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."

Five weeks ago, when we got a Confirmed Up signal, I wrote an essay called, "Time to Transition." It was meant to show how stocks with weak fundamentals fly upward in Price when the market rallies from a bottom, but stocks with good fundamentals do not perform as well. The Price performance of the weak stocks, however, tends to peter-out in a relatively short time while the Price performance of the strong stocks tends to get better as time goes by. Therefore, I was suggesting that it was time to transition from picking weak, beaten down stocks with "S" ratings to solid stocks with "B" ratings.

To my amazement, our Bottom-Fishing strategies continued to work well and even outperform high VST stocks, so I have stayed with Bottom-Fishing strategies to the current time. Furthermore, I was quite impressed by last week's "Strategy of the Week" presentation, "Digging for Gold Using Stock Viewer," given by Glenn Tompkins. You may recall that the best result he showed was obtained by sorting by RV, Relative Value, Desc. It was up 87% from 03/10 to 04/23. This result is logical since RV goes up when a stock's Price goes down and the stocks Glenn found certainly had gone down as shown by their low RT, Relative Timing, values.

Hmm, I wondered, what would I find if I looked at the stocks with the lowest RT's? So I sorted Stock Viewer by RT Asc. I really expected to get a lot of crazy, low-priced stocks from this sort, and I did get some. But the percent gain was 230%. Wow! The percent gain from 03/10 to yesterday's close was 274%. Wow! Wow!

OK, the results are astonishing, but how can I get a selection of stocks with better fundamentals? Sort by VST/RT, of course! So I clicked on the Edit button, selected VST/RT from the list of Custom Sorts and clicked on the radio button to the left of Desc. This sorted Stock Viewer by VST/RT Desc. Uh Oh. I got a gain of only 167%. Somehow, I had to start with a list of better stocks. This meant that I had to use UniSearch, which I didn't want to do because the beauty of Glenn's presentation was its simplicity, or I had to use WatchLists.

The first WatchList I tried was Blue Chip Bargains. Sorting by RT ascending worked like a dream. Would it work with the S&P 500? You betcha! Does it work with the Russell 2000? Oh my goodness! The results were incredible. Well, doing this was simple enough. I just open the WatchList of my choice, set the date and sort by RT ascending. Fantastic. So I did this over and over again, testing different combinations of low points to high points as identified on the Market Timing Graph, going all the way back to 1997. The results were fantastic just about every time.

Now I want to use this bottom-fishing technique in managing portfolios. The easiest way is to create Strategies in the UniSearch Tool. These Strategies are named as follows: Blue Chip Bargains/RT, S&P 500/RT, Russell 2000/RT and they're all located in UniSearch in the Strategies - Bottom-Fishing Group. To make things really convenient, we took our other favorite bottom-fishing strategies, such as Jail Break - No Contra ETFs, Blyar's Bottom Feeders/BMB and so on and also put them in The New Strategies - Bottom-Fishing Group.

The goal of every brokerage firm is to have thousands, if not millions, of its customers send them a check every month. So how do they try to make this happen?

They tell investors things that aren't true. They say things that have been carefully crafted to sound factual, logical and reasonable but are not. These things have been repeated so long and so often that they have become the conventional wisdom of Wall Street. They are presented as though they were meant to help you make money in stocks, but they actually were tailored to get your money and keep it. So what are these lies and how can you avoid their pitfalls?

Come hear my presentation on Saturday night, January 3, 2009, at our All-New, Two-Day Investment Seminar in Tampa, FL, and I'll tell you all about Wall Street's Five Biggest Lies.

JAIL BREAK.
What do Bottoms Up, Jubilee, Odd Fellows Long and Pirates Long have in common? Why have these strategies produced explosive profits time after time when the market soars from a bottom?

They all find stocks that have very low RT levels at market bottoms, whether you find these stocks by sorting by VST/RT, RV/RT or GRT/RT Desc. These strategies also find stocks with high RV levels. So the moral of this story is that reasonably good stocks which have been the most beaten down in price fly higher and faster than those that have held up the best. With this in mind, I wanted to create the mother of all explosive strategies. So I came up with a new strategy called "Jail Break."

How would you like to pick stocks like Mr. Warren Buffett does? You're not alone. USA TODAY featured a cover story yesterday on 47 books with Mr. Buffett's name in their titles. I'm happy to say I ingested Mary Buffett's excellent book, Buffettology, many years ago.

Here's what I wrote on February 6, 1998: "Want to know how Warren Buffett turned $37,000 into $20 billion? Read Mary Buffett's book, Buffettology. Want to know how VectorVest really works? Read Mary Buffett's book, Buffettology."

Yes, the similarities between the VectorVest system of stock analysis and Mr. Buffett's methodology are striking. But it's not a coincidence. Both seek to identify safe, undervalued stocks. Both are based upon the valuation fundamentals of Graham and Dodd. Both employ the comparison of earnings yield to interest yield and both favor stocks of companies with consistent, predictable earnings growth. When Prudent Investors buy high Relative Value, high Relative Safety stocks, they are using VectorVest to implement the concepts of "Buffettology."

With the famous words of Mr. Buffett, "To be fearful when others are greedy and greedy when others are fearful," still ringing in my ears, how can I build a stock portfolio that would make Mr. Buffett proud and still not read all 47 books? Simple, I'll just create a VectorVest search to find all the stocks in our database having RV > 1.00 and RS > 1.00 and sort them by RV*RS*GRT*MC Desc. I'll call it the "Best of the Biggies."

As of yesterday, 10/23/08, this search found 474 stocks with mighty Exxon Mobil ranked at the top. I also saw names like Microsoft, Apple and Google high on the list. But seven out of the top 10 stocks were in the Petroleum Business Sector. While these are all great companies, I still want to pick stocks Warren would love and I also want to diversify my selections. What should I do?

I know, I'll use Portfolio Manager. It will allow me to limit how many stocks I get from any single Business Sector or Industry Group and it will also allow me to sort and rank them however I want. A complete click-by-click procedure of how to create a 100 stock portfolio using the "Best of the Biggies" search is presented in the Strategy section, shown below. The portfolio is called "Blue Chip Bargains" because the RV and RS criterion assures me that all of these stocks are undervalued and have above average financial track records.

The "WatchList View" feature within Portfolio Manager allows me to analyze, sort, screen and rank all 100 stocks however I want. First, I'll sort them alphabetically just to see what I have. Wow, what a list of great names, starting with ABB Ltd., at the top and finishing with Westpac Banking. Some of the more familiar names include Anheuser Busch, Caterpillar, Hewlett-Packard and Lockheed Martin. Some of the less familiar names include Alcon, Danaher, Hologic and Sasol.

Next I'll rank these 100 stocks by VST-Vector Desc. This indicator brings the stocks with the best combination of Value, Safety and Timing to the top of this list. Guess what? Mighty Exxon Mobil is ranked highest with a VST of 1.24 and it has an "H" recommendation. The stock with the lowest VST, 0.92, is Google with an "S" rating. I wouldn't worry about the "S" rating at this point because we're bottom-fishing and just about all of these stocks have an "S" rating. To be sure, Google should have been sold last January when VectorVest gave it an "S" rating at $617 per share.

One more thing I like to do is sort by YSG-Vector, i.e., Dividend Yield, Safety, Growth Vector. I see that Banco Sandantar and PetroBras are at the top of the list with juicy dividend yields of 9.93% and 7.35%, respectively. If you think that's good, read my essay of August 29, 2008 on how you can double or triple your cash income on these stocks even if their prices go nowhere.

The next thing I would do is look at a five-year graph of each of these stocks, taking special note of those with the smoothest, most consistent earnings (EPS) patterns. Take a look at Alcon, ACL, for example. Yes I know it got killed yesterday, but this company knows how to make money. Also look at Schlumberger, truly a great company. It, too, has gotten killed. My oh my, just look at the great stocks in this list, selling at bargain basement prices.

OK, so how would I go about building a portfolio from this list of stocks? I'll re-read my "Guide to Worry-Free Investing." It says to: (1) Buy high VST-Vector "B" rated stocks, (2) Diversify in What and When you buy, and (3) Use Stop-Sell Prices. I would be in no hurry to buy these stocks right now. I'd wait at least until the Price of the VectorVest Composite goes up for two consecutive weeks; then I would begin to nibble at the list and I would buy Leaps instead of stocks unless I wanted the cash from dividends and I'd sell Covered Calls against my positions to reduce cost and risk. That's what I would do with these Blue Chip Bargains.

MAKE MONEY FOR A LIFETIME.
I took a call yesterday morning in which the caller wanted to know whether I had purchased the Contra ETF's we had written about Wednesday evening. I didn't answer his question directly, but asked whether the market was going up or down. As I remember it, he said he wasn't sure. Then I suggested we take a look at the Yahoo!Finance homepage. It was just before 11:00 AM and we saw immediately that the Dow and S&P were up, but the NASDAQ was down. Obviously, the market was mixed, so we could not conclude that it was going down. Therefore, I had not purchased the Contra ETF's.

As we talked I suggested he click on the "Read more" link located in the lower left hand corner of the Yahoo!Finance homepage. A neat summary of market activity appeared on the screen which showed trading volume, number of advancing and declining issues and so on. The Dow and S&P began taking off as we spoke, but there were far less advancing issues than declining issues. I said it looked like a sucker rally to me. Sure enough, the Dow peaked at 8,779 exactly at 11:00 AM and started to move lower. So what did I do? I started thinking about buying some Contra ETF's.

Before doing that, however, I had to make sure the market was trending lower. So I checked VectorVest RealTime and waited until the Price of the VectorVest Composite had fallen by at least 2.00% and the Advance/Decline ratio of all the stocks in our RealTime database was less than 0.50. This happened shortly after 1:00 PM, so we began to buy the top five Contra ETFs ranked by VST with AvgVol > 100,000. If you do not have VV RealTime, you could have waited until all three major indexes shown by Yahoo!Finance were in the red and the NASDAQ was down at least 2.00%. Moreover, the NASDAQ would have to have more than 1,000 declining issues. This also happened shortly after 1:00 PM.

Had I been looking to go long, I would have waited until 10:30 AM; then checked to see if the Price of the VVC was up at least 2.00%, the Advance/Decline ratio was above 2.00, and the Price of the VVC was trending higher before making any purchases. If you do not have VV RealTime, you could have waited until 10:30 AM; then checked to see if all three major indexes were in the green and the NASDAQ was up at least 2.00%. Moreover, the NASDAQ would have to have more than 1,000 advancing issues and be trending higher.

So why don't we just send out an email blast telling everyone what we're doing? Simply because it would move the market and you would be hurt in the process. When we first began "Riding-the-Wave," I wanted to make it oh so simple. We would say exactly what we were going to do the next day and which strategy we were going to use. This approach caused some severe problems. For example, we felt compelled to follow the plan regardless of what the market did the next day. When the market went against us, we would lose a lot of money. We and our subscribers lost money even when the market went our way because the stocks we were going to buy or sell had been marked up or down, as much as 50% in some cases, by the rush of orders that had come in prior to the open. We had to change our ways.

The two big changes were to make our commitment to trade conditional upon the market moving in a favorable market direction the next day and we listed several strategies we might use instead of one we would use. Our results improved dramatically but we now had the job of teaching you how to do what we would do. We have done this on an ongoing basis. To learn more about Riding-the-Wave, read my essays of 01/11/08 and 12/23/05, or click on Search Views at the top of your screen and type Best Strategies in the text box. You can also search our blog at www.vectorvest.com using the term, Best Strategies.

A man once said, "If I give you a fish, you will eat for a day. If I teach you to fish, you will eat for a lifetime." So learn to do what we do and you will Make Money For A Lifetime.