One of my goals this summer is to show just how versatile Portfolio Grader can be for individual investors. While I am strictly a numbers geek and like to stick with the process that I have developed over more than 30 years for picking winning stocks, I know not everyone thinks like I do. But even if you’re not a growth stock investor, Portfolio Grader can still be enormously valuable for you.
Today I want to highlight how this incredibly versatile tool can help you identify the best stocks in bad industries.
There is a certain cyclicality to most industry groups, and today’s laggard could easily become tomorrow’s leader. Some investors like to make bets on which groups will turn around and return to favor. The key to any success in this endeavor is figuring out which stocks to buy to benefit from an eventual recovery.
George Soros once said that when he invested in out-of-favor sectors, he would buy the best and the worst companies in the group. The logic was that the best companies would lead the sector higher, and the worst ones had the most recovery potential. I will leave it to someone else to find the worst stocks — but using Portfolio Grader, I can certainly find the best stocks in an out-of-favor industry.
The worst group on the planet right now is basic materials. If you dig it out of the ground, melt it, or use it to build things or make stuff, odds are the stock is down. The weak economy has led to excess supplies of steel, aluminum, copper, steel, and precious metals. The sector has just been terrible for investors, with many stocks down 50% or more. This dynamic will change at some point as the economic recovery gains steam and supply and demand come back in line. The key is to own the right stocks when this happens.
Most of the basic material stocks have terrible fundamentals right now and are best avoided — but there are a few standouts that investors betting on a recovery might want to own right now.
Even with all the regulatory, environmental and economic headwinds facing the coal industry, Hallador Energy (HNRG) has managed to grow its business and maintain excellent fundamentals. The company posted an earnings surprise of more than 40% last quarter, and analysts have been raising their estimates for the rest of this year and 2014. The excellent fundamentals are reflected in Portfolio grader and the stock was upgraded to a “buy” rating in May.
U.S. Silica Holdings (SLCA) mines and process silica that is used by the oil and gas industry in the fracking process, and by the glass industry in the manufacturing process. Earnings have grown steadily over the past five years and should continue to do so according to most analysts. The stock was also upgraded to a “B” back in May and remains a “buy.”
Portfolio Grader can help you find the stocks with the very best fundamentals to help you fund profits — no matter how you choose to approach the investing process.
Louis Navellier is the editor of Blue Chip Growth.