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Tuesday, April 30, 2024
A “Meat and Potatoes” Superstar Stock in the Making
This humble company is firing on all cylinders…
A "Meat and Potatoes" Superstar Stock in the Making
By Lucas Downey, Contributing Editor, TradeSmith Daily
The hunt for superstar stocks in the making should be the goal of any investor.
You know the ones I'm talking about... the Apples (AAPL), ExxonMobils (XOM), and McDonald's (MCD) of the world.
Companies that dominate their industry year after year... decade after decade.
The trick, of course, is finding them long BEFORE they become superstars.
I'll admit, there's no bulletproof way to do this...
But there is an easy-to-follow recipe of factors that all-star stocks exhibit year after year.
This playbook has helped me find growth stalwarts like Netflix (NFLX), Microsoft (MSFT), and Chipotle Mexican Grille (CMG) early on... which I'm fortunate to still hold today.
Trust me, I don't hit a homerun all the time... far from it.
But I've learned that it only takes a handful of mega-winning stocks to more than make up for all the losses along the way.
So today, I'm going to zero in on an up-and-coming company with top-notch qualities that should be on your watchlist right now.
More importantly, you'll learn three great, repeatable datapoints to help you spot stocks with explosive potential.
I'm happy to say these calls didn't disappoint – DECK has gained 35% and LLY has ripped 14% since those posts.
Let's do it again, but with a smaller, lesser-known all-star.
Stay with me until the end, and I'll show you a one-click method to easily separate the contenders from the pretenders on your hunt for superstar stocks.
And it could make a lot of people wealthy in the coming months and years.
Betting on Meat and Potatoes
When it comes to finding the best long-term winners, stick to a simple-to-follow formula.
You want to focus on:
Revenue growth
Earnings growth
And continual institutional support
After trading on Wall Street institutional trading desks, I quickly learned how important these traits are for long-term success.
And one company, restaurant chain Texas Roadhouse (TXRH), has this playbook in spades.
If you're not familiar with TXRH, they're about the simplest business on Earth.
They operate big restaurant chains Texas Roadhouse, Bubba's 33, and Jaggers. And no matter the name on the door, their establishments offer one of the best steak dinners at a reasonable price all over the U.S. They operate 741 restaurants across all their brands.
It doesn't get more American than meat and potatoes. And business has been booming over the years.
Let's size up this up-and-comer with the three factors I mentioned above...
Step 1: Follow revenue growth.
Stocks track the overall health of a business. Isolate growing businesses as your first step in evaluating a potential good investment.
Texas Roadhouse released fourth-quarter earnings in February and reported a revenue surge of 15.3% from the same quarter the year prior.
And that's no short-term anomaly. From 2018 to 2023, TXRH sales grew from $2.45 billion to $4.63 billion. Next-year sales are set for double-digit growth with estimates of $5.28 billion:
All in, TXRH has grown at a 12.5% compound annual grow rate over the past six years.
Double-digit growth like this is hard to find, especially when it happens year after year. That's evidence the business is steadily growing.
This is a fabulous first step for outlining a top-notch stock.
But let's keep going... we need to see the bottom line.
Step 2: Record revenues should turn into record earnings.
It's one thing to grow your revenue. It's another for earnings to steadily rise alongside it.
Growing earnings indicates a solid business model, where leadership can reinvest profits for future growth.
From 2018 to 2023, TXRH's diluted earnings per share (EPS) doubled from $2.20/share to $4.54/share. Earnings are set to further zoom with $5.67 EPS forecast for in 2024:
I'm sure you can see that earnings took a huge hit in 2020. The pandemic wreaked havoc on restaurants.
But the important message, and true test of a quality enterprise, is that business bounced back bigger and better the very next year.
And when sales and profits are surging, you can bet Big Money investors will be along for the ride.
Wall Street legend has just uncovered one tiny Maryland company that could become the next Nvidia. Few in the media are talking about this story yet... but in the next 6 months that's all they'll talk about.
Savvy investors like hedge funds spend countless hours looking for companies with an edge.
When they spot a business firing on all cylinders, they jump in. I learned this from my days on Wall Street, handling large stock orders for big money managers.
They were constantly betting on the leading stocks in a certain category. Think Chipotle with burritos or Apple with iPhones.
I see Texas Roadhouse as the leader in homestyle, fire-grilled food.
Now, there's no way to know exactly when institutions are buying a stock. But by tracking unusual trading volumes and price relationships, you can make an educated guess.
Below shows you an all-encompassing signal that spots unusual trading volumes married with solid fundamental characteristics.
Texas Roadhouse is one of the few companies that have been beaming with this signal over the past decade.
Below is a chart of TXRH since 2014. The repeated blue bars represent each time the stock saw unusual volumes while TXRH ranked very high for fundamentals:
Few stocks have charts like this. And the ones that do, tend to have fabulous businesses that institutions love.
Which brings me to my final point of how you can scan for companies of this caliber very quickly, without doing a lot of heavy lifting and searching.
At TradeSmith, subscribers can score any stock like TXRH and get a unique Quantum Score.
This rating system quickly analyzes any stock and ranks it for fundamentals like sales and earnings growth, and technical attributes like relative strength and institutional support.
As you can see, TXRH is well in the green buy zone with a rock-solid 79.3 score:
The Quantum Score keeps it simple... meat-and-potatoes simple.
Here at TradeSmith, we're proud to publish an advisory dedicated to finding stocks with these rare attributes – the TradeSmith Investment Report.
It uses the same factors we discussed today to uncover great mid-cap stocks on their way to becoming major stock market juggernauts.
Lucas Downey Contributing Editor, TradeSmith Daily
P.S. In the next week, your editor Michael Salvatore and I will get together for another video analysis session – like we shared here.
This time, we want to hear about the top stocks on your radar... and we'll tell you what we think of them, using TradeSmith's tools.
Go ahead and write us at feedback@TradeSmithDaily.com with what's on your watchlist by this Friday, May 3, and we'll look to cover it in our next video.
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TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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