Here’s a startling statistic…

Three out of four stocks have fallen this year. That means only 25% have risen.

It’s getting harder and harder for the average investor to find a stock that will do well in this market.

But that’s what I have for you in this week’s Stock of the Week.

It’s a household name that’s on the rise after having a few tough years. And thanks to its noncyclical nature – meaning its products are always in demand – it won’t be hurt by the same headwinds as the rest of the market.

It’s up 8% so far this year… while the rest of the S&P is down nearly 10%.

It hits all my metrics for growth, value and income…

And it’s one the forecasters are getting wrong.

Get all the details on the stock – including its ticker – in this week’s Stock of the Week.

Click on the image below to watch it.

Transcript

Hi, everyone. And welcome again to another exciting Stock of the Week.

You know, the stock market as a whole has seen 3 out of every 4 stocks fall so far this year. That means only 25% have actually risen.

That has meant my team has had to work harder than ever to try and find companies to excite us, to pass our due diligence. It still doesn’t mean that the ones we pick will be rising and rising, because of course nothing’s guaranteed in the markets.

However, as an experienced hedge fund manager, one thing that I know is I want the kind of companies that are not only likely to rise but – should there be stronger headwinds – won’t and shouldn’t fall as far.

They’re the type which, should I wake up at three in the morning and think, “Why did I pick that?” that I’ve got every single box ticked… and not ones where I took some risk and thought, “Oh no, this isn’t working out. Why did I do that? What am I doing?”

That should never, ever happen to a professional investor.

As you know, I’m Alpesh Patel. I’m the person behind GVI Investor, and this is my Stock of the Week. So it’s to give you an insight into how we go about picking companies.

Well, I’ve gone for another household name this week and one which you’ll be very familiar with – a company which you’ll be easily be able to understand.

It’s the Campbell Soup Company (CPB).

Now, you’ll be familiar with it. It’s got history dating back over 150 years, and you’ll have seen some of the brands in your local supermarket: Pace, Prego, Swanson, V8, Pepperidge Farm and so on. And of course, the Campbell soup brand itself.

This is the kind of company from which I want to see good fundamentals… but I also expect – with ever-rising costs, with worries about inflation, with worries about the cost of living – it should nevertheless be what’s called “noncyclical.”

In other words, it’s one of those which you’re going to have to buy some of their products either way. Whether or not there’s money to do more discretionary things like go out to a restaurant, you’re still going to have to buy a lot of these foods that Campbell’s make.

So what about their financials? Well, for a few years now, it’s not been fantastic. 2019… it was up 50%, granted. But other than this year, the remaining years since 2017, it’s been down. And I think that’s why it’s been lagging, and it’s got an opportunity now to catch up. And so far this year, it’s up 8% – which as I mentioned already, goes against the tide of the vast majority of the stock market.

And that gives me a clue as well. When something’s fighting the headwinds and succeeding, that means it’s one of the few which is proving itself.

Where I look at some of those figures in more depth, like the growth-value-income algorithm, which I’ve created myself… the GVI. What the GVI tells me… which looks at the valuation, the earnings of the company and its share price, revenue growth, dividend deals… when I look at all of those factors, that’s a 7… which is, you know, 7s, 8s or 9s, I treat them all the same. So that’s all good news.

Cash return on capital invested (CROCI) could be a bit higher, but I’m aligned for the fact that it’s up so far this year. There are many companies which are generating great amounts of cash, but they’re not getting the recognition.

If you think of the stock market like a voting system, we’re going to have to go with the ones which have got solid fundamentals like this and are being voted for. There’s no point having a phenomenal company that the rest of the market just doesn’t see.

So cash return on capital invested… I’ve explained this before – we use this in my GVI Investor research service. What it does is look at the ability of a company to generate cash flow from capital.

So think of capital as sort of a magic touchstone. When revenues or sales come into a company, how much of that, when it touches that magic touchstone of capital, how much of that stays as cash flow as well as of course, profitability into the company on working capital in the company?

All the things that oil the wheels of a corporation.

And we know from the research – and I say this each week – from the research from Deutsche bank and Goldman Sachs that the companies in the top quartile, the top 25% of all companies by cash return on capital invested, tend to generate about 30% per annum over the long term.

Not the individual companies, but those portfolios selected over the long term and every single year.

And my holdings, as you know, are for 12 months – or if they drop 25% from the highest they’ve been since I purchased them.

So this is just to give you a little bit of a snippet of all the thinking and the research which goes into my picks.

In terms of return alpha – the ability to outperform the markets – it’s been good so far as well.

Volatility is low, and I want that in this market. Tactically, at the moment, I want low-volatility stocks.

When the market last year or two years ago was just soaring, I didn’t care what the volatility of the stocks was – whether it was high or low, it didn’t matter.

But I think in this environment, the market is really rewarding companies with lower volatility, because they know there’s more downside risk, and with good valuations, because they know there’s more downside risk. So that’s a couple of reasons more why that’s been selected.

Now… quality, yes. Cash return on capital invested, return on capital employed, return on equity…

Do I have worries?

Yeah. There’s a worry regarding forecasted growth. You can see the sentiment on forecast is so low, I think it’s going to be easy for the company to surpass that. And when it surpasses that, the share price should rise up. It’s not overvalued on a forecasted price-to-earnings ratio as a result.

And therefore, again, because it’s not overvalued, it should be easy – or have low hurdles – for it to surpass. When everybody expects a company not to do so well in the future and it does even a tiny bit better, then those stock prices tend to rise more than the ones where the expectations were huge and it doesn’t quite exceed those expectations.

Turnover’s been steady. So steady’s the sound here. You know, “steady” is the word here. When we talk about Campbell’s Soup – when we talk about this market environment – slow and steady is what we want.

Operating cash flow… steady. Total borrowing’s been coming down, which is always good. Pretax profits have gone up over the last couple of years, but you know, holding strong. Total assets… holding strong. And so forth.

So no massive red flags. I say forecast growth was the only one. And I think those forecasts are overly pessimistic.

And therefore, when I look at all the other factors about the company, I think to myself, “Hang on, everything else is green, green, green, except that.” That suggests that that is what’s wrong.

In other words, those forecast growth, the forecasts are wrong by the broader analyst community. And when the company beats that, the share price should move up.

In any event, all the other fundamentals are solid and strong.

And I think it might be time for this company now to turn around a corner and start progressing upwards as it has been doing for a while now.

Okay. Hope that gave you a really useful insight into how I think into GVI Investor.

It’s more the tip of the iceberg. In GVI Investor, we go into far more depth. But hopefully you found that insightful and you learnt something about the markets.

Good luck out there. It’s a little bit stormy. And I think that’s why you need a newsletter like mine to handhold you, to do that extra research. It’s what we might call a “stock pickers market.” Like I said, only 1 in 4 stocks is rising. So it’s going to require a bit more help from professionals and my hedge fund team to steer and navigate the markets.

Thank you very much.

And if you’d like to learn more about why the strategy behind GVI Investor has been so successful, click here.