Our analysts are making moves — here’s how to position your portfolio alongside them
In today’s Digest, let’s take steps to make you a great deal of money a few years — possibly shorter — from today.
We’ll do it by looking at buying into “Forever Stocks” and “Opportunistic Stocks.”
Forever stocks will serve as a bedrock for your portfolio for years, even decades to come. Opportunistic stocks will take advantage of a market-rebound, focusing on sectors that are most likely to enjoy robust recoveries.
Together, they’ll help you snowball your wealth over the coming months and years as markets claw back from the COVID-19 fallout.
We’ll look at these two stock categories with the help of Eric Fry and Louis Navellier. Eric is our expert macro investor. He’s found 40 stock winners with gains of at least 1,000% — more than anyone else we know of in the newsletter industry. Meanwhile, Louis Navellier is a Wall Street legend, dubbed the “King of Quants” by Forbes. His track-record boasts countless double and triple-digit winners.
So, today, let’s build a winning portfolio with the help of these two experts.
***The not-so-secret formula for long-term gains in a crisis
Last Wednesday, 3/18, stocks were in freefall — investors were looking for a floor. For most, buying was not on the radar.
However, in the midst of this, Eric Fry was already suggesting readers begin to act, focusing on “best of breed” stocks.
Most likely, the major averages have not yet reached their bear market lows. Based on probabilities, the stock market averages will drift even lower than they are today and will reach their ultimate lows a few weeks or months from now.
That said, the stock market is not one big monolithic creature. It is a market of stocks. Even if the S&P 500 Index does not bottom out immediately, many individual stocks will.
“Best of breed” stocks, in particular, tend to bottom out first, and then move higher while the rest of the market is languishing. And because we investors rarely get the opportunity to buy best-of-breed stocks on the cheap, we should be looking for the opportunity to do that … starting right now.
It was then that Eric suggested investors begin to move into elite stocks, what he called Forever Stocks.
Back to Eric:
Think of these investments as your core holdings. Treat these Forever Stocks as your “Elite 8” or “Top 10” — or whatever number you decide on.
In total, these stocks should represent about 25% to 35% of your total portfolio.
These are the stocks you hold through thick and thin, unless the rationale for owning them changes significantly or you decide to replace one of them with a different stock …
***So, what is Eric talking about when he says “Forever Stocks”?
I’m talking about dominant, world-class businesses like Amazon.com Inc. (AMZN), Nike Inc. (NKE), Walmart Inc. (WMT), and Microsoft Corp. (MSFT).
While there’s no set definition of a world-class business, I believe they share at least four critical traits …
* Forever Stocks possess an impregnable competitive advantage over their competitors — a “moat.”
* Their competitive advantage shows itself through rising revenue and cash flow. (Earnings should be rising as well. But accounting gimmickry can easily manipulate profits, so I generally ignore reported earnings and focus mostly on revenue and cash flow.)
* They use cash flow to enrich shareholders, through rising dividend payouts, share buybacks, astute acquisitions … or a combination of all three.
* They maintain a healthy balance sheet in order to preserve their financial flexibility and resilience.
Let’s look at one of Eric’s referenced stocks, Microsoft, to see the power of a Forever Stock.
Below, we compare Microsoft with the S&P 500 beginning in mid-February. Though the tech giant sold off alongside the market for a while, it bottomed at a higher level, and is outpacing the S&P as the markets try to recover.
But as Eric noted, Forever Stocks don’t comprise an investor’s entire portfolio (you can click here to learn more about the stocks Eric holds in his portfolios). So, what other type of stocks are deserving of your money today?
For that, let’s turn to Louis Navellier and the benefit of being flexible — or opportunistic — in your market approach.
***”When the facts change, I change my mind. What do you do, sir?”
This quote allegedly comes from economist John Maynard Keynes. But rather than squabble about its source, let’s embrace the power of its meaning — which is what Louis Navellier has been doing in recent days, reevaluating certain stocks based on the evolving landscape of new market conditions.
… as a stock picker, I wait for facts to emerge before I act. That means looking at front-page news AND earnings, analyst estimates — because those jerk prices around just as much — plus, of course, the latest stock ratings from my Portfolio Grader.
For any newer Digest readers, Louis’ Portfolio Grader is a free tool that grades stocks on eight key fundamental factors: sales growth, operating margin growth, earnings growth, earnings momentum, earnings surprises, analyst earnings revisions, cash flow, and return on equity. It’s a great way to get an instant read on the fundamental strength of a stock you might be considering adding to your portfolio.
Now, as you’d expect, the recent market upheaval has changed things for countless stocks — and that’s creating opportunities that didn’t exist just weeks ago.
Back to Louis:
When we have a big shift there, it results in a lot of upgrades and downgrades.
I run these scans every Saturday, to get a week’s worth of market data. Then, on Monday, I publish a list of notable Upgrades & Downgrades, concentrating on big blue-chips.
But overall, 915 stocks (or about one in five stocks) saw rating changes last week alone.
***So, what new opportunities is Louis seeing?
Well, the challenge is separating kneejerk “right now” investments that will fizzle out, from the quality “right now” opportunities that are rooted in stronger fundamentals.
Here’s Louis, making this distinction:
… we’re seeing a lot of capital moving into “quarantine stocks,” which has been a trend that’s not too hard to understand. This past week, that included:
* Household products that are being stockpiled, like Clorox (CLX) and the consumer-brand conglomerate Unilever (UL).
* Health services and especially biotech stocks. Several big names like Biogen (BIIB) and Gilead Sciences (GILD), whose potential coronavirus treatment is getting fast-tracked through FDA assessment, now get an “A” for their Quantitative Grade.
* Miners of precious metals.
* Drugstores like Rite-Aid (RAD) and PetMed Express (PETS), the online pet medication retailer.
* Telework stocks like Citrix Systems (CTXS).
So, should you follow suit? Well, there’s a little more to consider first. You don’t just want to see popularity now; you want to see strong fundamentals to sustain growth, long-term.
Here, Louis points out Clorox, suggesting that it might fall flat as an opportunistic investment because of its “C” Fundamental rating in his Portfolio Grader.
So, what opportunistic plays does Louis like better?
For exciting long-term potential, I’d be looking more at stocks involved in the massive 5G wireless upgrade
Louis points toward T-Mobile and Ciena. By the way, here’s how Ciena looks in Louis’ Portfolio Grader:
Louis notes he’d like to see Ciena’s Sales Growth come up, though it’s hard to argue with top scores on many of his profitability factors, plus Ciena’s Quantitative Grade.
But 5G plays aren’t the only opportunity Louis is seeing. In his Platinum Growth Club, he’s also looking at specific REITs, aerospace and defense stocks, cloud software companies, and medical device groups.
As to how to buy Eric’s Forever Stocks and Louis’ opportunist stocks, remember our suggestion from yesterday’s Digest — don’t feel the need to sink everything in at once. Buying in smaller pieces, over a period of weeks will help you get a great blended average of the COVID-19 buying opportunity.
It’s too soon to say whether or not we’ve already bottomed out, but it’s not too soon to begin taking advantage.
Have a good evening,