I confess that I am a sucker for a good stock story. I often spend a lot of time thinking about trends and where earnings might be headed and I, frankly, wonder how I can anticipate the trend before the herd becomes aware of it. As a result I am always looking for interesting stocks to add to my watch list. I am of the opinion that a watch list of stocks that you want to follow but aren’t quite ready to pull the trigger on a buy can actually aid your investing strategy. Therefore, I thought I would take a minute and talk a little bit about how I find interesting stocks to put on my watch list.

First, let’s remember why we invest in the market in the first place. We invest to make money. Oh sure, some people throw their money around to support corporations that are socially responsible, but even then the investors hope to make a profit. The fact is that people buy a stock today because they think that the price is going to be higher tomorrow. And that is the first thing that I look for when I search for interesting stocks. Do I think the stock can support a higher price?

That, capital appreciation, is what interests me in a security. Honestly there isn’t really anything else in it for me. So, I’d like to take a look at an example of the process that I use to narrow down my watch list once a stock has caught my attention. Let’s look at IMAX which I wrote about more than two years ago. There are a couple of reasons that IMAX stood out for me and those reasons will serve us well in this example.

IMAX caught my attention because it had an interesting story. And, after all, you are on a blog called Story Stocks so you can imagine how I go for stories. The story was simple. Over the years, over the decades even, American movie goers have been finding alternative entertainment options from movies. As a result of this movie revenues were trending down ward. Furthermore, it did not seem like theaters would really make great investments going forward. Also, the proliferation of home entertainment systems, DVDs, Blu-Rays, etc were killing the theatrical exhibition industry. The story on a traditional theater chain wasn’t that appealing. But IMAX, I figured was different. IMAX became a fixture on my Stocks to Watch List because it was different from a traditional chain.

My logic went as follows. If more people are staying home and watching movies because there home theater systems are nearly just as good as a movie theaters it is probably going to take something special to get them to go and see the movie in public. Well, the beauty of IMAX is that their experience can not be replicated in the home. I mean how many of us have a 60 foot viewing screen in our living room. So, thinking about it further, I came to conclusion that if fewer people go out to traditional theaters that will hurt regular exhibitors. However, if a higher percentage of total movie goers opt for the IMAX experience because the experience is so unique then I can see how that might lead to a higher stock price. And, as I said above, the reason we invest is to make money in the stock market.

So, as there were other elements of the IMAX story that made it an interesting investment option for me. The main draw was that I hypothesized that more people would be seeing Hollywood movies on the IMAX screen in the future. I could see the trend going my way over time and that could push revenues up, earnings higher, and lift the stock price. The key had to be the ability to exhibit Hollywood titles cheaply and ineffeciently. As it turned out, IMAX had been developing new technology to convert 35mm film to their format. So, I was intrigued, and this made me interested in IMAX as an investment possibility.

There were some warnings signs as well, but these made my interest even higher. It can always be dangerous to enter into an investment position where there is universal agreement on where the company is heading. Far better is there to be controversy about what the future might hold for a stock. With IMAX there were questions about debt and leadership. This did not trouble me as I knew that if the picture was too rosy then there would be a lot less upwards price movement in the stock. In other words, I would have been too late to the investment and it would actually make a better time to get out.

So, how can you use this information to find interesting stocks? It is not as difficult as you think. In fact, I would say there are only a couple of rules. The first thing to look at is can you see a trend unfolding in the next five to ten years that would positively impact the price of the stock. Remember you want to anticipate things ahead of the market but not too far ahead of the market. If you see some technology changing the game and nobody else is aware of it and it’s 30 years out it probably isn’t going to do you much good because you will have to wait on it. Get just ahead of Wall Street on a trend. The other thing you are going to want to look at is there disagreement about whether the trend will materialize or if the corporation will be able to capitalize on it? You don’t want agreement among investors about whether a stock is about to take off, what this means is that the move has already happened and a lot of money has already been made in the name.

Finally, I want to see a stock that I think can at least triple within three years. If you find a stock that looks interesting to you but it is carrying a 100 multiple (the price to earnings ratio) you have to wonder how much upside is in the name. And remember, more than anything else, we buy stocks to make money not to be proven right or wrong!

So, that’s a couple of things that stocks that I find interesting have in common. What methods do you use?