But that’s only the FIRST part of our new EQ filter… We’ve developed a second, incredible level of precision to find only the BIGGEST potential winners… by adding a secret of the earnings system that helps us double-check our thesis with an accounting concept most mom and pop investors have never heard of. Take F5 Inc., for example. They created breakthrough cloud computing software to fuel new efficiencies in fraud protection. MARC: Now Molly, this stock lit up the Power Gauge back on March 9, 2009… which is fascinating. Can you guess why? MOLLY: That was during the worst of the Great Financial Crisis, wasn’t it? MARC: It was 3 days after the market bottomed following 2008. Most people were terrified of going anywhere near stocks… But again, we designed our EQ filter to identify which stocks in the so-called “breakthrough” sectors still have legs… Still have real, true potential to rise by 100% or more, bull or bear market… JOE: Sure enough, run the stock through the Power Gauge back on March 9, 2009… And we see a Bullish rating.
MARC: Because the cash hasn’t hit their books yet.
This happens through a process known as “accrual” accounting. That’s just a fancy word for describing money which the company has earned but not yet actually received… because of things like delayed billing, unpaid invoices, and so on. JOE: Ideally, the accrual number should be very low.
In the case of F5, it was even better. Our system showed NEGATIVE 22% accrual. And sure enough, this lit up the stock as “EQ High” on our filter… A BULLISH rating. MOLLY: Ah… once again, the incredibly rare Double Bullish rating… JOE: We see this on just 2.3% of companies, at most.
In this case, the stock went on to rise 450% during one of the most uncertain markets in American history, the 2 years that immediately followed the worst financial crisis since the Great Depression. MOLLY:
Now – run the stock through our EQ or “Earnings Quality” filter… And here’s what you see behind the scenes…
That’s 5 times your money, by running a little-known stock through the Power Gauge and your brand-new process for evaluating EARNINGS QUALITY to see whether it was a real, true winner of the cloud-computing boom. I gotta say, gentlemen… impressive. How could anyone invest in a supposedly “hot” new story without first running the stock through this simple filter? MARC: Now you can see why we’re calling this the biggest new breakthrough in the history of our Power Gauge, Molly. Because F5 wasn’t the only winner to light up our system during the dark days after 2008… So did Skyworks. In this case, with an incredible 131% cash conversion and a
MOLLY: OK, I see the “cash conversion” we spoke of earlier… JOE: In this case, that number is 164%, which is phenomenal. That’s even HIGHER than the number we saw on Apple! But Molly, remember what I said earlier? We want to see “real cash.” Because the sad reality is, company managements often ignore what’s called “GAAP” or Generally Accepted Accounting Principles to make their business look more profitable than it really is. For example, the company might be reporting a profit… But it may not be producing enough cash to sustain the business. MOLLY: How is that possible?
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