Some of you know that I used to co-write our Maximum Profit premium newsletter with my colleague Jimmy Butts.
And while Jimmy is still at the helm, I've since moved on to greener pastures. But writing that newsletter was one of the most eye-opening experiences of my investing career. That's because the system behind Maximum Profit flies directly in the face of what most of the mainstream financial media tells us "works" in the market.
But they couldn't be more wrong.
Today, I'm going to pull back the curtain a bit and walk you through how the system works. But I'm not stopping there...I'm also going to share a list of stocks that have been "scored" by Jimmy's system that has previously been available to Maximum Profit subscribers' eyes only.
More on that in a moment. First, let's discuss how the system works...
It's too bad most investors ignore this. The predictable yields (even at 10%+) are too "boring." But banking gains of 113%... 199%... and 446% is anything but dull. Now, see exactly why this one specific group of stocks is clobbering the competition... and nail down a 10%+ income stream for life today.
How The Maximum Profit System Finds Market-Crushing Stocks
In Maximum Profit, we use a proprietary trading system that scours the universe of stocks to find picks that have the best potential of delivering fantastic returns in a short amount of time (the average holding period is about six months).
At its core, the system is based on two key components: a technical indicator and a fundamental indicator. By combining the two, in return we get an elite system that has the uncanny ability to find solid companies that deliver big-time returns over a short-term period.
In its most basic form, the Maximum Profit system is momentum-based. That is, it looks for stocks that have performed well and should continue performing well.If that sounds scary or counterintuitive, then I'm sorry to say it, but you may have been brainwashed by the financial media and the so-called "experts" who confuse "value" investing with just-plain cheap stocks that are actually garbage. The truth is, it's been proven that stocks that have fared well recently should continue doing well in the short term. In other words, winners keep winning. I know that sounds really generalized, but it's been essentially documented in everything from What Works on Wall Street by James P. O'Shaughnessy to Nobel Prize-winner Eugene Fama (who noted that momentum is one of the only "anomalies" that defy the "efficient market hypothesis).
The Maximum Profit system scores stocks based on their relative strength. Relative strength tells us how well a stock is doing compared to all other stocks in the market. That's it. So if a stock comes in with a score of 90, that means it is outperforming 90% of all other stocks (the rankings range from 1-100). A score of 90 is rare and tells us that the momentum behind the share price is strong.
The system then combines the relative strength rating to a fundamental indicator we came up with, called Cash Flow Relative Strength. And as you may have gathered from its name, we're looking at a firm's cash flow... and how well it is growing it. As Jimmy says, cash flow is one of the only numbers a comapny can't fake, making it an extremely reliable indicator of a company's health. So we designed a little algorithm that ranks a company's cash flow growth relative to other companies from 1 to 100, with 100 being the very best.
Average those two numbers together (the relative strength rating and cash flow relative strength rating) and you get the stock's two-digit Maximum Profit score, or MP score. A score above 70 tells us a stock is firing on all cylinders and has a great chance of short-term gains.
Making Big Gains, Avoiding Huge Losses
Take Micron Technology (Nasdaq: MU) for example. The system brought it to our attention on October 18, 2013, when the system told us it was time to buy. During that time, shares rose 89% -- from $17 a share to $32.
Not bad, right? But buying is only half the battle. The beauty of the system is that it not only finds stocks that we should buy, but also indicates when we should sell. And as Jimmy consistently points out, that's really the most vital part of the system.
That's where the system can really save your bacon. For example, on January 7, 2015, our system alerted us that it was time to sell Micron. And as you can see from the chart above, it was a good thing, since the stock leveled off afterwards. But here's the kicker... if you look at the chart below, you'll see that MU fell all the way down to $10 by early 2016. It took two years to recover back to the levels where we sold it. (Look at the rest of the chart, too. I challenge any "buy and hold" investor to tell me they would have had the stones to ride this stock through this many ups and downs.)
The point is, knowing when to take profits or let profits run is can make or break your portfolio. It's the difference between an average investor and a great investor. That's because it's also probably the hardest part of investing. Most investors let small losers turn into big ones or cut their profits short. But the Maximum Profit system takes the emotion out of the equation.
A Whole Bunch Of Stocks, Scored By Maximum Profit
Now for the fun part...
In regular issues of Maximum Profit, readers are given a step-by-step guide on which stocks Jimmy is buying and selling, as well as a model portfolio that they can copy. But Jimmy and his team also do something few other stock advisories do: they invite readers to send in stock tickers that they would like the system to score.
This has become a wildly popular feature. Think of it as a no-nonsense version of what Jim Cramer does on Mad Money -- you send in stock names and tickers, we give you the score and tell you if it's a "buy" or "sell" -- but without all the crazy bells and whistles. But unlike the TV show, we're not relying on gut instinct here -- but rather a system based on studied, verified principles that are proven to beat the market year after year.
So today, I'd like to share with you a list of some of the most popular stocks that Jimmy and his team have been asked to score recently. Remember that only the stocks with an MP Score above 70 are technically "buys" according to the system (highlighted below in green).
(View a larger version of this table here.)
These are just a few of the stocks that Jimmy's readers had the Maximum Profit system score. I'm giving you a limited selection for the sake of time and space -- regular subscribers have access to much, much more... I also tried to narrow the list of stocks that are not buys to ones you're probably already familiar with -- but might be curious about.
Action To Take
Remember that the scores you see above are best used primarily as a starting point for further research. There's a ton of due diligence outside of the system that goes into each one of the picks Jimmy presents in every issue of Maximum Profit. The scores you see here -- and in the newsletter -- are most valuable in the here and now. Momentum can shift quickly, and rankings can change. If you find that one of your favorite long-tenured, blue-chip stocks doesn't have a favorable score on this list, it doesn't mean Jimmy recommends selling it.
That said, it stands to reason that there's at least one triple-digit winner within the six stocks that have "buy" signals according to the system -- and possibly more.
Like any system, the Maximum Profit system is only good if you actually follow it. But with gains like the Micron example I showed you above -- or 181% with Lannett... 90% with Electronic Arts... 72% with Alcoa... 135% with Westmoreland Coal... 242% with Bitauto Holdings, and countless others -- it's hard to ignore.
(This article originally appeared on StreetAuthority.com.)