How Fundamentals Predict Profits—and Losses

April 2, 2009

How Fundamentals Predict Profits—and Losses

In last week’s issue of What’s Working where I featured my favorite small-cap stock for April, I promised to go over an important preview of earnings season this time around. That’s because quarterly reports contain crucial information for investors. And unlike the buzz from disreputable sources or the slanted news coverage you get from various media outlets, these earnings numbers don’t lie. The Securities and Exchange Commission makes sure of that with the threat of heavy fines or long jail sentences for anyone cooking the books.

By taking a hard look at these numbers (which I call “fundamentals”), investors can be sure they are acting based on the facts. And in this volatile market, a little bit of certainty goes a long way! By buying stocks that have proven they are growing profits and earnings significantly, investors can be certain their money is safe and has the potential to deliver big returns.

This is the basic premise behind my Blue Chip Growth service, which has beaten the market 6-to-1 for 11 years by seeking out strong stocks with strong earnings. Not only do I offer an elite Buy List of stocks growing sales and profits, I also steer investors away from trouble spots. In fact, I just finished a Special Report titled 100 Big-Name Blue Chip Stocks to Sell Now. You can read this list yourself in a risk-free trial membership to Blue Chip Growth. You’ll get six months of my exclusive stock advice for just $99, backed by a 100% money-back guarantee.

But before you sign up for this limited-time offer, let me give you a taste of how Blue Chip Growth’s focus on fundamentals helps investors not just zero in on big gains, but avoid big losses, too. The following big-name stocks have some of the worst fundamentals on the market:

1. Alcoa (AA)

In the fourth quarter, Alcoa (AA) lost 28 cents a share—more than 150% worse than the -11 cents predicted. The company is off nearly 85% from its 52-week high.

2. General Motors (GM)

General Motors (GM) is clearly on the brink of failure. U.S. automakers were all over the news again this week as President Barack Obama forced out top executive Rick Wagoner. General Motors’ new CEO Fritz Henderson took the helm this week saying that while the company has resisted bankruptcy talk in the past, it is "certainly more probable" now than ever.

3. Toyota (TM)

GM isn’t alone in its troubles. Auto sales have dried up for everyone, and Japanese giant Toyota (TM) is also in dire straits.

4. Electronic Arts (ERTS)

Video game maker Electronic Arts (ERTS) missed earnings by nearly 40% last quarter, and is on pace to report a significant loss for the first quarter of 2009.

5. Capital One (COF)

Banks and brokerages are still hurting, and Capital One Financial (COF) is at the top of my “dogs with fleas” list for this sector. Bad debt and risky investment schemes really damaged this stock in 2008, and it has not yet recovered.