We all know the story of “The Tortoise and the Hare.” It’s a simple story with a powerful lesson.
A tortoise and a rabbit race each other. The hare thinks his speed and cleverness will make him the easy winner over the slow-moving tortoise. He gets overconfident and decides to take a nap thinking that the tortoise will never catch up to him. Once the hare wakes up, he finds the tortoise is close to the finish line. He rushes to catch up but it’s too late. The tortoise won.
Through hard work and determination, the tortoise did the impossible. He proved that you can be more successful by acting deliberately and steadily … rather than acting quickly and carelessly.
You may be wondering what a 2,500-year-old fable has to do with stock investing. It’s simple – when you’re a growth investor, the last thing you want to be is the hare. You don’t want to hit the snooze button while the market steadily rises. At the same time, you can’t react simply because of a headline or blip in the market.
There are a lot of “hares” out there. And they’re their own worst enemies. They’re the last to spot buying opportunities – they wait too long to buy. They’re the first to panic when the going gets tough – they sell too quickly. For them, stock investing is a source of constant stress and anxiety.
On Wall Street, the tortoise is a much rarer breed. Their movements are carefully planned. They identify the best buying opportunities early, but only after they’ve carefully vetted them. They commit to a strategy that’s based on cold hard data rather than emotion. And, when speculation runs rampant, they consider the facts before selling.
As a long-term quantitative investor with a heavy focus on fundamentals, earnings and sales growth, I view myself as more of a tortoise. I dig deep into the numbers and see if a stock truly has staying power. If it does, I may invest and hold for the long term. If my research shows that it does not, I won’t touch it with a ten-foot pole, even if all of Wall Street is dazzled by it. On the flip side, if a stock’s fundamentals start to turn, I’ll sell.
To help find the best stocks, I used my proprietary system Portfolio Grader, a tool I’ve discussed a lot in previous Market 360 articles (you may have even used it yourself). Well, today, I’m excited to announce that I have upgraded Portfolio Grader to my brand-new Stock Grader. And in today’s Market 360, I’d like to show you what Stock Grader looks like and how you can use it to find fundamentally superior stocks in any market condition.
Say Hello to Stock Grader!
Once you reach the Stock Grader home page, you’ll see this.
Stock Grader works very similarly to Portfolio Grader. All you have to do is plug in a specific stock and it will show the Fundamental Grade, the Quantitative Grade and the stock’s report card.
There are eight specific factors I look at that gauge a stock’s Fundamental Grade:
1. Sales Growth: This is just as it sounds, and it’s the hardest number to fake. Great companies continually look for ways to increase their month-to-month and year-to-year sales so they can expand and deliver big returns to their shareholders.
2. Operating Margin Growth: The margin shows the difference between production costs and retail prices. The wider the difference, the better! We want to see a company that’s able to expand its operating margins. They can raise prices without seeing their sales decline. On the flip side, if a company keeps having to reduce prices just to entice buyers, that’s not a good sign.
3. Earnings Growth: This determines whether a company has earned more money year-over-year. It is measured in earnings per share. It is the company’s earnings divided by the number of shares outstanding. I want to see continual, year-over-year growth.
4. Earnings Momentum: This tells me the rate of a company’s growth based on its earnings. If it’s going up, then you’ll likely see a bigger return on your investment.
5. Earnings Surprises: An earnings surprise is when a company beats analysts’ earnings estimates. It’s measured as a percentage and calculated as the difference between actual earnings and consensus estimates. If a company is consistently beating estimates, its share price can rise significantly.
6. Analyst Earnings Revisions: I like to see earnings estimates increased by Wall Street analysts. Upward revisions are not taken lightly and will only be done if they have superb confidence in those increases. Besides, if they choose to raise their revisions, then it’s likely that the stock will outperform those expectations.
7. Cash Flow: This measures the flow of cash earned and spent relative to its market value. It shows how much money a company has left over after paying for the costs of its business. The more cash they have, the better!
8. Return on Equity: This is the amount of profits a company generates with the money shareholders have invested. It tells me how efficiently a company is managing its resources.
The Quantitative Grade measures a stock’s institutional buying pressure. You can think of this as “following the money.” The more money that floods into a stock, the more momentum a stock has, and the higher the Quantitative Grade.
My Stock Grader tool will blend the Fundamental Grade and Quantitative Grade and give the stock a Total Grade of A-F:
- A=Strong Buy
- B=Buy
- C=Hold
- D=Sell
- F=Strong Sell
Here’s an example of what you can expect to find after you plug in your stock:
The Total Grade is at the top, with the Fundamental Grade and the Quantitative Grade below. Right underneath the snapshot overview, I have the Fundamental Grade with the grades of each of my eight fundamental factors. A little further down you’ll find the Quantitative Grade with an explanation of what it is. You also get a snapshot of the company profile to the right of the Fundamental Grade and Quantitative Grade, as well as an interactive map above the profile.
And as you can see below, I include a chart of the stock’s Recent Total Grades (left) and important stock data (right).
Another benefit of Stock Grader: You can create a portfolio of stocks that you already own or want to keep as a watchlist for stocks to keep your eye on. All you have to do is click Create Portfolio at the top and you’ll be taken to a page where you can add individual stocks.
Now, I should mention that Stock Grader is a premium feature available to my paid subscribers. So, if you’d like to gain access, you need to subscribe to one of my services, including my flagship service Growth Investor.
So, if you’re not a member of Growth Investor, click here to join now and gain immediate access to Stock Grader.
(Already a Growth Investor subscriber? Click here to log in to the members-only website.)
Sincerely,
Louis Navellier
Editor, Market 360
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:
NVIDIA Corporation (NVDA)
