Some parts of the market are more predictable than others … Louis’ emphasis on stock fundamentals … a big gain for one builder
It’s June 1 and I’ve already been to a few barbecues, had smores and swatted mosquitos.
Summer has begun.
And Americans have started the summer travel season…
Americans are expected to spend more than $221.6 billion on travel this summer, according to Allianz Partners USA – a travel insurance and assistance provider. The 2024 figure represents a 3.5% increase over last year and a 118% jump compared to 2019!
I plan on doing my part…
My family and I have taken a lot of National Park trips through the years – including a memorable summer vacation to Yellowstone National Park in Wyoming.
Yellowstone was America’s first National Park and is home to Old Faithful.
If you don’t know, Old Faithful is a cone geyser given that name because of its highly predictable eruptions.
When I visited, it spouted exactly at the time predicted.
There are lots of such geysers in Yellowstone, but the predictable nature of Old Faithful is what makes it so amazing.
Believe or not there are a few predictable things in the market too. And knowing when and where these events take place can give you a huge edge.
Louis Navellier’s recipe for consistent success
If you’re new to the Digest, Louis Navellier is a legend among growth investors. He has a 40-year track record of picking stocks using a proprietary quantitative system that has led to market outperformance year after year after year.
And the key to his success, is using a system that makes stock performance more predictable.
And the source of that predictability is the fundamental performance of a stock. What does that mean, exactly?
- Increasing sales growth
- Expanding operating margins
- Earnings growth
- Positive earnings momentum
- Positive earnings surprises
- Positive earnings revisions
- Free cash flow
- Return on equity
All these criteria must be met for a stock to land in Louis’ portfolio.
And the result is predictable market outperformance – regardless of any market moodiness. That’s the advantage of investing with fundamentals. Here is Louis summarizing it all for his Growth Investor subscribers.
In fact, my latest backtest of Portfolio Grader showed that stocks with the strongest fundamentals and highest fundamental grade in Portfolio Grader have outperformed the market recently.
Our Growth Investor stocks clearly fit the bill, as they remain characterized by 17.3% average forecasted sales growth and 182.8% average forecasted earnings growth. So, I look for our Growth Investor stocks to continue to exhibit tremendous relative strength in the coming weeks and months.
And the thing about having strict criteria is that it can also signal when to sell … here was Louis’ next paragraph.
Now, with that said, one of our current Buy List positions no longer meets our strict criteria, as analysts have lowered earnings estimates over the past two months. So, I recommend that we book our gain in the stock today.
Just yesterday Louis closed out a trade in Builders FirstSource, Inc. (BLDR) for a 130%+ gain. BLDR is the biggest supplier of structural building products and homebuilding services in the country.
When Louis first recommended it back in March 2022, he noted the surge in homebuilding and the solid fundamentals. That pick was based on great fundamental numbers and the tailwind for homebuilder due to lack of existing home inventory.
Here is part of what he wrote back in 2022:
During the fourth quarter, sales jumped 83% year-over-year to $4.63 billion, while earnings soared 216.3% year-over-year to $442.5 million, or $2.31 per share. Adjusted earnings per share were $2.78, which topped analysts’ estimates for $1.91 per share by 45.5%.
For its fiscal year 2021, Builders Firstsource achieved total sales of $19.9 billion and adjusted earnings of $2.1 billion, or $10.32 per share, which represented 132.4% annual sales growth and 464.8% annual earnings growth.
Looking forward, the company expects strong demand from the housing market to continue to drive robust results in 2022 – and the analyst community agrees. First-quarter earnings are expected to grow 81.8% year-over-year to $2.00 per share, and sales are forecast to rise 10.1% year-over-year to $4.6 billion.
So, obviously, something changed… here is his note about why he advised his subscribers to sell.
Despite high mortgage rates that have led to weak home sales, Builders FirstSource business has remained resilient. First-quarter sales rose 0.2% year-over-year to $3.9 billion, besting estimates for $3.82 billion. Adjusted earnings per share dipped 10.5% year-over-year to $2.65 but beat analysts’ estimates for adjusted earnings of $2.30 per share.
For the second quarter, though, analysts have lowered earnings estimates over the past two months. The consensus estimate now calls for earnings of $3.04 per share, down 21.9% from $3.89 per share in the same quarter a year ago. Sales are also forecast to dip 0.8% year-over-year to $4.49 billion. So, I recommend that we sell the stock today.
If you bought BLDR when we added it to the High-Growth Investments Buy List in April 2022, you’ll sell the stock for about a 130% gain. Sell BLDR.
Here is the chart as of Friday morning.
Regular Digest readers will remember Louis’ phrase about the “Iron Law” of the stock market.
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. It’s the “iron law” of the stock market.
Right now, there is no better example of this than Nvidia (NVDA), which Louis still holds as an open position in Growth Investor, and has returned subscribers more than 2,000% since his buy recommendation.
Of course, no one has a crystal ball. Unfortunately, the market isn’t quite as predictable as Old Faithful.
But buying based on fundamentals puts the “Iron Law” of the stock market on your side.
Louis has just released a presentation on the massive bet Jeff Bezos has made on the single most transformative technology ever… something that would disrupt a $46 trillion market.
Click here to get all the details!
Enjoy your weekend,
Luis Hernandez
Editor in Chief, InvestorPlace
