‘Tis the Season… for Finding Winning Stocks

Shah Gilani|December 29, 2023

One of the most important things I’ve learned in my 40 years of studying and investing in the markets is that you always need to look at the big picture.

And the big picture is the company, not the stock.

A stock is the manifestation of investors’ and traders’ understanding and assumptions about what the company’s doing, how it’s doing it and what its future looks like.

Now, I’ve developed a lot of different ways of evaluating companies.

But for me, it always comes down to six key measures, or windows, through which I view a company.

These criteria have helped me pick winners over and over again.

Check the boxes on these keys ideas… and you will supercharge your stock-picking success.

Let me tell you about them by applying them to Microsoft (MSFT), which I own because it meets my six criteria and then some.

First, I look at a company’s leaders. Who is in charge of the company? How capable is the company’s management team? Are they leaders in their industry? Are the company’s products or services the best?

I didn’t own Microsoft when Steve Ballmer was running the company. I sold my stock because I thought he was merely a loud leader, in the sense of being more like a cheerleader, as opposed to a visionary leader. The stock suffered for years under Ballmer’s lackluster leadership. Noise alone doesn’t get things moving. Vision… an action plan… and brilliant execution do.

Enter Satya Nadella. Nadella succeeded Ballmer as Microsoft’s CEO in 2014 and laid out a completely new vision for the company, which included developing the cloud and pushing services over hardware.

Under Nadella’s leadership, Microsoft became a leader in the cloud… in software as a service… and in recurring revenue.

Second, I look for acceleration. Is the company’s growth accelerating? Is the company moving quickly into new businesses and pursuing new opportunities? How aggressively?

Microsoft moves quickly – remarkably quickly for a company of its size – in most everything it does. That’s why, even at a $2.7 trillion market capitalization, it’s still a “growth” company.

Third, I look for a unique edge. Are a company’s products or services unique? Can it do things other companies can’t?

Microsoft’s products and services have lots of unique edges. Its Windows platform, for example, is unique in the sense that it is its own ecosystem. Customers are immersed in it and pay for the ability to use its services – you could say they “pay to play” in that system.

Of course, Microsoft has lots of other unique edges – too many to even list.

Fourth, numbers are important. Earnings are the perfect example here. What are the company’s earnings? What are its revenues, margins, profits, cash flows and all the other numbers that investors fawn over?

For example… Microsoft reported quarterly earnings back in September. Revenue for the quarter was $56.52 billion… a 12.76% increase year over year. And management forecast even more growth in the quarters to come. Very nice.

Fifth is capitalization. What is the company’s capitalization… what does it consist of… and what sort of foundation does it form? These are all very important. That’s because equity capital matters. But so does a company’s debt structure, its leverage and its ability to finance growth or acquisitions. These are all important structural components of a company and its balance sheet.

On that front, Microsoft has few equals.

And last but not least, the sixth criteria I look for is what I call heat factor. Is the company doing anything that’s newsworthy, groundbreaking or different enough from what everyone else is doing (in a good way, of course) to draw attention to the company and, moreover, the stock? Because if there’s a heat factor, there’s a reason the stock’s going up.

I bet you can guess what Microsoft’s biggest heat factor is right now: the $13 billion it’s investing in OpenAI.

And that’s just one of the six reasons I keep coming back to the stock… and buying more of it.

Use these six factors to help you decide whether to invest in a company.

It’s a surefire way to improve your stock-picking success.