Tips on Picking Investment Stocks

How to pick stocks now the "easy money" times are over

Date 11/12/2009

The Right Side

Frank Hemsley

The bears have been fighting for so long, they’re probably getting a little tired right now.

But for every bear out there, there’s a bull. That’s what makes a market: buyers and sellers. Bulls and bears.

Mike Tubbs is upbeat about stock markets. He cites the recent crisis in Dubai… and the way the markets shrugged it off… as a sign that investors are optimistic.

You could say the same about Greece. The markets wobbled a little when the country’s credit rating was downgraded on Monday. But now the FTSE is just about back to where it was before the news broke. American markets are higher.

The Dubai trouble, Mike explains, “was unable to push Western markets down for more than a day or so. This market resilience is a great sign. It suggests that the equity markets are stronger than many people thought. This could well be a bullish sign for shares over the next two or three years.”

Why you’ll only make money with careful stock picking

But let’s face it: the “easy money” times are probably behind us. The incredible rally that we have seen in global stock markets since March is unlikely to continue at the same pace.

If you’d thrown a dart at the FT at the beginning of March, chances are the stock you’d have hit would have risen by now. If you’d thrown it at the AIM section (i.e. small caps), you would have done very well indeed. Since March, AIM is up 72% compared to 48% on the FTSE (i.e. large caps).

But going forward, it’s going to be a case of careful stock picking. You’re going to need to choose your shares very wisely. And that’s where Mike Tubbs has some great ideas.

Mike isn’t like most analysts we know. Sure, he does the old school fundamental analysis that they teach you at investment school. He pores over the company reports. He runs his slide rule over the balance sheet and puts the accounts under the microscope, so to speak. He talks to the management of the companies he invests in.

All these things we take for granted. We wouldn’t expect anything less from a guy who’s been investing in the markets for nearly four decades.

But every analyst we know does all of these things. It’s what Mike does beyond all that which makes him stand out…

I’ll let Mike describe the sort of companies he likes. This is the best way to explain it to you…

“It’s companies that invest strongly in research & development (R&D) for new products and services. These are the ones that really gain a competitive edge in the market.”

Mike told me that a company that under-invests compared to others in its sector will tend to under perform. That’s because it will find its product range looking tired next to the improving products of the competitors that invests in R&D.

It was during one of our many editorial meetings with Mike that we had a kind of epiphany on this. As Mike showed us exactly how important this R&D factor was… and how strong R&D companies perform against those that under-invest… it all became clear.

And that’s also where we first heard Mike describe this investment in R&D as ‘invisible dividends’.

How invisible dividends drive profitable growth

Mike explained how the reinvestment of these invisible dividends is one of the key drivers of profitable organic growth. Companies that invest in R&D tend to do well.

But according to Mike it’s not just about the size of the R&D budget. Another crucial factor is what he calls the “R&D intensity”. This is R&D as a percentage of a company’s sales.

One of the things Mike looks at very carefully when he’s choosing a share is how the company’s R&D intensity compares with other companies in the sector.

For example, a pharmaceutical company may seem to invest a lot in R&D. But its product pipeline is likely to suffer if it invests only 8% of sales in R&D while its competitors invest 16%, which is the sector average.

But the reason Mike is excited is that his studies show that more companies are learning from previous recessions about the disadvantages of cutting R&D investment in the tough times.

He’s found many great companies that have been increasing their ‘invisible dividends’ during the recession. It’s these companies he believes will make outstanding investments in the years ahead.

Good investing,

Frank Hemsley
For The Right Side

P.S. In Mike’s Research Investments advisory service, he has just recommended a company that is going to increase its R&D by 60% during its current financial year. This follows a 43% increase last year. He believes this decision will accelerate its profitable growth and hasten the transformation of the company. To discover this company and find out more about Mike’s outstanding ‘invisible dividends’ strategy, follow the link below:

How you could make 708% from “the single best investment idea of the last year”

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600.

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