About 30 years ago, I was in charge of a billion dollar business that was largely involved with a commodity, plastic. We were the world's leading producer of this plastic, making over two billion pounds a year. In order to cut costs, the business was integrated back to its basic raw materials that came right out of the ground. In fact, the plastic was called Geon, which was derived from the word Geo, of the earth.

In running this business, the name of the game was to produce a quality product at the lowest possible cost. Just do the math. One cent taken two billion times is $20,000,000. Our goal was to continue to be the world's low-cost producer and we worked very hard at it. But cost reduction alone wasn't enough to make a good profit. You also needed pricing power, which was impossible to get during a recession like we had in the early 80's.

Yes, I remember the early eighties very well...they were so reminiscent of what we have today. Cost cutting is king and pricing power is nowhere in sight. Last quarter's profits are deemed to be good, but investor's want to see sales growth because you can't cut costs forever. But, hey, all businesses aren't commodity businesses. There are companies out there that make specialty products, have pricing power and good profit margins. Who are they and how do you find them?

You use VectorVest, of course. All you have to do is create the following parameter: 100*(EPS/SPS), by using the Custom Field Builder. The 100 converts the ratio EPS/SPS from a fraction to a percentage. Since EPS is the forecasted Earnings Per Share and SPS is Sales Per Share, the new parameter gives you the Net Profit Margin, NPM, in percent. Let's see how well it works. (Dan Misch will show you how to create this parameter as an addendum to tonight's "Strategy of the Week" presentation).

You may recall from my November 10, 2006 essay, "How I Use Stock Viewer," that I like to use Stock Viewer to explore the extremes of all the various indicators and parameters in our database, so I put our new parameter into Stock Viewer and sorted by 100*(EPS/SPS) Desc. A stock called Targa Resources, NGLS, popped to the top of the list as of March 4, 2010. I took a look at its graph and it's beautiful. Wow, it has an NPM of 2,400%. Are you kidding me? VectorVest showed an EPS of $1.20 per share and SPS of $0.05 per share. So the math is OK. What about the data?

I clicked on News at the top of the Stock Viewer screen and a page from Yahoo!Finance popped up. I immediately saw that NGLS was a Limited Partnership, LP, so I was prepared to see some bizarre stuff...but nothing like I actually saw. I clicked on Key Statistics; then scrolled down to Income Statement. It showed that NGLS had Revenue of minus $1.52 billion and EPS of $0.66 per share over the last 12 months. VectorVest shows Sales of $3,180,000 and forecasted earnings of $1.20 per share. So who's right? I think VectorVest is, but if Yahoo!Finance is right, they ought to send whoever is running Targa to Congress.

Next I set the date in Stock Viewer to March 10, 2009, i.e., the day we saw the market explode from the Bear market bottom. I sorted by 100*(EPS/SPS) Desc., and ran a Quick Test from 03/10/09 to yesterday's close. It was up 118.42% with eight winners and two losers. Not bad, but the big winner was a $0.30 stock, which I didn't like. So I created a Derby Ready Strategy that I called NPM Analyzer and I put it into a new Group called Net Profit Margin. I ran the search as of 03/10/09; then ran a Quick Test through yesterday's close. It was up 65.07% with 100% winners. The big winner was Baidu.com, up 214.41%. Hmm, maybe, I have something here. I set the search date to 03/17/09, the first day we got a Green light after the March bottom and ran the test. Uh-oh. It was up only 29.93%. So I tried it on 03/26/09, when we got a C/Up signal. The result was better, up only 38.16%, but still somewhat disappointing.

I figured I had to adjust the search to return better stocks. So I set VST > 1.25 as one of the criteria and tried that. This search returned a better quality of stocks, but its overall performance was substantially worse than before. Out of curiosity, I decided to sort by 100*(EPS/SPS) Asc., instead of Desc. Remarkably, I got much better results with gains of 57.38%, 123.36% and 107.18%. Unbelievable! I then began to pick dates at random. In every test I ran, the Asc., sort beat the Desc., sort. What was going on?

I thought of Mr. Carlton Lutts, former editor of The Cabot Market Letter. He loved to pick stocks that were unknown, not yet making any money but were expected to. Many of his picks would sky rocket; then crash. When that happened he would say the love affair was over. He said that stocks were romanced before they started making money; then the accountants took over when they finally started to make money and they plunged. In honor of good, old Carlton, I called the revised Strategy, Romancing the NPM.

WINNING BIG, THE EASY WAY: FOLLOW UP.
We got so many questions regarding last week's "Strategy of the Week" that we decided to clarify exactly how those phenomenal results were obtained. We want you to know exactly how to use the 5-Day Derby Winners because it could be very big if it fulfills its promise. So join Mr. Dan Misch at the VectorVest University to see this week's very important "Strategy of the Week" presentation: "Winning Big, The Easy Way: Follow Up."

The VectorVest RealTime Derby is such an in incredible tool that I want all of our subscribers to benefit from it even if you don't have it on your computer. That's why we began discussing the Daily Derby Winners in the Daily Color Guard Report shortly after releasing the VectorVest RealTime Derby last summer. We gave our first "Strategy of the Week", SOTW, presentation regarding Derby winners on October 9, 2009. It was called, "Winning with Weekly Winners."

That presentation was based on the idea that the Strategies which appear frequently among the top five Daily Derby Winners should produce good results...at least in the short-term. Mr. Glenn Tompkins, who gave the 10/09/09 SOTW presentation, illustrated this point quite well.

Over the last two weeks, we introduced the concept of betting on Derby Leaders, i.e., Strategies showing the biggest percent gain since the most recent appearance of a Red or Green light in the Price Column of the Color Guard. As noted in last week's essay, the five Strategies shown on February 12th performed extraordinarily well through Friday, February 19th. They also did well on Monday, February 22nd. Then the big down day came on Tuesday, February 23rd, and all five Strategies pulled back. They bounced back on Wednesday as the market recovered; then went on a roller-coaster ride yesterday. QuickTest shows that while all of these Strategies are still in the black, they are all down from last Friday.

Through it all, I carefully watched what the Derby was showing me. I noted the performance of the Daily Winners, the 5-Day Winners and the Derby Leaders. I saw the Daily Winners go from Bullish to Bearish as the market went from up days to down days. I saw the 5-Day Winners go from 100% Bullish to a mixture of Bullish and Bearish Strategies as the rally stalled. Finally, I saw the Derby Leaders steadfastly remain 100% Bullish although their performance eroded day-by-day.

Since I had learned not to chase the Daily Winners because they were too flighty, I elected to go with the Derby Leaders because they were steadier. But I wondered last week if I was I being stubborn and forgetting to "Let the trend be my friend?" I know I can't fight the market. When the Derby shows Bearish Strategies outperforming Bullish Strategies and I see Bearish Strategies among the 5-Day Winners, I have to pay attention. So I thought about Mr. Glenn's SOTW presentation, "Winning with Weekly Winners."

I had sort of forgotten about Mr. Glenn's SOTW because it seemed like too much work. But that was before the Tote Board was released, and gee, we were publishing the 5-Day Winners each Friday in the Views. So how much work is it to check the Friday Views and give Mr. Glenn's technique a try? Lazy as I am, I'd have to admit, it's not much work at all. Using the technique shown in this week's SOTW, the 5-Day Derby Winners can get you on track to Winning Big, The Easy Way.

WINNING BIG, THE EASY WAY.
You have to see this week's presentation. Mr. Jerry D'Ambrosio, Consultant and Instructor, will show us how easy it is to make money with the 5-Day Derby Winners. So join Mr. D'Ambrosio at the VectorVest University to see this week's excellent "Strategy of the Week" presentation: "Winning Big, The Easy Way."

P.S. Given the essay shown above and the results presented in this week's SOTW, we will be listing the top five 5-Day Derby Winners in the Daily Color Guard Report each night in lieu of the Derby Leaders. However, we will still be using the Enhanced ProTrader Market Timing Graph, EPMTG, to analyze the direction of market as shown in last week's SOTW presentation.

Exactly four months ago, on October 19, 2009, the Price of the VectorVest Composite closed at $23.61 per share. Yesterday it closed at $23.64 per share. During this four month period it hit a low Price of $22.03 and a high Price of $24.45. How does one make money in a flat, herky-jerky market?

Last week I said one needs to "see through the market's daily gyrations and stay with the prevalent trend." I then described a method of doing this by using the Enhanced ProTrader Market Timing Graph, EPMTG, and the Daily Color Guard. We also gave a "Strategy of the Week," SOTW, presentation which illustrated the efficacy of the technique. We also used the technique in last Friday's Views to explain exactly what to do should the market move higher, as we expected, on Tuesday and we suggested five Strategies to use for your stock selections.

Indeed, the market did open higher on Tuesday, February 16, 2010, and the stocks in the Strategies we had suggested took off like birds. At the end of the day, QuickTest Portfolios of the top 10 stocks from each of the five suggested Strategies showed an average gain of 3.78% with 45 winners and five losers. As of 12:15PM, today, February 19, 2010, these same five Portfolios are showing an average gain of 6.21% for an annualized rate of return of over 300%. Fantastic!

So what are Derby Leaders and how does one find them? Derby Leaders are the five Strategies which are showing the highest cummulative percent gains from the day the Color Guard gives a Red or Green Light in the Price Column to the end of the current day. The Color Guard showed a Green Light in the Price column last Friday, February 12th, so we reported the five Strategies with the highest percent gains for that day. On Tuesday, February 16, 2010, we reported the five Strategies with highest total percent gains for the two day (Friday to Tuesday) period. On Wednesday, we reported the five Strategies showing the highest total percent gains for the three day (Friday to Wednesday) period, and so on.

These Strategies are extremely easy to find since we give them to you in the Strategy section of the Daily Color Guard Report shown on the Home Page of VectorVest U.S., and in the Views of both VectorVest U.S. and VectorVest RealTime. Subscribers to VectorVest RealTime who have the Derby Tool can also check them out during the day by using the Tote Board.

We call these Strategies Derby Leaders because we want to differentiate them from the Daily Derby Winners, i.e., the Strategies with the best single day gains. Daily Derby Winners are great to use for finding "hot poppers," but I like to find Strategies that are producing winners on a consistent basis, day after day. Logically, one would think that the Strategies that have performed the best from the onset of an upturn or downturn would be the ones which are consistently producing winners. So we have been illustrating methods of identifying these Strategies. For example, you may refer to the SOTW presentations of 10/09/09, 10/30/09, 11/06/09, 11/27/09 and 02/12/10 to see how this technique has developed.

The results shown in these SOTW presentations as well as those that you will see in this week's SOTW presentation should encourage you to bet your money on Derby Leaders.

HOW TO USE DERBY LEADERS WITH CONFIDENCE.
Mr. Todd Shaffer, Instructor and Product Support Consultant, will be giving a very special presentation this week which will show you how to use the Enhanced ProTrader Market Timing Graph and Color Guard to know exactly when to enter an upwave or downwave and use the Derby Leaders. So join Mr. Shaffer at the VectorVest University to see this week's extremely important "Strategy of the Week" presentation: "How to Use Derby Leaders with Confidence."

P.S. The techniques shown in this week's SOTW presentation are so good that we will be using them in our Daily Color Guard Report videos.

With triple digit up and down days becoming par for the course, the market has been herky-jerky lately, to say the least. So how can one survive these wild swings and still make some money? The best way I can think of, is to learn how to see through the market's daily gyrations and stay with its prevalent trend, the way to do this is to use the Enhanced ProTrader Market Timing Graph, EPMTG. I wrote about this graph on November 30, 2007 and an excellent "Strategy of the Week" presentation was given which showed what it is and how to use it.

Nowadays, we use the EPMTG regularly in our Daily Color Guard Report, but before I go too far, let me tell you more about the original ProTrader Market Timing Graph. It used three key indicators: A Detrended Price Oscillator, Envelopes and a 30-Day Weighted Moving Average. Many of our subscribers refer to it as the "DEW" system of Timing the Market. But make no mistake, the DEW system does not conflict with or replace our Standard Market Timing System. It serves as a compliment. All I did to create the EPMTG was to add the MACD to the DEW graph. The key to using it properly is to use the MACD crossovers to pinpoint meaningful changes in market direction.

To see the EPMTG, simply access the Standard Market Timing Graph; then click on ProTrader Graph in the box labeled Graph Type. (If you do not have ProTrader on your computer, you may visit our website, or click here, to sign up for a Free 2-week Trial). I usually set the graph up with a 3-month Period in order to clearly see the MACD crossovers. If you do this, you can easily see that the DEW indicators signaled the start of a rally on 12/11/09. The Color Guard flashed a green light on 12/14/09 and the day's "Five Best Performing Strategies," all Bullish, were listed. Which one would you have chosen to use?

According to the EPMTG, the rally lasted until 01/20/10, and the Color Guard coincidentally flashed a red light. The day's "Five Best Performing Strategies," all Bearish, were listed. Which one would you have chosen to use?

I observed an interesting phenomenon while preparing for this essay. The Total Gain column of the Totalizer, in the VectorVest RealTime Derby, showed a steady series of top performing Bullish Strategies, day after day, throughout the rally from 12/14/09 through 01/20/10. It did not flip-flop from Bullish to Bearish and back again according to the daily whims of the market. It also showed a steady series of top performing Bearish Strategies, day after day, throughout the downturn from 01/20/10 through to today. It did not flip-flop from Bearish to Bullish and back again even when the market rallied sharply.

What this tells me is that we should be able to use the EPMTG, the Color Guard and the Totalizer to see through the market's daily gyrations, stay with the prevailing trend and pick sure-fire, money making Strategies. What A Magnificent Combination.

P. S. From this time forward, we will report to you the Strategies with the best Total Gain as shown in the Totalizer from the onset of a new trend. We will call them Derby Leaders.

GOING TO THE BANK WITH DERBY LEADERS.
How well could you have done if you went long with one of the Derby Winners listed in the 12/14/09 Color Guard Report, and went short with one of the Derby Winners listed in the Color Guard Report of 01/20/10? Mr. Glenn Tompkins, Manager of Internal Training, has the answer. So visit the VectorVest University to see this week's very important "Strategy of the Week" presentation: "Going to the Bank with Derby Leaders."