Finding the Perfect Small-Cap Stock

Numbers are everything when it comes to investing.

I avoid the stories that analysts tell in order to convince investors to buy a stock. All too often, Wall Street gets caught up in that story and starts believing its projections as the gospel truth. Storytelling leads investors down a path of under-performance and losses.

To make sure you avoid this trap and succeed, I’m writing a special editorial series called How to Make 2020 Your Record-Breaking Year. In this series, I’ll explain the strategies to make this coming year your most profitable one yet.

Even during bull market conditions investors get mediocre returns – again and again. In more than 30 years of investing, I’ve seen it happen many times. But as I will explain, 2020 will be year of tremendous growth, and you can beat the market for even bigger gains with the right investing strategy.

Whether its maximizing yield, achieving a retirement catch up or finding the small stocks set for life-changing gains, this series will explain your path to leaving so-so market gains in the dust.

Bottom line: I believe that it pays to stick to the numbers and that careful study and analysis can help us find stocks with growth potential and big gains in the future while avoiding stories and mumbo-jumbo.

An excellent example of this is PennyMac Financial Services, Inc. (PFSI), which has been rocking and rolling for months now.

PennyMac is a direct mortgage lender and enables its customers to buy and refinance houses. The company also participated in federal programs to help its customers stay in their current homes and continues to offer similar assistance if borrowers need help with their mortgage payments. Since its founding in 2008, PennyMac has grown to become a leading mortgage lender in the U.S., with more than 1.5 million customers.

I recommended PFSI not because of a cool story I heard on TV about it, but because of the numbers.

You see, I have a proprietary 8-point system that determines if a stock is positioned for outsize gains. It must have strong sales growth, operating margin growth, earnings growth, earnings momentum, earnings surprises, analyst earnings revisions, cash flow and return on equity.

Ultimately, I want the stock’s Total Grade, which are the fundamentals and buying pressure blended together, to be A-rated. This makes it a strong buy. I will not recommend a stock that is rated lower than an A. That is just the case with PFSI, as you see here.

PFSI Report Card

Not Just Another Mortgage Company

During the third quarter, PennyMac Financial Services achieved earnings of $121.5 million, or $1.51 per share, and revenue of $436.3 million. Analysts were expecting earnings of $1.31 per share and revenue of $381 million, so PFSI posted a 15.3% earnings surprise and a 14.5% sales surprise.

I should add that PennyMac also has a history of rewarding its shareholders. The company recently paid a third-quarter dividend of $0.12 per share on November 20.

PFSI rocketed to new 52-week highs that very same day. I don’t expect the stock to slow down anytime soon, though. Currently, the stock holds a “A” for its Fundamental Grade and its Quantitative Grade, earning an “A” for its Total Grade as well.

These are the types of stocks, and potential returns, my proprietary systems are always on the lookout for.

At the end of the day, long-term gains are what it’s all about. Next up in our series, How to Make 2020 Your Record-Breaking Year, we’ll see how to ride trends that can deliver market-beating gains next year and beyond.

P.S. In case you haven’t heard, I’ve just released my brand-new 2020 forecastI’m as sure about what comes next for this market as I have been about anything in my 35 years of investing.

My research shows that a rare combination of extremely powerful forces will send the market soaring to Dow 40,000 in the new year.

Now I know you might be skeptical. And I understand how you feel. This isn’t the first time the noise and the fearmongering in the financial media have tried to scare people out of the market.

But time and again, the market has just kept going up and up and up. And through it all I’ve shown my readers model portfolio gains of 457%, 751%, even 1,125%.

Look, I’ll be the first to tell you when I think the party is over. But right now, the last place you want to be is on the sidelines.

Missing this Great Market Melt Up to Dow 40,000 in the months ahead would be a devastating mistake. So I’ve posted my full forecast for you here. See my research for yourself and get the simple steps you can take right now to prepare for the massive market move ahead.

More Louis Navellier

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