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.

Last week I said that my goal for 2010 was to help you learn an end-of-day stock selection and portfolio management system that was consistently profitable and easy to do. The "Green Light Buyer" technique, introduced in my August 21, 2009 essay, was a major step in this direction. It is based upon the idea of buying rising stocks in a rising market, and our tests have shown that it consistently produced profits and was very easy to do.

However, it still left the end-of-day trader, a.k.a., The Midnight Cowboy, in the position of assuming that the market would go up the next day. While the odds of having an up day the day after receiving a green light in the Price column of the Color Guard would be in your favor, there are no guarantees that an up day would actually occur. Therefore, we have urged you to check the stock futures before the market opens to get a better idea of the market's likely direction.

In addition to checking the Color Guard and the stock futures, we also suggested using the technique of buying stocks only when they have gone above their previous day's high. The benefit of this technique, i.e., ensuring that you are buying rising stocks, was illustrated in the "Strategy of the Week" presentations of 11/27/09 and 12/18/09. We explained how an end-of-day trader might execute these trades by placing Buy Stop Limit orders on 12/24/2009.

Last week, I introduced a new Strategy, "Higher Ups," that finds top VST stocks that have gone above their previous day's high. "Higher Ups" is an intriguing little Strategy but I found it to be too restrictive in that it looked at only five stocks and required a stock's price go more than 1% above the previous day's high. So I created a new, but similar, search which looks at the top 10 VST stocks and removes the 1% requirement. I called it "Higher Highs" and we put it into the Strategies - Price Volume Group of the UniSearch tool.

Although these Strategies were created with the thought of helping end-of-day traders, I have found the "Higher Highs" strategy to be extremely useful in working with VectorVest RealTime. To be clear, end-of-day traders must select their stocks and place their orders before the market opens, but users of VectorVest RealTime can run their Strategies, modified to find higher highs, any time they wish and immediately see which stocks are hitting Higher Highs.

USING HIGHER HIGHS IN VECTORVEST REALTIME.
To see exactly how the "Higher Highs" strategy works, what it does and what you can do with it, please join Mr. Dan Misch, Instructor and Product Support Representative, at the VectorVest University to see this week's terrific "Strategy of the Week" presentation: "Using Higher Highs in VectorVest RealTime."

On February 13, 2009, I wrote an essay called, "Another Day at the Races." I had developed a technique of buying or shorting fast moving stocks in fast moving strategies, so I detailed how I tracked the performance of nine strategies, five bullish and four bearish, from the market's Open at 9:30 AM to its Close at 4:00 PM. In my mind, it was like going to a racetrack and watching the horses run. It was great fun and often quite profitable, so we created the VectorVest RealTime Derby.

The VectorVest RealTime Derby tracks and displays the performance of over 175 VectorVest Strategies from the time the market opens to the time it closes. With this tool, I could easily see which strategies or stocks I wanted to trade on any given day. Not only that, but I could see internal market action like never before. Take today, for example: I could easily see that the opening rally of the major indexes wasn't going to last because the Derby showed Bearish strategies out-performing Bullish strategies. Sure enough, the major indexes turned lower shortly after 10:00 AM.

With the Derby providing a tremendous amount of valuable data each day, we now needed a way of storing and analyzing it. So our developers created the Tote Board. We are very proud to announce that the Tote Board is being released today to all VectorVest RealTime Derby Users at no extra charge.

Like the Tote Board at your favorite track, the VectorVest RealTime Tote Board stores the daily Derby results and provides useful statistical information on performance. Over a time period of your choice, it shows the total gain or loss of every strategy, the percentages of the winning days and trades, and the maximum draw down. This information makes it extremely easy, of course, to see which strategies have been the best or worst performers over the time period you selected.

As I look at the Tote Board right now, 2:32 PM, the best performing strategy over the last five days is Odd Fellows Short with a gain of 8.57%. It's made money in four of the last five days, which is tops for any strategy, and it's had 68% winning trades, which is second best. It also was listed as a Top-Five Performer in Tuesday's Color Guard, and it's already up 4.1% today. Should I go short with this strategy? I just might do that. Thanks guys for The Derby and The Tote Board.

PROTECTING PROFITS.
The Price of the VectorVest Composite has gone up 61.4% from the March 9th low to yesterday's close. If you have been fortunate enough to participate in this rally, you should realize it's not going to last forever. Even if you may not wish to sell any stocks right now, you should learn how to protect profits. Mr. Steve Chappell, our Director of Educational Services, will share his knowledge and experience in how to perform this delicate task. So join Mr. Chappell at the VectorVest University to see this week's "Strategy of the Week" presentation: "Protecting Profits."