On any given business day, millions of people pay attention to the blinking lights and flashing numbers they believe make up “the stock market.”
Unfortunately, just a tiny percentage of those people will ever understand the real secret to making money in stocks.
These folks forget that a stock isn’t just a flashing light on a screen or a trading hot potato. When you buy a stock, you buy a partial ownership stake in a real business.
You own a slice of that company’s equipment, inventory, patents, real estate, and brands. You become financially exposed to both the company’s upside and downside.
That’s why people tend to invest based on earnings (or the anticipation of them).
The more a company grows its earnings, the more its shares will be worth. That said, stock price trends can diverge from earnings trends for a while – but over the long term, if a company grows and grows the amount of cash it takes in, its share price is sure to head higher. That’s how the market works. It’s the “iron law” of the stock market. And it’s why price/earnings (P/E) ratios aren’t the “be all, end all,” as we discussed yesterday.
Instead, if you’re looking for stocks with massive upside potential, you should focus on the companies with massive revenue and earnings growth. Even better, the companies should have a tendency to surprise Wall Street analysts with better-than-expected earnings growth.
But don’t stop there. If you want the best growth with the least risk, look for increasing operating margins, increasing sales growth, high returns on equity, strong cash flow, and high marks from my proprietary Quantitative Score. For a look at what exactly this measures, see the replay of Wednesday’s Breakthrough Stocks Summit, where I also shared my #1 small-cap stock for February. It’s holding up extremely well in this market decline. In fact, it’s up more than 50% in the past month – much of that in the past week!
Corporate America is not Lake Wobegon, where all the kids are above average. The brutal truth is that some companies are much, much better than others. They have better management, better products, bigger profit margins, stronger sales, stronger balance sheets, etc.
My system analyzes roughly 5,000 stocks, grades them according to the fundamental qualities I just mentioned, and waits for the right signal – a high Quantitative Score – to time the buy.
The result for you, in using my Portfolio Grader, are grades just like the ones in school:
A stock with the highest growth, business quality and Quantitative ratings gets an “A.” A stock with miserable ratings gets an “F.”
The result of all this work? My readers buy the world’s fastest-growing companies… and hold them through their most successful years of expansion.
Of course, all this information is constantly changing. That’s why my ratings are updated weekly. When an “A” stock starts to falter in these qualities, the rating changes too. That’s the signal that it’s time to claim some profits.
That’s what I did with the following stocks, which earned us 200%-450% at Breakthrough Stocks in years past:
As you see, though, only one of the two is currently a “Buy.” HollyFrontier (HFC), once a 457% winner for us, is now a “Strong Sell.” Here’s its full Report Card:
I would need to see some drastic improvements in this oil-and-gas refiner’s fundamentals before I would EVER consider recommending HollyFrontier again. Even more importantly, I’d want to see a strong Quantitative Grade.
My #1 Breakthrough Stock for February, on the other hand, has much better fundamentals, particularly the sales and earnings metrics – and it gets an “A” for its Quantitative Grade. That’s a flashing green “Buy” signal.
I’ll tell you all about my Quantitative Grade and what it measures in this recording of Wednesday’s Breakthrough Stocks Summit, before revealing my top stock pick. Once you learn the key attributes that the world’s biggest stock winners have, you’ll never look at stocks the same way again. I certainly haven’t.