSE: EWZ) saw gains of +172% from 2006 through 2010 -- powered completely by this catalyst.

I've taken full advantage of this in my Market Advisor model portfolios. One portfolio has half its holdings leveraged to international markets -- including funds tracking Indonesia, a Chinese advertising company, and the WisdomTree Emerging Markets Small Cap Fund (NYSE: DGS).

Now that you know the largest catalysts impacting securities in today's market, I hope you're excited to start putting them to work in your own portfolio. But we before you start, I have a few important tips for you to keep in mind before you begin investing. In the final section of this course, I'll share with you my five most valuable tips for catalyst investing.

Section Three: My Most Important Tips for Catalyst Investing

You've seen the gains a catalyst-based investing style can add to your portfolio. But the tips and advice I'm about to share with you could prove to be the most profitable.

I've been using catalysts to drive my investment decisions since I started as editor of the StreetAuthority Market Advisor, and based on the performance of my portfolios, I think it's safe to say the system works. But don't make the mistake of thinking you only need to find a stock benefiting from a catalyst and throw your money at it.

Instead, there are a few pitfalls to watch for -- and a few tricks I've learned -- that can help you successfully pick the right stocks that will benefit from catalysts.

Think of these as a gift from me to you to help you become a more accomplished catalyst investor.

1.
Wherever there is a change, new catalysts are being created and destroyed. Catalysts are nothing if not always in a state of flux. Products become outdated... competitors encroach on a company's territory... economies heat up and cool down...

In short, catalysts are always being created and destroyed. That's why it's important to invest in the businesses with the strongest catalysts -- the stronger the forces driving the stock higher, the less likely they are to be impacted by any changes or threats. For example, Apple's overpowering iPod catalyst continued pushing the stock for years, despite dozens of similar devices coming on to the market to compete.

2. A terrible thing happens when you don't have a strong catalyst -- nothing. There is a reason most great companies don't make great investments. If a company isn't benefiting from a catalyst, it's dead money -- no matter how great its operations, history, or status. That's why I typically avoid many of the market's largest and most well-known players, unless there is a strong and clear catalyst.

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Sebring, Ohio

Just look at the pathetic stock performance of the nation's "newspaper of record." For years, The New York Times (NYSE: NYT) generated strong, stable profits. Circulation was stable, and newspaper companies were considered cyclical plays whose fortunes rose and fell with the broader economy. Another day, another edition -- half ads, half copy. What could change?

The whole world changed, and fast. The digital revolution catalyst that ignited fires under firms like Google (Nasdaq: GOOG) and Yahoo! (Nasdaq: YHOO) caught newspapers off-guard. Their desperate moves to retool themselves into broader-based communication companies fell short: the TV and radio stations they bought also saw their ad revenues slip, while viewership and listening habits changed.

This string of negative catalysts painted an ugly portrait for Times investors. On August 19, 2004, the day Google went public -- a critical milestone in the advertising world -- The New York Times closed at $42.06 per share. The stock has since dropped as low as $4, falling more than -90%... while Google has soared.

3. Catalysts aren't just for growth stocks. During this course we've talked a lot about the gains you can see when a small stock, such as Green Mountain Coffee Roasters, is impacted by a catalyst, causing revenues, profits, and the share price to soar.

But don't think catalysts are reserved only for tiny growth companies...

Catalysts can and do impact every single asset class in one way or another, whether it's income securities, value plays, even real estate trusts and government Treasuries! That's why my model portfolios in my Market Advisor newsletter aren't simply focused on growth.

I do have a a growth-focused portfolio, but I complement that with one focused on income and one focused on value stocks. Catalyst impact every single security on the market -- focusing solely on growth stocks is a mistake.

4. All stocks have a catalyst to some degree... so it helps to rank them. Just as every asset class can be impacted by catalysts, catalysts are also impacting every security -- just to varying degrees.

Think of shares of Target (NYSE: TGT). If consumer spending is increasing, then the giant retailer might have the wind at its back, giving nice support of a rise in the shares. But is this really a game-changing catalyst?

Instead, think of a business like Silver-Wheaton (NYSE: SLW), which has a unique business model that buys future silver production in advance at discounted prices. With silver returning 83% in 2010, it helped rocket SLW shares +160%. It's plain to see that rocketing silver prices is a much stronger catalyst to Silver-Wheaton than a slight uptick in consumer spending is to Target.

That's why I always rank the catalysts impacting my potential investments in Market Advisor. This way, I have a simple way of showing readers just how strong the catalyst impacting the shares is. As a treat, I've included my ranking system below to give you an idea of how you can rank the stocks within your own portfolio.

StreetAuthority Catalyst Rating

What it Means

Five Stars --> These stocks are benefiting from the strongest catalysts available in today's market. We expect them to deliver triple-digit percentage gains over the next year or two.

Four Stars --> These companies are poised to profit from positive news events, trends, or other catalysts. We expect them to handily outperform the broader market over the next year or two.
Three Stars --> These stocks are benefiting from one or more positive catalysts. Although these catalysts aren't strong enough to lead to dramatic share price outperformance, we expect these stocks to slightly outperform the broader market. 
Two Stars --> These stocks have one or more identifiable catalysts, but these catalysts are relatively weak and are unlikely to provide a major boost to the shares. We expect these stocks to underperform the market over the next year or two.
One Star --> There are little or no identifiable reasons for these securities to increase in price in the coming year or two. Due to a lack of positive catalysts, these stocks are "dead money" at current levels.

Needless to say, I avoid any stocks rated 1 or 2 stars for inclusion to my portfolios.

5. Using catalysts represents one of the top ways to beat the market... by a wide margin. I didn't just become a believer in the catalyst system of investing because I thought it sounded good. I believe in it because I've seen it work -- not on paper, but in the real world.

Before I took over the reigns of the StreetAuthority Market Advisor, my predecessor and StreetAuthority co-founder, Paul Tracy, had already been using the catalyst system to determine his investment decisions. In fact, Paul's the one who turned me onto this method.

And while I trust Paul, it wasn't just his word that convinced me of catalysts... it was his results. When Paul first began grooming me as his successor, Market Advisor's "Top Growth Picks" Portfolio -- the cornerstone of the newsletter -- was simply blowing away the broader market thanks to its focus on catalyst-driven stocks.

And even through a nasty recession, one of the worst bear markets in history, and years of competing against the market, the catalyst system is still walloping the S&P 500.  Since the portfolio began in May 2003, the S&P 500 has returned +38%. But thanks to catalyst investing, the "Top Growth Picks" Portfolio has done just that... by a 4-to-1 margin. A total return of +146% simply leaves it unquestioned that catalyst offer perhaps the best way to find winning stocks in any market.

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Each month I bring my readers the strongest catalyst-driven opportunities on the market, no matter where they hide. These include:

  A company about to get a major boost from the government's new healthcare legislation.
 
A liquor distributor in the highly lucrative eastern European market. These shares have a total return of more than +100% on the back of increasing business.
 
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Good Investing!





Nathan Slaughter
Chief Investment Strategist -- StreetAuthority Market Advisor

P.S. -- Don't forget to take advantage of the special offer I've arranged for you! I can't wait to have you join me on the search for the market's top catalyst-driven stocks -- no matter where they hide!