Is This a Good Stock?

October 20, 2023

Is a good stock always a good stock?

It’s a tough question. It gets at the heart of what we do.

For traders, what will be good over time isn’t always the question. In the short term, things like momentum, technicals and volatility matter.

But what about long-term investments… the ones where money compounds like snow on a mountaintop? Some years are hot, some years are cold. Sometimes there’s a lot of snow, sometimes there’s very little. But given enough time, a mighty, unstoppable glacier will form.

We’ve seen plenty of them.

But what makes a good long-term stock? Not one that’s a winner just this week or next week… but one that consistently outperforms and puts serious long-term gains into your portfolio?

Loyal readers know the Manward answer. It comes from our dear friend Alpesh Patel… the man whose business card with the U.K. government simply reads “Dealmaker.”

Alpesh made a name for himself in the global investing sphere by answering the question above. To spread the word, he’s traveled the world, penned innumerable columns and appeared on countless TV shows.

We’ve added our own nuances to the idea, but it boils down to just three simple ingredients: growth, value and income.

These ideas are so powerful that we incorporated them into the name of Alpesh’s research service, GVI Investor.

Get any of those three ideas right… and you’ve got a recipe for a good stock.

Growth is probably the hardest of the three to nail down. For the last two decades, the market has paid a premium for growth. With interest rates at ultra-low levels, growth was easy to come by. In many cases, companies could simply take on some debt to buy it.

But that’s changed quickly. It’s refreshing. Companies that are growing despite the current headwinds are actually onto something.

With rates on the rise, growth is harder to come by… which makes companies with double-digit earnings or sales growth very strong prospects.

They’re good stocks.

Next, when it comes to finding good deals in the stock market, there is a reason value investors are among the most successful folks in the market. There’s a reason so much research and so many books are devoted to value.

Out of all the disciplines, it’s the simplest.

That doesn’t mean it’s the easiest. It just means we have all the tools we need. Using those tools properly and having the patience to wait for the numbers to line up are the hard parts.

Value investors like Warren Buffett just had a rough couple of decades. With prices at record highs, good values were hard to find.

But patience tends to get rewarded. There are some incredible values out there.

Find a good value, and you’ve found a good stock.

And finally, income is the backbone of long-term investing. Income-producing stocks aren’t dependent on the whims of a fickle market. And they aren’t dependent on your ability to find a “greater fool.”

Their worth doesn’t come from share price appreciation… but from how much cash they put in our pockets.

The higher rates climb, the more important – and valuable – strong income producers become.

If you’re looking to create an unstoppable glacier of wealth, income investing is a fine place to start.

The bottom line is that, yes, a good stock is always a good stock… no matter the market conditions.

If you’re looking to invest for 12 months or more, start with these basics and add on to your strategy as you go.