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Five Reasons to Buy Stocks on Any Dips

On Wednesday at the Dow vs. Bitcoin: The Race to 40K debate, I’m sure my colleague Matt McCall will make a strong case for cryptocurrency investing. I’ve gotten a peek at his research myself. But I can already tell you: There’s every reason to expect the Dow stocks to win the Race to 40K. In fact, I can give you five reasons here today!

The first one is very simple…

1. Our market is an oasis for the world.

This is a point I’ve made many, many times in the last few years. And that’s still the case even during the COVID-19 pandemic.

For example, our GDP report may have rattled a lot of people, but it was better than expected. It was certainly better than Germany’s; Germany’s contracted even more, when you annualize it. (The European numbers are quarter by quarter; our numbers are annualized.)

True, we’re likely looking at a U-shaped recovery, not the V-shaped recovery we’d all hoped for. I’ve been very honest about that. And that’s largely because of the employment situation. But help is on the way, with the Trump administration throwing lots of money for domestic manufacturing of COVID-19 vaccines in this “Operation Warp Speed.”

2. Interest rates are incredibly low.

I touched on the interest rate environment on Thursday and how when the Federal Reserve is keeping bond yields next to nothing, stocks become much more valuable.

Now here’s another effect: Companies can go out and refinance their debt at ultra-low rates. That certainly includes the big Dow companies, like AT&T (T). So that’s going to help their cash flow, their earnings, their bottom line. That, in turn, should boost their share prices.

And these Fed policies also have yet another effect…

3. The U.S. dollar is having a really bad month.

You might think, “The dollar is weak? That’s horrible!” Well, not really. Ironically, a weak dollar is good for multinationals, and half the S&P 500 companies’ sales are outside America…which means it’s paid in foreign currencies. If those get stronger against the dollar, that’s actually more money for many of our companies.

4. Trading volume has been light on the downside.

All this is not to say that our stocks will go nowhere but up. Their recovery hit the brakes last week, in fact. But the key with any sell-off is the volume. As long as trading volume is light and there’s no panic selling, we’re okay.

So, don’t worry about the gyrations; take advantage of them with stocks like the free pick I’ll be giving away at Wednesday’s Race to 40K debate. As long as the trading volume remains light, there’s nothing to be too concerned about.

Also, it’s important to keep in mind that August is a seasonally weak month. The reality is that the market is plagued by with low trading volume given that Wall Street and Europe are on extended summer vacations.

This opens the door for unscrupulous short traders and scam artists who try to manipulate stocks with false rumors and bogus reports. 

But perhaps people aren’t as enthusiastic sellers lately because they’ve noticed the same thing I have…

5. This earnings season has been stunning.

I always watch corporate earnings very closely. And the magnitude of the earnings surprises, even the sales surprises have been nothing less than incredible.

Some bad earnings will come out later, and good earnings tend to come out early; that’s just normal for the market. But by and large, I’m very, very pleased!

Let’s just look at the “FAANG” stocks as a quick example. Here’s how their revenue and earnings numbers rang up:

Source: YCharts

Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL) all beat analyst expectations on their second-quarter revenues. The first four turned in double-digit sales growth (while Google was down slightly).

And most of the FAANG companies beat handily on earnings, too…especially Amazon. While Wall Street expected more like $1.65, Amazon ended up turning in $10.30 per share! That was nearly double the year-ago figure. (Remember, company management initially guided to a second-quarter operating earnings loss , as they planned to spend at least $4 billion to adjust to the coronavirus pandemic.) Netflix, too, ended up doubling EPS, year-over-year.

As I’ve made clear to readers like you, technology is what is getting a lot of us through these tough times… whether it’s communicating online, shopping online, or getting entertainment online.

Technology is also Matt’s basis for saying bitcoin will win The Race to 40K.But the proof we’re seeing NOW is coming from the publicly traded companies.

It’s certainly being reflected in these earnings announcements from Big Tech. Despite the sharpest economic crash in decades, all the FAANG companies were profitable in the second quarter – some far more than the analyst community expected!

And if, in the second quarter, other companies miss their estimates…well then, the money just get reshuffled to other stocks for the reasons I mentioned above. (Since I only recommend the highest quality companies as per my Portfolio Grader scans, that money’s going to come our way!)

Now how about the future? Well, that’s just as uncertain for our biggest companies as it is for anyone else…

  1. Facebook is currently dealing with a boycott triggered by some of the hateful, violent and misleading content that’s popped up on its platform. Microsoft (MSFT), Coca-Cola (KO) and Ford Motor (F) are some of the companies to have pulled ads from Facebook. Smaller companies may have to pull back on ads, too, simply because of the COVID-19 impact.
  2. Apple’s sales are getting a bump from stimulus check spending, a phenomenon that won’t last forever. Even so, in the last quarter, iPhone sales were down slightly (though services, iPad and Mac sales all increased nicely), and Apple has been forced to delay the new iPhone by “a few weeks.”
  3. Amazon has already forecasted that its revenues will ease off the gas a bit in the third quarter, with 24% to 33% growth…though it did not provide earnings guidance.
  4. Google also foregoes earnings guidance. And of all the FAANGs, it might have the most exposure to the economic standstill – as it makes more than three-quarters of its money from advertising. And ads for things like travel deals are not big business right now.
  5. Netflix doesn’t expect its luck to last, either: “In Q1 and Q2, we saw significant pull-forward of our underlying adoption leading to huge growth in the first half of this year…we expect less growth for the second half of 2020 compared to the prior year,” as per the earnings announcement.

I don’t say this to cast any doubt on the market as a whole; far from it! I simply want you know that there may be better specific buys for you right now. Ones that offer exposure to powerful long-term trends.

To that end, I’ll be sharing one of my favorite Breakthrough Stocks with attendees of Wednesday’s Race to 40Kevent. We’ve set up an exclusive website with resources you may want to peruse prior to our debate.

And we’ve already gotten your RSVP, so thank you for raising your hand to attend Wednesday’s event. I look forward to seeing you there!

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8 Critical Tests a Stock Must Pass Even in an Explosive Bull Market

Hello, folks. If you’re anywhere near as excited as us about Dow vs. Bitcoin: The Race to 40K, a live event that I am hosting with my fellow Investorplace analyst Matt McCall next Wednesday at 4 p.m. ET, then you know that there’s an incredible opportunity ahead of us.

Thanks for locking in your seat to this webinar event. As you know, Matt and I both see the market rallying over the next year; however, I expect Dow will reach 40,000 first while Matt looks for bitcoin to hit the 40,000 mark first.

Let me start off by saying that I hope you’ve enjoyed the articles from Matt. As far as my articles go, we have talked about why I think stocks are the best game in town. On Thursday, I explained why interest rates could be a catalyst to push the Dow from 26,000 to 40,000, making it not just possible – but probable.

The reality is the Dow reaching 40,000 is going to be a huge milestone for bullish investors. I am certainly looking forward to the massive bull rally over the next year! However, I don’t even need a bullish market to maximize gains in my portfolios, thanks to the beauty of my stock-picking system.

No matter the market environment, my tried and true Portfolio Grader has helped me find all of the biggest winners in my career.

So, today, I want to share the “secret sauce” behind my growth investing strategy.  

Now, every stock I recommend must pass these 8 critical tests first:

  1. Sales Growth: the percent change in a company’s sales this quarter versus the same quarter last year. Companies that show increasing sales at a very high rate are among the best candidates to become big winners over time. If a company can continually increase sales over long periods of time, then it would seem to indicate that they have a product or service that is very much in demand. I look for companies that show year-over-year sales growth of 20% or more.
  2. Operating Margin Growth: the profits left after direct costs such as salary and overhead are subtracted. I then look at whether this percentage margin is contracting or growing year-over-year. A company’s operating margin will increase when its product is in such high demand that the company can continue to raise prices for the product or service without an offsetting increase in costs.
  3. Earnings Growth: the percent increase in a company’s earnings per share (EPS) this quarter versus the same quarter last year. EPS is just the company’s earnings divided by the number of shares they have outstanding. Naturally, companies that are continually growing earnings year-over-year get a higher score than those that aren’t.
  4. Earnings Momentum: how rapidly a company’s earnings have been accelerating over the past four quarters. Companies that are accelerating and growing earnings faster year-over-year are stronger candidates for my Buy Lists than those where earnings are slowing.
  5. Earnings Surprises: a company’s ability to exceed the consensus earnings estimate among Wall Street analysts. Here I am looking for stocks that can exceed what Wall Street believes they can achieve. Stocks that deliver positive surprises for several successive quarterly earnings periods often go on to become growth stock megastars.
  6. Analyst Earnings Revisions: the size of raised magnitude in which earnings projections have increased over the past month. When an estimate is raised, it has tremendous positive implications fora company and its stock. If the expectation is up, then the stock should be worth more —and rise in price to reflect that fact.
  7. Cash Flow: the money the company has left after paying the cost of doing business and the upkeep and the maintenance needed to stay in business (relative to its total market value). In simple accounting terms, free cash equals operating earnings minus the capital expenditures needed to run the business. This is especially important for dividend stocks. And in a bear market, analysts suddenly emphasize this part of the balance sheet above all others. It shows if the company has the liquidity it needs to ride out the storm.
  8. Return on Equity: a company’s profitability in terms of profits made from the money shareholders have invested. It is calculated by dividing the earnings per share by the equity (book value) per share. The higher the number, the more profitable a company is, and the higher return management is providing to shareholders.

From there, a stock must also prove its mettle, so to speak, on Wall Street. When it also earns a strong Quantitative Grade (my proprietary measure of institutional buying pressure), it becomes an urgent buy in my Portfolio Grader.

This system allows me to avoid the bad stocks and also signals when to sell a stock if its fundamentals begin to deteriorate or institutional buying pressure dries up. By concentrating on the numbers, my system takes the guessing out of picking winning stocks.   

Take CyberOptics Corporation (CYBE), a company specializing in 3-D sensing technology solutions, for example. When the company smashed earnings in the first quarter of this year, my stock-picking system upgraded the stock from a Hold to a Buy. I told my Breakthrough subscribers to buy the stock in May, due to the positive earnings forecast and strong fundamentals that my system picked up on.

CyberOptics released its second-quarter earnings announcement last week and, once again, crushed expectations, with an over 200% earnings surprise! The stock is sitting pretty at a 29% gain in less than three months since my initial recommendation!

And I’ve got much more where that came from. At my debate Wednesday with Matt McCall, I’ll be giving away another of my favorite Breakthrough Stocks, to prove the exciting opportunities available for stock investors right now.

In the meantime, you’ll be hearing from Matt tomorrow. He’ll share some of the positive rumors swirling around in the cryptocurrency community, as well as the major catalyst he’s eyeing to win our bet, The Race to 40K.And then Monday, I look forward to talking with you about the earnings environment that helps make MY case for stocks!

We’ve set up an exclusive website with resources you may want to peruse prior to our debate on Wednesday at 4 p.m. ET, where Matt and I will thoroughly debate whether stocks will reach that milestone first, or if bitcoin will. I’m very confident I’ll win. And that you’ll see the explosive potential of the stocks my Portfolio Grader is uncovering now. You don’t want to miss it!

Again, I’ll be giving away one of my favorite stock picks on Wednesday…and remember, this event is 100% free, no strings attached.

As I say, I’m putting my money where my mouth is – and so is Matt. He’ll also be giving away a pick for free, to help investors profit as bitcoin also climbs to 40K.

I’d never bet against Matt, long-term. I simply think that my horse in this race will get there first.

Click here to get ready for Wednesday’s Race to 40K debate and your two free investment picks from Matt and me.

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Why Explosive Gains for Stocks are “Baked In” to the Economic Recovery

First, let thank you for signing up for our Race to 40K event next Wednesday.

I’ve prepared some great material to explain why Dow 40K is a real possibility in the next 12 months … and I know Matt is preparing his material on why he thinks Bitcoin will get to 40K first.

Today I want to explain why I still believe stocks are the best game in town. I’ve been saying that for years now – but I wouldn’t keep saying it if it weren’t true.

Commodities? Forget it. One minute, you’re up at $100 per barrel oil. The next minute, someone like Saudi Arabia decides to start a price war, and prices crash back down again to $20. (In fact, as we learned this spring, it can get even worse than that. When COVID-19 struck worldwide, oil prices crashed all the way into negative territory.)

Cryptocurrencies? Well, I’ll let my colleague Matt McCall make his case for that next Wednesday at our 1-on-1 debate, Dow vs. Bitcoin: The Race to 40K.

Bonds? You can forget those, too. In fact, the Treasury yield situation has gotten so extreme that I believe it will push more capital into the stock market than ever before.

That’s because we’ve never seen such a sustained push to near-zero interest rates. Even before COVID, rates had been very low for years. And until world economies regain their former glory, there’s no end in sight.

In June and July, we’ve seen the beginnings of a tremendous, sharp rebound in jobs and economic activity. But as much as we’d all like that recovery to be V-shaped, the Federal Reserve disagrees. They still expect a U-shaped recovery, which is why they’re still working overtime to manage the “yield curve,” so that long-term interest rates don’t fall below short-term rates and damage the banking system. The 3-, 5- and 7-year Treasury yields hit record lows. We had a very successful 30-year Treasury bond auction. And not just that, the 10- and 20- year Treasury yields are ultra-low right now, too, in addition to the 30-year.

Every time the Fed has intervened to push rates lower, it’s provided more “juice” for the stock market. This is a major reason why I’m so bullish on stocks for 2020 and beyond, and I’ll be putting my money where my mouth is, so to speak, at the debate with Matt McCall and myself. (In the meantime, click here for some free resources that you might enjoy in preparation for Wednesday’s event.)

Let’s take a look back at the market action since February: a perfect example.

I’m sure you’ll remember that sharp drop starting February 20. Since then, the Fed has intervened several times, and I’ve marked the major dates in green circles above.

You’ll see that the first emergency rate cut (from 1.75% to 1.25%) on March 3 produced a sharp uptick in stocks. But then COVID-19 outbreaks began in earnest on American shores. On March 15, the Fed announced another cut to zero (where the Fed Funds rate remains today), as well as “at least $700 billion” in quantitative easing (QE). And the S&P 500 is up about 20% since then.

You’ll also notice that the Fed’s biggest monetary intervention – more QE, more lending to banks and to “Main Street” – coincides with the bottom for stocks: March 23. Since then, the Fed has been implementing and adding to these programs at various points. And the market gain is even more drastic, around 40%.

On Tuesday, the Fed just extended all emergency lending programs through 2020. So we’ll see the magnitude of the impact on the market’s bull run from here. I gave the “all-clear” for growth investors to start buying again on April 15.

My Portfolio Grader has been uncovering “Strong Buys” all the while. And the performance has been strong confirmation of my picks. My Top 5 Breakthrough Stocks, for example, have now reached gains as high as 75%, even 100%!

And that’s even with the big pause in economic growth worldwide. I’ve been extremely careful to own companies that can grow sales and earnings by double- and triple-digits in this environment. Imagine what they’ll do from here. I call these the “crème de la crème,” and the earnings potential may even be BETTER for these companies than what’s showing up in the numbers now!

So, this gives you a sense of how stock gains are “baked in” to the economic recovery. That’s even before you get into the fact that stocks yield so much more compared to bonds…

Right now, the dividend stocks in the Dow yield 3.14%. The 10-year Treasury bond yields just 0.58%.

In other words, Treasury yields would have to grow five times to catch up to stocks. As they do, dividend yields will also climb proportionally – making stocks even more attractive.

So…given that stocks are five times as valuable to investors as bonds…you can see how the Dow going from 26K to 40K starts to look not just possible – but probable.

Now that you see where I’m coming from, be sure to tune in to our debate on Wednesday at 4 p.m. ET, where Matt McCall and I will debate whether stocks will reach that milestone first, or if bitcoin will. I’m very confident I’ll win. And that you’ll see the explosive potential of the stocks my Portfolio Grader is uncovering now.

In fact, I’ll be giving away one of my favorite stock picks on Wednesday…and, again, this event is 100% free, no strings attached.

As I say, I’m putting my money where my mouth is – and so is Matt. He’ll also be giving away a pick for free, to help investors profit as bitcoin also climbs to 40K.

Tomorrow, you’ll be hearing from Matt as to why he thinks Bitcoin can beat the Dow to 40K.

I’d never bet against Matt, long-term. I simply think that my horse in this race will get there first.

Thanks for claiming your free spot in the Race to 40K debate and claim a free spot in the webinar. Click here to check out some free resources exclusively for attendees. See you there on Wednesday at 4 p.m. ET!