Hi there everyone,
Brexit has dominated headlines again this week, and many retail traders speculating on the pound have been caught up in the noise and left with losses. It's always important to do your own research and follow your process before placing a trade, and this week’s price action certainly emphasises that.
Away from the frenzy, there has been money to be made practicing what I preach. Exactly one month ago I featured Heineken as a stock idea in our weekly Trading Club video analysis, which has since performed very well (just like my club Leeds United - where I often have one of the green labelled beers at half time). Footballing distractions aside (though it is the biggest game of the season against Sheffield tomorrow!), I wanted to share the process behind my analysis with you in today's blog.
All good trades start on your watchlist. Very rarely do you look back and find that a great trade originated out of thin air with a previously unknown company. Here you can see mine at the time of producing the video, with Heineken towards the bottom (sorted high to low by % 52 week range).
Although Heineken was one of the stocks closer to its 52 week low than its 52 week high, it pays to monitor your watchlist for news flow and resulting changes in sentiment. This is exactly why you should use one - to determine when the odds of a profitable trade begin to increase, rather than buying immediately and waiting for something to happen (diluting your portfolio at the opportunity cost of stronger positions). Here you can see the news flow on Bloomberg following the company's earnings announcement.
With a positive reaction to the catalyst, we had reason to review the case for buying the stock.
Our Company Analysis Checklist is the process we use to cut through the clutter and quickly identify whether or not an investment case is valid. Just like the contestants on the TV series, those of you who have taken our Million Dollar Traders Course will recognise this as the method that Lex has used throughout his career as an equities trader and hedge fund manager. Here you can see a spreadsheet that displays a number of measures for each of the factors we consider; Management, Products, Financial Health, Valuation and Geographical exposure.
Without getting bogged down in the numbers (it is Friday after all, and I don’t want to be submitting a 5000 word essay for you to read!) the prospects for Heineken looked great. A quality management score, relevant products, and sound financial health all made for great reading. The valuation didn’t appear too expensive either (it in fact looked cheap on a cash flow basis), and considering the company’s future growth gleaned from the earlier news article, it was likely to become even better value owning the stock going forward. All the while, there is a great dividend policy in place to reward shareholders for their patience, as can be seen in the right hand side of the slide below.
With no negative implications of the company’s globally diversified geographic exposure, this looked like a great stock. At the time of producing the video on the 13th February, Heineken was at €85, up +5% on the day.
It can sometimes be difficult to buy a stock that has gapped higher, but when you understand the story and know your reasons for wanting to own it, it makes it a lot easier to pull the trigger. This comes back to having an investment process and sticking to it, as it will help you avoid trading (or avoiding trades) because of emotion, rather than logic. Today the stock is at €88.55 (a hair away from an all-time high) and has returned considerably more than the EURO STOXX benchmark over the past month.
Relative outperformance vs SXXE:
I hope you found this round up of our ideas generated by our Checklist process insightful. As frequent readers of this blog (and of course, our Trading Club members) will know, this is no ‘flash in the pan’ performance lately. We continue to generate high quality ideas with our process week in, and week out, and make them available to our premium members in real time. There are no BS ‘systems’ that have been backtested to fit irrelevant historic examples, or hiding from the occasional but inevitable surprises that the market seems to throw up – just an honest and proven approach that we employ and teach to students of the Academy. If you would like to join us for our full analysis including new insights each week, or learn from the ground up with online tuition from Lex in our MDT online course, then get in touch with us right away and take your financial knowledge to the next level!
Have a great weekend,
Have a great weekend,
James Helliwell | Chief Investment Strategist
Disclaimer: Our service is intended for educational and informational purposes only and should not be considered investment advice. Do not make any decisions based on the articles and material presented on www.lexvandam.com and never trade with money you cannot afford to lose. We cannot be held responsible for your trading results. For more information, please check Risk Disclosure - T&C.