Last Friday, Bob Bogda told you about Michael J. Carr’s new trading system designed to leverage the financial genius of “guru” investors like Warren Buffett, George Soros and Carl Icahn.
You can read the full article here, but in case you missed it, Michael’s system is simple: He uses a blend of fundamental and technical analysis to weed through the stock holdings of 20 of the market’s most prominent investors and picks the best stocks from each of their individual portfolios.
This system has two profound benefits. For one, each of these guru investors has teams of analysts, money managers and traders to help with research and analysis. So when one of them picks a stock, you know it has been vetted by some of the greatest financial minds in the industry.
But this “Guru Investing” system also has the added advantage of reducing risk. By selecting just a handful of stocks from these investors’ holdings (Michael only recommends the best 10 stocks he finds), you’re ensuring you own only the best picks in their portfolios that, after being vetted by Michael’s system, have the brightest fundamental and technical outlook.
So far, his system has worked well. On Friday, one of Michael’s favorite guru stocks — Micron Technology, Inc. (NASDAQ:MU) — touched a new 52-week high of $18.55.
Michael first brought this stock to the attention of his readers back in May, when it was trading around $11.23 a share. At the time, his system was signaling “buy.” Since his recommendation, the $18 billion computer chip manufacturer has surged 65%.
What first attracted Michael to the stock was its ownership profile. Not only is this stock owned by billionaire investor George Soros, you can also find it in the portfolios of lesser-known gurus Seth Klarman, founder of Baupost Group, and Steve Cohen, founder of SAC Capital Advisors.
But guru ownership is just one of the many criteria Michael looks for when he’s screening stocks. In order to get a buy signal from Michael’s system, a stock also needs to show high relative strength (RS) and strong cash flow growth.
Relative strength measures the price trend of a stock compared to other stocks or to the market as a whole. Among the hundreds of guru stocks Michael identifies, he only considers those with a relative strength rank over 70, signaling that they have risen faster than 70% of the market during the prior six months.
Michael started eyeing Micron very closely since its RS broke above 70 earlier this year. Since that time, Micron’s RS rating has increased to 99.
The other variable in Michael’s equation is cash flow. Cash flow measures the amount of money coming into a business — the lifeblood of any company. They use this cash to grow the business or reward shareholders by building new factories, paying dividends and developing new products, among other things.
Few companies are better at generating cash flow than Micron Technology. In the past 12 months alone, the company increased its cash flow 240%. Over that same time period, only 1% of publicly traded companies were able to grow their cash flow faster.
Combine the company’s strong cash flow with its high relative strength, and Micron has been one of the market’s best-performing stocks this year. Anyone who bought on Michael’s recommendation in May would already be up 65%. And if you didn’t follow Michael’s recommendation, you might have a second chance at similar returns.
This article was originally written by Austin Hatley and posted on ProfitableTrading.
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