Navellier Growth: your source for market-beating growth stocks

Sometimes I’m amazed that Wall Street even has securities analysts to do stock research. Don’t get me wrong—some analysts are very good, but collectively, they act like a giant flock of sheep. They just blindly follow all the other sheep.

Frankly, I enjoy watching the flock in action—it’s a lot easier for me to make money when the crowd acts in unison. I’ll give you a perfect example. A few years ago, I recommended Enron. Yep, I’m one of the few who admits it today.

Everyone on the Street loved this stock. The media thought these guys were geniuses. As for me, after doing the stock research the numbers looked solid. But after a while, something didn’t look quite right. My computer models picked up on some disturbing signs, most likely caused by major hedge funds dumping the stock.

Well, I didn’t wait around. I quickly issued a sell signal to my subscribers, and we bagged a nice 30% profit. A few weeks later, the bottom fell out, and the company went bankrupt. I’m certainly glad we sold when we did. Forbes even wrote about my prescient call.

But here’s the odd thing, even when Enron was collapsing, the Wall Street flock didn’t budge. Of the 17 firms that followed Enron, 16 still had it rated as a “buy” or “strong buy.” Think about that! Just one brave soul departed from the flock—and he had it rated as a “hold.” Talk about a black sheep in the family.

The Analysts Still Don’t Get It

Ever since the dot-com bust, the Enron fiasco and the Global Research Settlement, Wall Street has drastically cut back on its stock research departments. Once again, that’s the way I like it. Fewer eyes watching the market means easier profits for my subscribers and me.

In fact, I think analysts are getting worse. Case in point: The analyst flock completely missed the whole subprime meltdown. Bloomberg recently reported that Wall Street has been asleep at the switch. Analysts overestimated third-quarter earnings by 8.2%. Did that wake them up? Not at all. They overshot fourth-quarter earnings by a stunning 33%. That was the largest miss ever recorded!

Let’s face it, Wall Street has a serious credibility problem, and it’s not getting any better. It burns me up to see so many highly paid analysts acting as cheerleaders for management. These folks rarely ask the hard questions. They’re practically part of the PR departments of the firms they’re being paid to scrutinize. Is it any surprise that when Yahoo was looking for a new president, they chose Susan Decker, a former Wall Street analyst who used to follow the stock? Gimme a break.

Two Stocks You Can’t Afford to Miss Out On

This week, I want to talk about how we can profit from the Wall Street flock. I’ll give you two examples from just last week. Two of my favorite Emerging Growth stocks, Valmont Industries (VMI) and Exponent (EXPO), blew away Wall Street analysts with their earnings reports.

The analysts were expecting Valmont to report $1.01 a share, which I knew was far too low. Sure enough, Valmont came in with earnings of $1.13 a share. The stock gapped up nearly 9% on the day of its earnings report. We now have an 86% profit in Valmont.

As good as that was, Exponent, which is a Top 10 stock this month, did even better. The funny thing is, only two analysts even bother following Exponent. Last quarter, they missed EXPO’s earnings by 32%. This quarter, the analysts were expecting earnings of 33 cents a share. EXPO reported earnings of 40 cents a share for a 21% earnings surprise. The next day, the stock exploded 19% higher as traders fell over themselves to buy more shares.

Now, of course, after the stocks have rallied, I expect to see some analyst upgrades.

Enough about what has happened, let’s look forward to next week. Before I get to two of my top candidates for earnings surprises, I want to give you this opportunity to sign up for a three-month subscription to Emerging Growth for $295.

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Two Stocks to Watch Next Week

Now, let’s look at what’s in store for next week. On Monday, Gen-Probe (GPRO) and Ducommun (DCO) report earnings. I won’t guarantee that they’ll beat analysts’ forecast, but I do know that many analysts don’t get these businesses.

The Street expects Gen-Probe to earn 50 cents a share. Bear in mind that three months ago, Wall Street missed Gen-Probe’s earnings by nearly 20%. Ducommun could be the big earnings surprise story for this quarter. Last quarter, the stock gapped up 23% on its earnings announcement. That’s how much Wall Street was taken by surprise.

I currently rate Gen-Probe (GPRO) and Ducommun (DCO) as strong buys (A-grades) for all types of investors.

That’s all for this week. Remember, don’t blindly follow what the gurus and talking heads say. I’ll have the next issue of “What’s Working on Wall Street Now” next Thursday, May 1.

Sincerely,

Louis Navellier

P.S. Take this opportunity to sign up for three months of Emerging Growth for $295. Or you can get a full-year subscription for $995. You simply won’t find an investment service with a better track record than Emerging Growth. Join us today.