Train Your Brain To Pick 10X Stocks Now
Felix here, coming to you from an airport lounge, and today, I want to share with you a powerful system to pick great stocks. This three-step method can help you identify high-growth stocks and build wealth. Let’s dive in.
Step 1: Gross Margin
The first metric to look at is the gross margin. This is the difference between revenue and the cost of goods sold (COGS). A high gross margin indicates a company’s efficiency in managing its production costs and its ability to retain earnings.
- Great companies: Have a gross margin of 60% or more.
- Software companies: Often boast an 80%+ gross margin.
- Financial giants like Visa and Mastercard: Nearly 100% gross margin due to negligible sales costs.
For manufacturing companies, a 40% gross margin is commendable due to higher production costs. Gross margin is also a reflection of a company’s competitive moat – the deeper and wider the moat, the better the company can sustain its market leadership and profitability
Step 2: Return on Invested Capital (ROIC)
Next, consider the return on invested capital (ROIC). This metric measures how well a company uses its capital to generate profits. If you invest $100 in a company, ROIC shows how much profit the company makes from that investment.
- Target ROIC: Aim for at least 12%, as this matches or exceeds the average market return over the past decade.
A high ROIC indicates a company’s effectiveness in deploying its resources to generate returns, a crucial factor in long-term stock performance.
Step 3: Earnings Per Share Growth (EPS Growth)
Finally, focus on earnings per share (EPS) growth. This metric accounts for the company’s profit on a per-share basis, adjusted for share dilution. Companies that frequently issue new shares can dilute earnings, which is why EPS growth is a critical indicator of true profit growth.
- Desired EPS Growth: Should be at least 12% to align with market growth expectations.
By filtering stocks with these three metrics – high gross margin, strong ROIC, and significant EPS growth – you can narrow down your search to some of the best-performing companies.
Applying the System
To put this system into practice, use the data available on every S&P 500 stock. You can download and filter this data to find stocks that meet these criteria. This method not only simplifies stock selection but also enhances your chances of picking high-growth stocks.
Why It Works
This three-step system helps you:
- Identify companies with strong profitability and efficiency.
- Ensure the company effectively uses its capital.
- Focus on true profit growth, accounting for share dilution.
By following these steps, you eliminate 90% of companies that don’t meet high growth standards, making your investment decisions more informed and strategic.
Conclusion
Train your brain to pick 10X stocks using this simple yet effective system. Gross margin, ROIC, and EPS growth are the key metrics that will guide you to make better investment choices. Start applying this method today and watch your portfolio grow.