Editor’s note: In a series of three articles, legendary investor Louis Navellier is revealing how he developed one of the greatest short-term money making systems on Earth. Below, you’ll find Louis’ first essay on this topic …
Ever since The New York Times called me “an icon among growth investors,” most folks think of me as a growth stock guy. And it’s true that I’ve spent my career helping investors discover quality high-growth stocks that can deliver extraordinary returns.
I’ve helped people make 1,125% in fast-growing beverage maker Hansen Natural … 457% in fast-growing energy firm Holly Frontier Corporation (NYSE:HFC) … 430% gains in fast-growing computer chip maker Nvidia Corporation (NASDAQ:NVDA) … 307% in fast-growing computer maker Dell … and 477% in fast-growing computer storage firm EMC Corporation (NYSE:EMC) … and the list goes on and on.
Getting into big stock growth winners like these have helped my readers double and triple the markets’ returns over the past 20 years.
As you probably know, a key part of successful growth investing is time. Even the best, fastest-growing companies need three, five, even ten years to become industry dominators. We must give growth stocks time to “gain weight” to make giant returns.
But about 10 years ago, while I was fine-tuning our long-term strategies, an accident occurred … something I never expected to happen in a million years. Thanks to this accident, my team and I found one of the most powerful ways to make giant short-term stock market profits ever discovered.
The good news about this trading method is that it doesn’t involve anything exotic or risky. It has nothing to do with options or futures or leveraged ETFs. It is “stocks only.”
Another neat thing about this system is that it doesn’t matter much what the overall market is doing. This system makes great money even in bear markets. This method of buying and selling stocks returned more than 50% per year from 1998 to 2003, a period marked by one of the worst bear markets in history.
The bad news about this system is that it’s not for everybody. I’ll show the reasons why in a moment. But if you’re someone who is willing to try something new, and willing to do a little more work than the average investor to make A LOT more money, then what I have to share could make you hundreds of thousands of dollars over the next few years.
Here’s the story of my accident … and how you can use it to turn the stock market into a tremendous source of side income.
Some Stocks Are a LOT Better Than Others
When I was in college at Cal State Hayward, one of my professors gave me an assignment to create a model portfolio that would mimic the performance of the benchmark S&P 500 index.
It was a dream assignment for a numbers guy like me … but I failed at it spectacularly.
The problem? My model kept beating the S&P 500.
This was back in the late 1970s when everyone believed it was virtually impossible to beat the market without taking on excessive risk. Conventional wisdom was that you might get lucky for a while, but no one could consistently beat the market.
Thankfully, my professors gave me unprecedented access to Wells Fargo’s expensive and powerful mainframe computers to continue to build my stock selection models. (Remember, this was more than 30 years ago, before laptops and PCs.)
Through hundreds of hours of research, I discovered how an elite type of stock consistently outperformed the broad market, year in and year out. Through extensive analysis, I isolated the eight key qualities that these super-performing high-growth stocks shared … and I developed a system for riding them. The research I did back then serves as the foundation of what is now an advanced, high-tech method of computerized market analysis.
If you’ve been investing in stocks for a while, many of the qualities I’ve identified probably won’t surprise you.
That’s because four of the eight qualities are related to earnings.
On any given business day, millions of people pay attention to the blinking lights and flashing numbers they believe make up “the stock market.”
Unfortunately, just a tiny percentage of those people will ever understand the real secret to making money in stocks.
These folks forget that a stock isn’t just a flashing light on a screen or a trading hot potato.
When you buy a stock, you buy a partial ownership stake in a real business.
You own a slice of that company’s equipment, inventory, patents, real estate and brands. You become financially exposed to both the company’s upside and downside.
The major drivers of a stock’s prices are earnings (or the anticipation of them). The more a company grows its earnings, the more its shares will be worth.
Stock price trends can diverge from earnings trends for a while, but over the long-term, if a company grows and grows the amount of cash it takes in, its share price is sure to head higher. That’s how the market works.
And that’s why if you’re looking for stocks with massive upside potential, you should focus on the companies with high revenue and earnings growth.
This is why my computer programs are constantly scanning the market for companies with outstanding quarterly earnings growth, outstanding annual earnings growth and a tendency to surprise Wall Street analysts with better-than-expected earnings growth.
In addition to qualities related to superior earnings growth, my system screens for companies with increasing operating margins, increasing sales growth, high returns on equity and strong cash flow.
Corporate America is not Lake Wobegon, where all the kids are above average. The brutal truth is that some companies are much, much better than others. They have better management, better products, bigger profit margins, stronger sales, stronger balance sheets, etc.
My system analyses over 3,000 stocks, grades them according to the individual qualities listed above and also combines the individual metrics to create an overall composite grade for any stock.
These grades are just like the ones in school.
A stock with the highest growth and business quality ratings gets an “A.”
A stock with miserable ratings gets an “F.”
The result of all this work? My readers buy the world’s fastest-growing companies … and hold them through their most successful years of expansion.
But as I mentioned at the start of this essay, my accident led me to discover a way to make large profits in stocks not from holding through “years” of growth like I was accustomed to … but through the specific days and weeks that the absolute best companies enjoyed compressed periods of hyper share-price growth.
During these periods, elite high-growth stocks can double and triple in value in a matter of months. In tomorrow’s essay, I’ll explain how to find them.
P.S. I’m excited to share with you over the next few days the rest of the story of how my accidental discovery led me to discover one of the most powerful money-making systems on Earth. That system has helped my readers double and triple the markets’ returns over the past 20 years. If you wanted to learn more details about how the system works click here now.