On July 14, 2020, a company called Celsius Holdings Inc. (Nasdaq: CELH) hit our Green Zone Power Ratings watchlist.
This weekly watchlist scours a universe of over 2,300 securities to highlight the 10 highest-scoring stocks according to our proprietary system. These are some of the market’s most promising investments by our measure.
And when it first made the watchlist, Celsius was still a complete unknown for most investors…
The company produces sugar-free energy drinks targeted at fitness-minded consumers. The drinks are preservative-free, packed with vitamins and contain nearly twice as much caffeine as a can of Red Bull.
By 2020, Celsius had developed a loyal following among consumers (including some of the folks in my office). But many investors still had their reservations.
After all, Celsius was trading at $13.38 per share on the day it hit our watchlist that July. That’s up from $4.28 at the beginning of the year — so shares had already more than tripled.
And the company’s market cap had already doubled the year before.
If you’re supposed to “buy low and sell high,” then wasn’t it already too late for Celsius?
Celsius up 1,144% Since Making the Green Zone Watchlist
Since it first made our watchlist, Celsius has soared from $13.38 per share to over $166 — a gain of over 1,100% in just over three years.
I wrote about the company here in Stock Power Daily in October of that year. If you’d bought shares after I published that article, then you’d be up over 650% today.
Our whole team has put my Green Zone Power Ratings system through the wringer over the years. Whether it’s Matt Clark breaking down high-rated stocks, Chad Stone showing you how easy it is to look up stocks on your own, or Mike Carr using the system to create new strategies (more on that below) … we’re always working to show you a ratings system can do for your portfolio.
Use Systems to Maximize Returns
Ratings systems vary in functionality.
But they’re all meant to help you do one thing: Buy good assets and avoid bad ones.
Based on decades of back testing and research, we developed our Green Zone Power Ratings system to run on six key factors.
Three are technical (aka they are related to a stock’s current price and trading activity):
- Momentum — Strongly uptrending stocks earn higher momentum ratings. We prefer to buy stocks that are already trending higher and at a faster rate than the overall market. This approach can increase our odds of success and decrease risk.
- Size — Smaller companies earn higher size ratings. We prefer to buy smaller companies for the extra “juice” that typically comes with them.
- Volatility — Less volatile stocks earn higher volatility ratings. We prefer low-volatility stocks because they’re proven to generate superior risk-adjusted returns over the long run — with less heartburn.
The other three factors are fundamental. These analyze the strength of the underlying company, including its balance sheet, profit margins and cash flows, as well as its growth trajectory:
- Value — Less expensive (aka “cheap”) stocks earn higher value ratings. We prefer to buy great companies at good prices because the price we pay changes how much we get from future returns. Overpaying for a stock is a costly mistake.
- Quality — High-quality companies earn higher quality ratings. We prefer to buy high-quality companies, of course! To determine quality, the model considers a company’s returns, profit margins, cash flows, debt ratios and operational efficiency, among other things.
- Growth — High-growth companies earn higher growth ratings. All things equal, we prefer to buy companies that are growing both revenues and earnings at faster rates than the market and economy.
We then combine our findings from both technical and fundamental analysis to provide an overall rating from 0 to 100. This score gives us a remarkably balanced view on the strength of the company, the behavior of its stock and, thus, the likely returns ahead for investors.
Here’s what Celsius’ rating looked like when I wrote about it in 2020, before soaring for 650% gains:
As you can see, its fundamentals weren’t exactly the best (with a Value rating of just 4 out of 100 … it was “expensive”). But with a Momentum rating of 99 and Growth at 100, we were still “Strong Bullish” on the stock, expecting it the crush the market by 3X from there. It’s safe to say CELH did just that!
Why Systematic Investing Outperforms
By incorporating factors like Momentum, the Green Zone Power Ratings system helps to filter out the kinds of “behavioral aspects” that consistently cost investors a fortune.
These behaviors include Anchoring, Herding and Loss Aversion (see the graphic below for the full list) and they’re hardwired into the human psyche. They’re fundamental to the way we see the world and make decisions. We’re all guilty of falling into these traps from time to time.
These same behaviors can ultimately lead to the mispricing of stocks across the market.
Individual stocks can become dramatically underpriced or overpriced for extended periods of time, before snapping back to reality.
But when we put our biases aside, and look at the market through a holistic, data-driven system like Green Zone Power Ratings, the opportunities become obvious.
I mentioned it above, but our Chief Market Technician Mike Carr has unlocked a new way to use my system. That’s why I wanted to get back to basics today…
By knowing how each piece of this simple system works, you’re going to have a leg up when he shows you all the details of his brand-new Apex Profit Calendar on Tuesday, October 24 at 1 p.m. Eastern time.
I knew adding Mike to the team was a strong move, and I can’t wait for you to learn why next Tuesday. Click here to assure you don’t miss what he has to say.
To good profits,
Chief Investment Strategist, Money & Markets