How to Know When to Sell a Great Stock

I talk a lot here in Market360 about how I find good buys in the stock market. I assess both a company’s fundamentals – eight specific metrics, to be exact – and money flow into the stock. But when those tides begin to turn, they become signals to sell, rather than buy.

And those signals are not always apparent at first glance.

Case in point: Intuitive Surgical (ISRG). ISRG has a great, revolutionary technology for surgical robotics. Its big break, back in 1999, was the da Vinci surgical system. Combining a mechanical surgical system with 3-D vision, da Vinci allows doctors to perform minimally invasive surgery with enhanced dexterity, precision and control. The result is usually less pain, a shortened hospital stay, fewer infections and less scarring for patients.

And Intuitive Surgical’s technology is definitely catching on. Just in the latest quarter, da Vinci procedures rose 19% year-over-year, and the company shipped 336 da Vinci surgical systems; now there’s more than 5,000 of them around the world.

But ISRG also started giving off certain warning signs – at which point I recommended that Growth Investor subscribers sell, and book a 161% profit.

The first red flag was Intuitive Surgical’s earnings momentum. In the fourth quarter, earnings were up 18.1% year-over-year, and overall ISRG gets a “B” for Earnings Growth in the stock-picking system I use for Growth Investor.

But it’s not enough to see a company’s earnings grow – I also want to see them grow rapidly.

Think of this like assessing a car. Just about any car can make it to 60 miles per hour, theoretically. But not as many can make it to 60mph smoothly…let alone as quickly as a Porsche or a Ferrari.

And for its Earnings Momentum score, ISRG gets an “F” at this time!

Besides fundamentals, growth investors should also look at the momentum of a stock. That was the other red flag that inspired me to go ahead and take profits on ISRG.

If it’s enjoying a nice influx of cash over time, that gives it enough room to run even higher. If big money on Wall Street is flowing OUT of the stock, well, the opposite is true. In fact, my 30+ years of research indicate that this is the single biggest factor in the success or failure of a stock, long-term. And it’s reflected in a stock’s Quantitative Score.

When I first recommended ISRG for Growth Investor in Oct. 2016, it earned an “A” for its Quant Score. But now, it gets a “D” there. Combined with ISRG’s eight Fundamental Scores, the overall score dropped to a “D.”

I’m finding much better buys now. And with ISRG’s scores slipping, I looked for a chance to sell into strength.

Whenever you can, I recommend resisting the urge to panic-sell a stock. Instead, hold out just a little longer for a good day. ISRG climbed steadily higher ahead of the company’s fourth-quarter earnings release; that was the near-term strength I was looking for to book our gain.

Now Here’s Where to Find Buys

One of the big factors that should drive your stock strategy continues to be the interest-rate environment. It’s tailor-made to encourage loans and investments.

That’s a strong bullish catalyst for at least two of the three new stocks I’m recommending tomorrow in Growth Investor.

One effect of these low interest rates is higher home prices. This encourages a lot of people to rent instead – which is great news for the REIT I’ll be recommending for our High-Growth Investments Buy List. That’s because the company runs a portfolio of single-family-home rentals across the United States – and its stock is an A-rated “Strong Buy” in my Portfolio Grader system.

On the flip side, though, is cheaper loans. The other stock I mentioned is a beneficiary of that trend. This one, too, gets an A from Portfolio Grader.
What’s more, this one also gets an A in my Dividend Grader tool. This AA-rating earns it a spot in my Elite Dividend Payers Buy List, where Growth Investor subscribers can earn a strong 3.5% dividend yield from this new buy.

I’ll have full details waiting for you in my Growth Investor Monthly Issue tomorrow. Go here for the chance to hear more about the strategy and sign up. When you do, you’ll also learn about a key long-term growth trend I’ve got my eye on: the “mother of all technologies.”

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