The driving force behind all my research and data analysis is simple: to beat the major indexes. Many index investors throw their money at the Dow or S&P 500 and wonder why their returns aren’t anything to write home about.
And while it may seem daunting to have to sift through thousands of stocks to find real winners, my stock picking system does the hard work for you.
So not only do my stocks have better returns on the whole, having my system choose which to buy and when is just as easy or easier than buying into an index!
But you don’t have to take my word for it. Let’s look at two companies as an example and see which one has superior fundamentals. One – Fair Isaac Corporation (FICO) – is from my Growth Investor Buy List, while the other – Automatic Data Processing, Inc. (ADP) – is from the S&P 500 index.
Fair Isaac Corporation (FICO) vs. Automatic Data Processing, Inc. (ADP)
Automatic Data Processing, Inc. provides cloud-based HR management administration. They offer solutions for things like benefits administration, talent management and payroll services.
Taking a closer look at the numbers, ADP’s earnings and revenue beat analysts’ expectations for the fourth quarter. Revenue topped analysts’ estimates by $55.35 million coming in at $3.38B, but year-over-year revenue is down by 3.48%. ADP’s earnings for the fourth quarter also beat analysts’ estimates of $0.96, reporting an earnings per share of $1.14. However, their earnings EPS are rapidly declining this year, down from $1.92 the third quarter.
On the other hand, you have FICO. Fair Isaac Corporation developed the first credit scoring system for American investments, as you may have gathered from the company’s stock symbol. Back in 1956, the company was founded to develop data and analytic solutions to improve business decisions. Today, businesses around the world rely on FICO’s analytic solutions.
In fact, FICO’s clients include more than half of the world’s top 100 banks, more than 600 personal and commercial line insurers and more than 400 retailers. Here in the U.S., 95 of the largest 100 financial institutions, all 100 of the largest credit card issuers and one-third of the top 100 retailers are all FICO clients.
In the past 60 years, Fair Isaac Corporation has been awarded more than 130 patents for its analytics and decision management technology. The company’s namesake credit rating score is used in three-quarters of all home originations. And 100 billion FICO Scores have been sold, which makes it the most-used credit score in the world.
For the third quarter, revenue was flat year-over-year at $314 million, but topped forecasts for $301.3 million. Third-quarter earnings rose 1.5% year-over-year to $76.7 million, or $2.58 per share, up from $75.6 million, or $2.50 per share in the same quarter a year ago. Earnings estimates called for $2.16 per share, so FICO posted a 19.4% earnings surprise.
Earnings are at the heart of all of my fundamentals – they are like a checkup for a stock’s financial health. That data gets turned into an easy to read format with my Portfolio Grader.
Now that we know the numbers, let’s see how ADP (on the left below) and FICO (on the right) stack up in Portfolio Grader:
As you can see, FICO is the winner. While ADP and FICO both earn a C-rating for their Fundamental Grade, FICO beats ADP with its Sales Growth where it earns a strong B-rating. It’s Quantitative Grade, which measures the stock’s buying pressure, is also B-rated. ADP, on the other hand, receives a D-rating for its Quantitative Grade. When you add all of the factors together, FICO is a “Buy” and ADP is a “Strong Sell” with its overall D-rating.
The Key to Consistent Winners
You see, when we talk about the Dow Industrials or the S&P 500, it’s important to remember that they don’t exist to show you what the best companies are. They exist to represent the market as a whole.
That’s why – and the index fund companies will NEVER tell you this – the funds that track these indices contain a lot of lousy stocks.
It’s a simple matter of numbers, really. For example, the widely followed S&P 500 index tracks 500 stocks. Sorry, corporate America, but not everybody can be at the top. Exceptional stocks that are worth your time and money aren’t as common as it may seem.
Since I recommended FICO to my Growth Investor subscribers in May of last year, it is up over well over 50%, while the SPDR S&P 500 ETF Trust (SPY) is only up about 17%. Even worse, ADP’s currently down about 8% over the same timeframe!
It’s clear to see how lousy stocks can pull down the index on a whole.
The bottom line is that, as much as I like large-cap stocks, I don’t mean for you to rush out and buy funds that track the S&P 500 and Dow. Instead, I recommend you build real wealth in the markets the best way I know how…
Note: In Growth Investor, we’re well-positioned to benefit from technology trends like AI. And if you sign up for Growth Investor now, I’ll tell you everything you need to know about the AI industry in my special report The A.I. Master Key. This report is yours – absolutely free.
Plus, my Growth Investor Buy List is locked and loaded with more hi-tech plays that I expect will benefit from the stunning earning season just ahead.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Automatic Data Processing, Inc. (ADP), Fair Isaac Corporation (FICO)