The Best Time to Buy “Trinity Stocks”

By Michael Salvatore

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Note from Ashley Cassell, Managing Editor, TradeSmith Daily: Sometimes the best strategies are also beautifully simple – and I’ve certainly seen that to be true for picking stocks, especially for your long-term portfolio. That’s why today we’re featuring the “Trinity Stocks,” which I know is one of Michael Salvatore’s favorites as well.

Below is an article of his on the topic that we are re-publishing now with updates to make it fresh and actionable today. You’ll hear from Lucas Downey tomorrow, per usual, then Michael will be back on Wednesday.

The Best Time to Buy “Trinity Stocks”

Here at TradeSmith, we’re incredibly excited about a small category of investments we call “Trinity Stocks.”

Trinity Stocks hold unusually strong moneymaking power. Our research shows that – thanks to a confluence of three high-powered factors that most stocks have just one or two of – these stocks are your absolute best chance of outperforming the market.

These are stocks that have:

  1. A high Business Quality Score (BQS), our proprietary composite of key fundamental factors that every business needs to get right to be successful.
  2. A cheap valuation, which shows you’re paying a good price for what you’re getting.
  3. An uptrend. Stocks that go up, especially over the long term, tend to keep going up for years and years.

These three qualities are rarer than you might think.

Stocks can have a high BQS and be in an uptrend, but also be pretty expensive. One example is Wingstop (WING), as well as MercadoLibre (MELI), “the Amazon of Latin America.”

Both companies hold a coveted BQS of 98, and their stocks are in an uptrend, but they also have extremely rich valuations:

MELI is priced at 56 times forward earnings… or more than double the S&P 500 average. And WING is actually trading at 104 times forward earnings. No matter which way you slice it, stocks this expensive are vulnerable to a market/economic downturn.

Other stocks can be cheap and good quality but trending sideways, like Yeti Holdings (YETI), the other maker of fancy insulated drinkware that isn’t Stanley. It’s priced at 16 times forward earnings and holds a similar BQS to WING and MELI, but its stock has gone nowhere for nearly two years.

I could go on. The point is, if you want to buy quality growth names that are firing on all cylinders and have great charts backing them up, Trinity Stocks are where you want to be. The stocks should be cheap, high-quality and in an uptrend.

And if you really want to juice the gains in Trinity Stocks, you should consider another important factor outside of the core three: when to buy them.

Today, I’d like to uncover a few of these stocks that meet our “Trinity” definition, while also being on sale…

Three Trinity Plays Where You Can “Buy the Dip” Today

Eighteen quality names are currently making the grade for our Trinity screener, which you’ll find in ourAnalytics dashboard: a TradeSmith Platinum exclusive.

See, while Platinum users get absolutely everything – every tool we develop and newsletter our analysts publish – they still want TradeSmith to be quick and easy to use. For example, we publish a “Platinum Roundup” each week, which serves up all the TradeSmith upgrades and research in one brief email. (And our CEO Keith Kaplan announced another big benefit today for TradeSmith Platinum folks.)

Then the Analytics dashboard lets Platinum users check the latest rankings of stocks with the best Business Quality Score…the most oversold (or overbought)…highest Free Cash Flow…and the ones that qualify as Trinity Stocks.

Among the Trinity Stocks looking like a particularly smart buy here, since their Relative Strength Index (RSI) is reading near-extreme oversold levels, are:

  • Crocs, Inc (CROX) | 99 BQS | 9.92 P/E | $7.4 Billion Market Cap | RSI of 40

Crocs is a brand that’s enjoying extremely high consumer interest and recently signed one of the biggest names in young Hollywood, Sydney Sweeney, as spokesperson for its new HEYDUDE brand. The company also beat expectations on both earnings and revenue in August, and even raised forward guidance right around the same time Nike (NKE) did quite the opposite.

CROX’s BQS is 99, a practically perfect score. It trades at just 10 times earnings versus the average P/E for consumer discretionary stocks of 25. But in exchange for that price, you’re getting a well-run, solidly profitable company.

CROX is definitely worth a look while footwear stocks are all dragged down by Nike’s big disappointment. 

  • Virco Manufacturing (VIRC) | 97 BQS | 8.86 P/E | $235.5 Million Market Cap | RSI of 44

A smaller company operating in the office equipment industry, Virco makes workstations and other furniture for offices, hotels, schools and other institutions. Its business dates back to 1950, and it’s been publicly traded for 60 years. 

More than anything, VIRC represents an underdog made good in its latest earnings report. Revenue was up 33.7% year-over-year, and it turned in $0.13 earnings per share while Wall Street had anticipated a -$0.13 loss per share. Virco was even able to boast that it is “effectively debt free; growth is being financed by cash flow from operations” for the first time during its summer delivery season.

The company pays a modest dividend and raised the quarterly payout from $0.02 to $0.03 with this earnings report. At such a small market cap and high growth rates, VIRC is a strong speculation on a future where all sorts of companies and institutions will still need to furnish their facilities going forward.

  • Immersion Corporation (IMMR) | 97 BQS | 7.89 P/E | $280 Million Market Cap | RSI of 38

Immersion is a tech hardware company that provides “haptic technologies”: the motions and vibrations that make virtual and augmented reality devices feel… realistic.

It’s also a high-quality company at a dirt-cheap valuation, with shares priced at a 7.9 P/E ratio despite having beat expectations for both earnings and revenue for four quarters in a row.

IMMR investors also earn a 2% dividend yield, making the company especially attractive as a tech company with a smaller market cap, but still cheap and with the potential for growth. And its BQS of 97 shows us that the business is fundamentally healthy right now, giving it a long runway for that growth.

Trinity Stocks are so powerful precisely because they focus on the three factors that matter most for any long-term growth investor.

You always want to buy undervalued businesses that have strong potential to grow. You always want to buy stocks in a strong uptrend. And you always want those businesses to be of sublime quality.

Trinity Stocks offer all three of these factors at once, making them smart buys in virtually any environment.

But buying the Trinity Stocks from an oversold sector, like oil & gas is today, may be even better.

We’ll be on the lookout for more Trinity Stocks here in TradeSmith Daily, especially when you can get them at fire-sale prices.

Before I go, I also wanted to highlight another special benefit soon to come to TradeSmith Platinum users.

If you’ve been following TradeSmith Daily, you’ve likely seen Lucas Downey’s signal studies. These studies look at unusual moments in market history, comparing them to times they’ve occurred in the past.

There’s a lot of value in these studies. Thus far Lucas has identified huge stock opportunities, been on the right side of trends, and shared actionable trading plans for when certain conditions trigger.

I’m proud to say that, around the end of the year, we plan to expand on these signal studies for a brand-new trading strategy to integrate into TradeSmith Platinum. This new version will contain direct, actionable trade recommendations based on the statistical strength of our signal studies. And TradeSmith Platinum members will get first access to this new strategy at no extra charge.

Stay tuned for the big Lucas Downey announcement in the near future.

And if you’re reading this and you’ve already joined up with TradeSmith – whether it’s one, some, or none of the tools I showed you today – make sure you check out TradeSmith Platinum while it’s available.

Platinum is open to new members now through Friday, Sept. 20, which is your chance to:

  • Access Lucas’ signal studies advisory at no additional cost,
  • Along with the Platinum Roundup,
  • Plus Platinum Analytics tools like the Trinity Stocks screener:
  • Everything TradeSmith has to offer, now and in the future…
  • But at the lowest price you may ever see again.

Click here for Keith’s new announcement about Platinum and to give this upgrade a try.
To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily