I introduced the subject of Net Profit Margin, NPM, two weeks ago because first quarter earnings reports were quite good, but that wasn't good enough for many analysts...they were looking for signs of better sales growth. Everyone knows that sales growth is vital to a company's long-term viability. Increased sales normally lead to rising earnings which, in turn, drive a company's stock price higher and higher. So the best situation is one in which a company has a positive NPM and rising sales and earnings.

So I created a search in which NPM was > 0.00 and EPS and SPS were both higher than they were 39 weeks ago. My first test found 1,115 such stocks, as of yesterday's close. They showed an average Price increase of 8.34% since 12/31/09 with 788 winners, 320 losers and seven unchanged. I then ran a test in which NPM was negative and EPS and SPS were falling. I was certain these stocks would have been destroyed. But they were not. I found 754 stocks which showed an average Price increase of 13.63%, with 460 winners, 275 losers and 19 with no change. I was surprised at these results, to say the least. So what's going on?

I didn't know, but I did see that the average Price of the stocks in my first test was $29.57 per share and that of the second test was only $5.40. This could be the difference maker since we have seen, time-and-time again, that low-priced stocks pop the most in a rally. When I adjusted the search to disallow stocks less than $1.00, I found 557 stocks with an average Price of $7.03 per share. They gained only 12%, but this was still better than I had expected.

Undaunted, I still believed that stocks with positive profit margins should outperform those with negative margins. So I decided to change the searches I used above so that I could study the effects of NPM Deltas. Without going through all the gory details, I was truly shocked by what I found. This search found 236 stocks as of yesterday's close that have gained an average of 20.90% since 12/31/09, with 163 winners and 73 losers. Yes, the average Price was relatively low at $6.24 per share, but these results tell me a story.

The world loves a fighter who comes off the mat and wins the match. Think about Ford Motor Company. You could have taken it for dead 15 months ago, but they turned things around. Their NPM may have been negative but it was on the way to recovery. Ford's making money right now and its stock is doing just fine. A lot of the stocks found by this search never will make money, but those that do, will soar. I added the search to the Net Profit Margin Group in the UniSearch tool. I call it "The Comeback Kids."

P.S. I still prefer to own stocks of companies with positive NPM and rising EPS and SPS, but if you like to bet on underdogs, this search is for you.

CHEERING FOR THE COMEBACK KIDS.
Many of these stocks may be down, but they're not out as you will be able to see from the great results that are possible with "The Comeback Kids." Mr. Steve Chappell, Director of Educational Services, will be tonight's promoter, trainer and referee in managing these lightweights. So join Steve at the VectorVest University to see this week's exciting "Strategy of the Week" presentation: "Cheering for the Comeback Kids."

The key to making money in any market lies in mastering the fine art of buying low and selling high. This, of course, is a lot easier said than done.

When it comes to stocks, most of us have been taught that a stock's price is low after it has fallen in price. So we bought stocks that were going down in price, hoping they would turn around and start going up. Bitter experience taught me that this was a dangerous practice...you never knew how low they would go. So the alternative would to be to buy stocks that were going up in price, right? Right.

You have to be kidding. If they were going up in price, they are higher now than they were before, so how could they be low? The answer lies in your assessment of what the stock's price is likely to do. If the stock's price has been going up and you thought it was likely to continue going up; then it would be low in price. On the other hand, if you felt that the stock's price was more likely to start going down; then it would be high. So the secret to buying low and selling high lies in assessing what a stock's price is likely to do.

Fundamentalists, who tend to invest for the long term, believe that undervalued stocks, such as those with low P/E ratios, are most likely to go up in price over time. They also believe that stocks of companies with consistent, predictable earnings and solid growth rates, i.e., safe stocks, also will go up in price. Technicians, who tend to invest for the short-term, look for evidence, such as moving averages, of price movement to the upside. Both of these schools of thought have merit, therefore, VectorVest advocates buying safe, undervalued stocks, rising in price. Even so, judicious application of these techniques is not enough to achieve the best results in both bull and bear markets.

Our experience has shown that if you want to make money in both bull and bear markets you must let the trend be your friend. You must buy rising stocks in rising markets and sell falling stocks in falling markets. Everything starts with the market direction and that's why we put the Color Guard right at the top of our Home Page. It tells you in an instant what the market is doing. When the Color Guard is showing Green, the market is rising. When it is showing Yellow, the market is in transition. When it's showing Red, the market is moving lower.

In my essay of September 12 2008, I said, "Think of the Color Guard as you would a traffic light. Green means go, it's OK to buy stocks. Yellow means caution, it may or may not be OK to buy stocks. Red means stop, don't buy any stocks." I urge you to read the entire essay, which is entitled, "The Color Guard, Clarified." It will go long way in helping you master the fine art of Buying Low and Selling High.

IS USING LEVERAGED ETFs WORTH THE RISK?
If you "Google" the term "Risk of Using Leveraged ETFs," you'll get about 175,000 hits with several good articles in the top 10. So the risks of using leverage ETFs has not gone unnoticed, but understanding why and how the risks arise may also be of interest to you. We're not going to go into those subjects here, but Mr. Todd Shaffer, one of our best instructors, will give us a fascinating presentation in which he compares the performance of standard ETFs vs. leveraged ETFs. So visit the VectorVest University to see this week's "Strategy of the Week:" "Is Using Leveraged ETFs Worth the Risk?"

Are you getting tired of watching all those high priced stocks you can't afford to own go higher and higher? Yeah, so Potash is up another $1.77 and pushing $221/share. So what am I going to buy with a thousand bucks? Four shares?

Never fear. VectorVest is here. Low-priced stocks -- we love 'em. Just take a look at this week's Strategy of the Week: Teeny Boppers. This is a great strategy -- one of my favorites, actually. It's been around a long time and has worked well over many years. Glenn Tompkins will show us how they're doing in the current market. Just visit the VectorVest University.

I've made some remarkable discoveries with this strategy. Read my essay of 01/17/03 and see what I mean. I suggested to my readers to take a look at SINA.com when it was at $9.37/share. It hit $42. I had discovered it with Teeny Boppers in July 2002 when it was under two bucks a share. Here's what I said in my 01/17/03 essay: "The biggest winning trade, a $1,415,445 gain, was made with a little stock called SINA.com. Take a look at its graph. It's a true Teeny Bopper."

The following week, 01/24/03, I posted the following notice:"ATTENTION TEENY BOPPERS FANS: Take a look at SOHU.com, (SOHU). I will be giving a brief presentation on last week's Overview at the San Diego Seminar." SOHU was at $9.75/share on 01/24/02 and it was on its way to $40.90. Just like SINA, Teeny Boppers found SOHU at a very low price, $1.70/share on June 28, 2002. So what was there to talk about at the San Diego Seminar?

First of all, you can find some incredible winners with Teeny Boppers. I've been doing it for years and can give numerous examples. Secondly, and very importantly, you can find some great winners even in the worst of markets. These guys have a life of their own. Take SINA and SOHU, for example. They were going up during the summer and fall of 2002 when the market was getting killed. So Teeny Boppers is a strategy you can run all the time. Thirdly, there are some secrets to picking the best stocks. The first and most important secret is to wait until the stock hits successive highs before buying it. SINA hit a new high five weeks in a row in July/August 2002. I believe Teeny Boppers found NutriSystems fifteen times as it broke out from $2 to above $5 in January 2005. Another important trick is to always favor nice smooth chart patterns. You want to see it flat-lining for a long time; then breaking out. SINA and SOHU are perfect examples of what I'm talking about.

Finally, I must say it's so easy to run Teeny Boppers with our current software. UniSearch does all the work. You just have run it once a week and remember the stocks with the repetitive new highs. Then pick the ones with the highest CI ratings. They have the best chart patterns. Do this and you'll have fun and you'll make money with Teeny Boppers.