How do I identify the best growth stocks? Over the last 40 years, I’ve run thousands of computer simulations, pouring through millions of data points and I’ve narrowed all this market data down to one key calculation… the quantum score.
Now, you must understand that this score is proprietary. I don’t want people to figure out the exact calculations because it may reduce its effectiveness.
Which is why I don’t even give the actual scores out to my readers of my subscription service. Instead, I give just a simple grade on the stock, from A to F, which is a general approximation of the final score.
What I can tell you is that it all comes down to two proprietary formulas I’ve spent the past 40 years and millions of dollars testing, tweaking, and perfecting.
Turn $10,000 into $133,900
The first part is my quantitative formula of growth stocks.
In its simplest terms, I take the alpha of the stock and divide it by the volatility of the stock.
Stocks with high Alpha go up no matter what is happening in the overall market.
- If the market has a down year … stocks with high alpha go up.
- If the market is flat… stocks with high alpha go up.
- And if the market is going up… stocks with high alpha go up even more!
Because sometimes stocks can have alpha for the wrong reasons.
For example, a stock might have high alpha because it’s undergoing what’s known as a “short squeeze.” That’s when the people who are shorting a stock on margin are forced to buy back their shares and they bid up the price real quickly
Or a stock may just have high relative strength.
Which means short-term traders are driving the price action … Which is not going to give you the big, sustained price moves I’m looking to jump on.
No, my system is designed to find the growth stocks with a high alpha for the right reasons. Namely, they are attracting the attention of “elephants.”
I call them elephants because, while a rich individual investor might be investing a couple hundred thousand in a stock, some of the individual companies are controlling $10 billion or more in assets, which means the money they bring to the table absolutely dwarfs what any individual investor could possibly bring.
That’s why most big, sustained price moves are driven by these elephants accumulating shares of a stock.
My system is designed to target the stocks that are about to set off a stampede of elephants. Meaning multiple elephants, investing multiple millions if not hundreds of millions of dollars.
And all of them are competing to get into a stock at once.
Which creates a frenzy that could potentially send the price of a stock soaring 1,000% or more over the course of a few years.
Turn $10,000 into $133,900
That brings me to part two of my formula … the
fundamental formula of growth stocks.
Over the years, my system has uncovered eight key fundamental factors that are important to the elephants.
They are:
- Positive Earnings Revisions
- Positive Earnings Surprises
- Increased Sales Growth
- Expanding Operating Margins
- Strong Cash Flow
- Earnings Growth
- Positive Earnings Momentum
- High Return on Equity
My system scans over 5,000 stocks across the market …
And identifies the handful of stocks, based on the historical data, that have the key characteristics that will attract a stampede of elephants.
I follow approximately 5,000 stocks and apply both of my formulas to them constantly. When the alpha, volatility or fundamental score on these stocks changes, they are upgraded or downgraded in my system.
I have just run the new data and have upgraded several stocks that represent solid buys for new money I have also downgraded a few stocks that don’t have what it takes to deliver the outperforming gains I demand from every growth stock I recommend. I’m sure you’ll want to review this list carefully and act accordingly.
Sincerely,
Louis Navellier
