Thanksgiving is just two days away, and I don’t know about you, but I’m looking forward to spending the extra time with family and friends, eating turkey and watching a little football.
In the spirit of Thanksgiving, I’d like to share my most important investing tips to prime your portfolio to flourish in the coming months. Let’s get right to it.
- Invest in high margin companies that dominate their business. A company that’s able to expand its operating margins is usually a company that has a dominant position – such as a monopoly – in its industry. This company can raise prices without seeing a drop-off in sales, and that’s a nice place to be, especially in the current inflationary environment.
Case in point: NVIDIA Corporation (NVDA). For its third quarter in fiscal year 2022, revenue jumped 50% year-over-year to $7.1 billion, topping analysts’ estimates for $6.83 billion. Data center revenue increased 55% year-over-year to $2.94 billion, while gaming revenue rose 42% year-over-year to $3.22 billion. Both were new records for the company.
Third-quarter earnings soared 60% year-over-year to $1.17 per share, compared to $0.73 per share in the third quarter of fiscal year 2021. Analysts were expecting earnings of $1.11 per share, so NVIDIA posted a 5.4% earnings surprise.
Company management commented, “The third quarter was outstanding, with record revenue. Demand for NVIDIA AI is surging, driven by hyperscale and cloud scale-out, and broadening adoption by more than 25,000 companies.”
NVIDIA now expects fourth-quarter revenue of $7.4 billion, up from $5 billion in the fourth quarter of fiscal year 2021.
- Along these lines, companies that have margin expansion tend to post bigger earnings surprises. Helios Technologies, Inc. (HLIO), a leading provider of solutions and technology for hydraulics and electronics markets around the world, surged more than 18% in the wake of its third-quarter results in early November.
Third-quarter sales soared 82% year-over-year to $223.2 million, up from $122.6 million in the same quarter a year ago. Earnings surged 105% year-over-year to $34.8 million, or $1.07 per share, compared to $17 million, or $0.53 per share, in the third quarter of 2020.
The consensus estimate called for third-quarter earnings of $0.80 per share on $195.93 million in sales, so Helios Technologies posted a 33.8% earnings surprise and a 14% sales surprise.
Thanks to the better-than-expected third-quarter results, Helios Technologies upped its outlook for fiscal year 2021. Full-year revenue is now forecast to be between $840 million and $860 million, up from previous estimates for $800 million to $830 million. Full-year earnings per share are now expected to be between $3.75 and $4.10, compared to previous forecasts for $3.60 to $3.80.
- Invest in companies with strong forecasted sales and earnings. Do you really want to buy stock in a company that’s expecting its growth to slow? As sales and earnings dwindle, so will Wall Street’s interest in the stock. You want to invest in companies that are expecting to be even bigger and better quarter after quarter. Ultimately, these are the ones that will see an increase in institutional buying pressure. As that buying pressure increases, so will the stock price.
I am a stickler about this in all my newsletters. In Growth Investor, my stocks are characterized by 45.7% annual sales growth and 55.1% annual earnings growth. In Breakthrough Stocks, my Buy List stocks are characterized by 52.5% average annual sales growth and 401% average annual earnings growth. And, in Accelerated Profits, my stocks have superior forecasted sales of 27.2% and earnings growth of 43.8% and a strong earnings surprise history of 39.5%.
- Look for companies that see positive analyst revisions in the past three months, as these typically post earnings surprises. Kohl’s Corporation (KSS), which I recommend in Accelerated Profits and Breakthrough Stocks and is one of my Platinum Growth Club Model Portfolio stocks, had seen its earnings estimates revised by a whopping 88% ahead of its third-quarter earnings report last week. And its results did not disappointment. For the third quarter, Kohls reported total revenue of $4.6 billion, up 15.6% from $3.98 billion in the same quarter a year ago. Earnings surged 16,400% year-over-year to $1.65 per share, compared to $0.01 per share in the third quarter of 2020.
The analyst community was looking for earnings of $0.64 per share on $4.27 billion in revenue, so Kohl’s crushed earnings estimates by a whopping 157.8% and posted a 7.7% revenue surprise
Thanks to the better-than-expected results, Kohl’s upped its outlook for fiscal year 2021. Full-year sales are anticipated to rise in the mid-20% range year-over-year, up from previous expectations for low 20% growth. Full-year adjusted earnings per share are forecast to be between $7.10 and $7.30, compared to previous estimates for $5.80 to $6.10.
- If you’re a dividend investor, focus on companies that are consistently raising their dividends. You want to be sure you’re investing in dividend stocks that have the ability to increase their dividend payments. I check this by looking at the company’s last four dividend payments. Are they increasing? Are they decreasing? Are they staying the same? Decreasing dividend payments are a bad sign (it often means the company isn’t doing well), and you want to avoid those stocks.
Dividend stocks tend to zig when the market zags, which can help smooth your overall portfolio returns. Investors are particularly interested in high-quality dividend-growth stocks right now. The Dow and S&P 500 currently yield more than the 10-year Treasury, so investors searching for yield are turning to dividend-paying stocks.
Where to Invest First
For all investors, old and new, my Portfolio Grader and Dividend Grader are great tools to keep in your back pocket. You simply plug in a stock you like and it will automatically grade that stock for you. An A-rating is a “Strong Buy,” a B-rating a “Buy,” a C-rating a “Hold,” a D-rating a “Sell,” and an F-rating is a “Strong Sell.” You’ll know right away whether the stock you’re interested in is one worth buying or one you shouldn’t touch with a ten-foot pole.
If you’re not sure of where to invest, I encourage you to check out my Platinum Growth Club. I recommend over 100 stocks across all my services – Growth Investor, Breakthrough Stocks and Accelerated Profits – which vary from dividend stocks to large-cap stocks to small-cap stocks. You also have exclusive access to my Model Portfolio. These are the crème de la crème of stocks from my services, all handpicked by me. I also offer an Allocation Tool, which will help you allocate your stock portfolio based on your risk tolerance.
But the truth of the matter is that now is the time to get your portfolio ready. Fundamentally superior stocks should benefit from new pension funding in the upcoming weeks and the overall seasonally strong time of year.
My subscribers have the odds in their favor with stocks with phenomenal sales and earnings growth. Join my Platinum Growth Club today so you do, too.
P.S. The stock market will be closed on Thursday, November 25, for the Thanksgiving holiday, and then open for a half day on Friday. InvestorPlace and the customer service department will be closed on Thursday and Friday, so I will be back in touch with your next Market360 article on Saturday. I hope you have a wonderful Thanksgiving!
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns 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:
Helios Technologies Inc. (HLIO), Kohl’s Corporation (KSS), NVIDIA Corporation (NVDA)