Identifying individual stocks in the prime of their financial performance period is central to GeoInvesting’s (GEO) approach to equity investing and greatest secret for making great returns. GEO uses a simple recipe to enhance portfolio returns, a recipe so rudimentary it can easily be over looked. How do we start? We begin by looking for companies that are about to enter a period of growth. Then we assign the company a Power Ranking based on some fundamental investment principles with a particular focus on earnings per share (EPS) estimates.
Through the use of analyst EPS estimates, we create a GeoInvesting Power Rankings (GPR) to help us identify opportunities that offer a potential for greater returns.
The GPR is the amount of consecutive quarters that a company is expected to experience EPS growth of around 30%, which means that a certain quarter’s EPS has to be 30% higher than the one immediately preceding it. The higher a stock’s GPR, the more timely and lucrative returns can be. From GEO’s experience, stocks with a minimum GPR of 3 or 4 (3 or 4 quarters of 30% growth) can begin to offer the returns that most investors look for.
Value + Growth + Momentum = Great Returns
Everybody looks at EPS estimates to quickly determine the potential value in stocks. It is a widely accepted way to catch a quick glimpse into company value without too much digging, and can offer a picture into the future. The GeoTeam looks for companies with the best value relative to their future growth rates.
Companies with good growth AND bad growth should always be looked at. The companies with good growth can continue to post stellar revenues every quarter. The companies with bad growth always have the potential to turn their operations around. As a matter of fact, it is these companies that GEO finds compelling since those that restructure their operations can experience a period of greater growth and momentum, but are not yet found by the masses. In other words, finding companies with a lousy or mediocre past that have restructured operations can increase investment gains and lead to a bigger GPRs.
GEO prefers to buy stocks that are one quarter away from a favorable GP; In essence, value + growth + momentum. A diamond in the rough has the potential to satisfy all three of these factors.
When EPS estimates are not available, other good ways to gather information are to conduct interviews, scrutinize press releases and listen to conference calls. A successful interview with a company that has a high GPR is a recipe for success.
From 2011 to 2014, U.S stocks that had restructured their operations faced the challenge of continuing the momentum that resulted from restructuring efforts. Much of these efforts produced stellar quarterly results, many times without the aid of robust revenue growth that investors crave. Can these stocks continue with this momentum? We will see. Companies that have historically performed badly can turn EPS estimates south, leaving these companies with a silver lining. Successful restructuring efforts will prove the analysts wrong.
What if A Good Company Failed to Exhibit EPS Growth?
Just because a company did not attain the robust 30% growth GEO looks for does not mean it is a bad opportunity if our diligence determines that growth will pick up in the future. Some of these scenarios actually turn out to be some of the most rewarding. Through proper research, you can find under-performing stocks that are about to embark on a growth trend of 3 to 4 consecutive quarters.
We are highly confident that applying GPR analysis to your U.S. portfolio holdings will substantially enhance investment returns.