(If you find the notes below difficult to follow, the video will help).
Market risk assessment:
- High, New Purchases 4% Of Cash Position.
- SPY currently trading at $416.89. Indicated BuyAt $388.03 (6.92% below current market), SellAt $429.78 (3.09% above current market).
- Calculation based on proximity of current price to the Algo-indicated BuyAt and SellAt prices of the S&P 500 and the fifty fastest-growing, low-debt, highly profitable companies trading on US exchanges.
- The Risk Research portfolio is currently 93.65% in cash. It is up about 5.19% this year, year to date. A couple of weeks ago we were 93% invested and have been selling into the recent market strength. Much of this selling was driven by a desire to get out of companies with high but declining rates of growth, and into companies with accelerating growth.
- Click on images to expand.
A Brief Introduction To Our Investment Approach and Research
Using a combination of Graham & Dodd-type fundamental financial statement analysis, and software, Risk Research analyzes, in a detailed way, the financial statements of all public companies looking for signs of important improvement or deterioration.
Our research is about fact, not conjecture. We don’t predict the future, or earnings or the economy or the market. But we’ve run businesses, studied accounting and know how to develop software. To paraphrase Yogi Berra, you can tell a lot about a company by looking. Key among the things an investor
needs to be aware of are financial statement trends. They contain a wealth of information about risk and potential. Companies with improving financial statements – improving margins, declining debt, rapidly increasing revenues, for instance — way outperform those with the opposite characteristics.
Financial statement trend analysis helps you understand your risk and understand the potential of an investment.
Almost all of the work we do consists of comparing every public company to the thousands of others. Relatively little goes into researching specific companies. There’s lots of that on Seeking Alpha and other venues for those who want that.
SuperGrowth MultiBagger: ERIC – Telefonaktiebolaget L M Ericsson
Our selection for today, ERIC – Telefonaktiebolaget L M Ericsson, ranks 8 out of 62 on the list of high-momentum SuperGrowth MultiBaggers. ERIC produces telecommunications hardware including for 5G. With Nokia and Huawei, the company controls 80% of the markets it competes in. Geopolitical friction with China may hurt the company’s operations in that country, but if the US and Europe reduce trade with China in sensitive high-tech telecommunications products such as those produced by Huawei, ERIC’s market may grow substantially. We have no idea how that might evolve, but the company’s current financial statement trends indicate it may have huge potential.
In terms of sales growth, ERIC is unimpressive. Over the last twelve months revenue and gross profit have grown about 5.8%. Over the last five years, an even more anemic 2.4%. The more interesting trend, however, is how that rate of growth has been generally improving since the company was restructured two years ago, and that trend is accelerating. The trend is particularly noticeable in the graphs below in gross profit and in free cash flow. We’ve found such trends to often foreshadow substantial stock price appreciation.
In the chart below, bottom left quadrant, note the rolling numbers. This compares the latest four quarters to the four quarters immediately prior, and so on.
In the chart below note how these trends are contributing to overall financial statement strength. Again, this pattern is often associated with subsequent stock appreciation.
Finally, the conclusion of our buy on weakness, sell on strength pattern recognition software. Based on the patterns it sees, it now indicates a BuyAt price of $12.98, 6% below the current market of $14.05. A key element of our investment approach is to follow a lot of companies — companies with improving financial statement momentum — and wait for opportunity to present itself. Opportunity presents itself when good stocks decline.
It is important to note that the Algo updates every few minutes throughout the day based in part on volatility. Higher volatility means and the bid drops, lower volatility and the Algo will pay more.
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