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When Do You Sell the Winners?

June 20, 2017, 12:57 pm

I was recently asked about how I decide when it’s time to lock in profits. And that’s a really excellent question. The decision to sell a stock is just as critical as the decision to buy, which is why my method of selling winners is a mix of art and science versus a generic formula.

My first step is to establish a sell target. These are usually an estimate of where I think a stock can trade within the next six-12 months based on my estimate of forward earnings and a reasonable multiple based on the company’s long-term growth, general market conditions and how industry competitors are valued.

When a stock hits my target, I then determine whether it’s best to sell, hold or raise the target. If I feel the stock can continue to outperform over the short to intermediate term, I will generally raise the target. For example, if I have been holding a name for a year and its earnings have been strong and the trend is likely to continue, I am comfortable raising the target as the market begins to discount next year’s higher earnings.

On the other hand, if the stock reaches or comes close to my target in a short period of time, this is a sign that it may be getting ahead of itself and could be vulnerable to a pullback. This was the case with GameChangers winner Cantel Medical (CMD, +15%) a few weeks ago, which ran up quickly on no news. While I believed the Street’s negative reaction to CMD’s fiscal second-quarter earnings in March was overdone, the stock recovered faster than I expected and momentum looked vulnerable heading into its fiscal third-quarter report on June 8. With the shares fully valued, it was best to stay disciplined and lock in our quick gains.

There are always exceptions to the rule, and in that case it is The Trade Desk (TTD, +35%), one of my GameChangers picks that went on an outstanding run. I have raised my price target on the name three times now, driven by three factors. First, there was the strength in its first-quarter earnings, which easily exceeded results on the top and bottom lines. This drove higher forward earnings estimates. Second, there was strong momentum in the shares as the earnings report was well received. And third, while the stock carried a premium PE of 40X next year’s EPS estimates, an even higher valuation seemed possible given the stretched valuations of several growth stocks, especially those in the software industry that are supported by the low interest rate environment.

Put simply, my decision on when to sell a stock rests largely on whether future outperformance can continue. I think about the strength of any earnings releases since I initially recommended the name, its longer-term outlook, its valuation compared to other companies in the industry and the momentum the stock has at the time.

My Top Three Growth Stocks Watch List

June 6, 2017, 9:36 am

There are so many investing opportunities, it can be hard to figure out which ones to invest in now and which ones might be worth adding to your portfolio down the road. This is why I keep such a close eye on my screens since you never know what’s going to pop up! The good news is that I have three names that I’m watching right now that are growing at a fast clip and have a bright future that could very well make for quality investments in the future. Let’s take a look.

Inogen (INGN) manufactures portable oxygen containers to patients suffering from respiratory illness. These containers offer greater mobility than traditional oxygen tanks, which also require regular delivery and cumbersome tubing. Revenues for the company have more than quadrupled from $49 million in 2012 to $203 million in 2016 and management expects sales to increase another 15%-18% this year. This rate would be even greater if not for INGN’s decision to put less emphasis on revenues in light of lower government reimbursements. Portable oxygen was the highest growth category of the Medicare Oxygen Therapy segment between 2012 and 2015, and since it is still only 8% of the total oxygen market, there is plenty of room for expansion. However, with the shares trading at 72X 2017 EPS estimates of $1.10, up from $0.63 in 2016, INGN is a little too rich for my liking.

Callidus Software (CALD) is a cloud-based customer relations management (CRM) software company whose products enable sales and marketing automation, learning management systems and customer experience management. CALD’s software has garnered a strong presence in the corporate world, as it is used by seven out of the top 10 technology and insurance companies and six of the top 10 telephone companies globally. This strong customer acceptance has driven a 29% compound annual sales growth rate from 2012 through 2016, with management guiding to another 28% increase in sales in 2017.

Consulting firm International Data Corp. expects the company’s market to double from 2016 to 2021, so there’s significant potential growth ahead. Valuation is a little steep now at 71X 2017 EPS estimates of $0.31 and 6X estimated revenues of $244 million, but this stock might be worth another look if it pulls back 10%.

Atlassian Corp. (TEAM) is a Netherlands-based company that sells and develops software. Its main product, JIRA, helps customers plan projects while working in a group or team environment. JIRA offers extensions that allow customers to work with other vendors’ products, including one to develop, build and deploy applications to Amazon Web Services. TEAM’s other products include Confluence, used to create shares and discuss content on the Internet, and HipChat, which helps teams communicate in real-time.

TEAM’s revenues more than doubled from $215 million in the June 2014 fiscal year to $457 million in fiscal 2016, and are expected to climb another 35% to $617 million in fiscal 2017. While I like the possible expansion, the shares are trading at 100X and 75X June 2017 and June 2018 EPS estimates, making the stock a little pricey right now. However, TEAM is near the top of my list of companies to buy should we get another healthy market sell-off.

I hope this gives you a good starting point! There are two other names I am watching, and if you’d like to find out which ones those are as well as the new stock I’m recommending to my GameChangers subscribers on Wednesday please make sure to sign up for this risk-free trial now so you don’t miss out!

The Best Sectors for Value Stocks

May 31, 2017, 11:05 am

As value investors we tend to look at potential market obstacles more realistically than growth investors, with a more discerning eye toward risk. This, along with the decline in interest rates this year that favors growth stocks, has led to a gap in performance between the two categories. This year has reversed an extended period where value stocks have outperformed, but even with this year’s strong tilt toward growth, average annual returns over the past five years between the two indexes have been relatively even.

All that said, now remains a great time to be invested in value stocks. If the economic growth needed to sustain the bull market continues, we will almost surely see a rise in rates – perhaps a significant one from the current depressed levels – which will put value stocks even more in favor.

Plus, the current divergence in performance is creating plenty of opportunities in value names, and there are several sectors (and stocks within them) that could be good investments down the road. For today’s blog, I’d like to share the three sectors I am most interested in for value plays with you.

Financials are down more than 8% from their highs in early March. However, as economic growth continues and interest rates rise, they are likely to become the market leaders. When the tide begins to turn in favor of the banks again, Goldman Sachs (GS) and Citigroup (C) could be possible plays here, as both still trade at relatively low levels of price to book value.

Quality materials stocks have also been left behind, and two I am considering are specialty steel maker Nucor (NUE) and Domtar (UFS). NUE had strong first-quarter earnings of $1.11 a share (versus $0.27 a share last year), but because the company narrowly missed estimates, the stock is nearly 10% off its pre-earnings levels and 15% below its highs of last year. NUE trades at 14X this year’s earnings estimates, which is cheap but not extraordinarily inexpensive, so I’d like to see it dip further to the low $50s.

UFS is feeling earnings pressure due to higher raw material costs, and EPS for the year is expected to decline from $2.97 to $2.84. However, the stock becomes very attractive once it hits $34, and the 4.5% dividend yield should also support the shares.

And lastly, there has been no group more beaten down than the automakers. While they have enjoyed strong sales for several years, shareholders have little to show for it. I believe General Motors (GM) and Ford Motor (F) are too risky considering how much cash they burn through during a recession and the cash drain they also face from their pension and post-retirement benefit plans. However, if auto sales can remain stable at high levels, giant auto retailer AutoNation (AN) is worth considering. The stock is trading at a 10-year low and close to 10X expected 2017 earnings. The company grew nicely during the auto boom, aided by an acquisition, and is strongly entrenched as a leader in auto retailing for years to come.

These companies tend to do the best when the economy is strong, so I’ll need to see more evidence that we can get to 3% GDP growth and/or that the current slump in auto sales is coming to an end before making a move on any of them. Under the right circumstances, automakers have strong upside potential, but they must be bought at the right price and in the right economic environment. And in the current market, discipline is very important.

In the meantime, I have a company that’s offering great upside potential now. Click here to claim a risk-free trial to get all the details before this stock really takes off!

Digging into Last Week’s Sell-Off

May 23, 2017, 1:04 am

With former FBI director James Comey’s Congressional testimony looming, it would not be surprising to see the market panic if anything negative comes out of it. We’ve been stuck in a headline-driven environment for quite some time, and while I know it can be hard to tune out the noise, it’s more important to do so now than ever. I want to help you do that, and a good way to start is by digging deeper into last Wednesday’s sell-off.

While I know the sell-off caught many off guard, there was no real reason to panic. When you take a step back and look at the bigger picture you can see that the sell-off wasn’t nearly as bad as it looked. The market was only 2% off its recent all-time highs, and it had needed to consolidate those post-election gains for some time. The headlines out of Washington may have been the spark, but I believe what we saw was ultimately healthy. There’s simply been too much complacency, especially surrounding tech and small-cap stocks, and last Wednesday brought investors a little closer to earth.

While we may see some additional downside as the market works through things, I believe the S&P 500 will hold its April low of 2,322. The increasingly difficult political situation President Trump finds himself in is clearly something to keep an eye on, but it’s important to keep in mind that earnings are good, the economy is sound and interest rates are low – all of which will help support stocks.

What Wall Street is counting on from the Trump administration is tax reform to give earnings a boost and make current valuations more reasonable, which is still likely. If anything, Republicans may want to push the issue faster to get some relief from the Russian controversy. And even in the most dramatic scenario of President Trump leaving office, I believe a Pence administration would keep tax reform front and center so Republicans can claim a legislative victory prior to the mid-term election.

Remember, stock futures were down sharply when Trump was elected – the Dow initially fell over 800 points – but snapped back quickly when investors realized his pro-growth agenda, especially tax reform, would be a boon to stocks. The market is really pro-growth and higher earnings, not necessarily pro-Trump, and with Republicans still in control of Washington for now, the market can get what it wants.

Overall, stocks remain up for the year, putting the S&P 500 well above its 200-day moving average with significant support between 2,300 and 2,330. It didn’t even come close to those levels on Wednesday, with the low of the day at 2,356.21. And the index started this week off nicely above its 50-day moving average.

Given all these factors, it is especially important that you tune out the noise. And even if volatility does tick up, I urge you to stay calm and stay invested. In the longer term, you’ll be glad you did.

Should You Take a Bite Out of Apple (AAPL)?

May 16, 2017, 10:13 am

Despite continuing to notch new intraday highs, the S&P 500 has been a bit sleepy lately as stock performance has been mixed over the last couple of months. The same cannot be said for the NASDAQ, which has chugged along nicely. Since the previous peak of the S&P, the PowerShares QQQ ETF (QQQ) has been a strong performer as investors chase names like Facebook (FB), Alphabet (GOOGL) and Amazon (AMZN). And with interest rates low, valuations have become a secondary issue and can seemingly be pushed even higher.

The real star of the show has been Apple (AAPL), which is up over 25% since management reported fiscal first-quarter earnings in January. This is an incredible move for a company that became the first to reach an $800 billion market capitalization just last week. Companies that big don’t usually run that fast. Many in the financial media are chalking it up to the growth of AAPL’s services (digital content, Apple Care, Apple Pay) businesses. However, I believe the reason for the rally is largely because of an increased confidence that AAPL will be able to maintain margins on its iPhones, which will likely account for 70% of gross profits.

Despite an 8% sales decline in the September 2016 fiscal year in the absence of a new iPhone, the decline in gross margins (43.2% versus 44.6% last year) was relatively minor. Now, with the company realizing higher sales again and the iPhone 8’s impending release, investors have jumped into the stock as they wait for earnings to move meaningfully higher. Expectations are now for an increase to $8.95 a share this year from $8.30 a share last year, and then to a whopping $10.40 a share in fiscal 2018.

But I don’t think it’s quite time yet to take a bite out of Apple. I suspect questions about margin sustainability will come up again as meaningful improvements to the iPhone are harder to come by. And as for the cash balance, you often hear the number $250 billion thrown around. But more conservatively, I think that number is closer to $91 billion – the amount of current assets and investments less all liabilities. This is still worth $17.50 a share, which is over 10% of the current value of AAPL. However, I do not think it is enough to drive the stock significantly higher over the longer term in the event that companies are able to repatriate cash in a tax reform law and pay it out in a special dividend.

I also think we’ll see a little nervousness in the shares once the next iPhone is released, as the product is already expected to be a huge hit. Any disappointment would leave the stock vulnerable. Given this, I am keeping AAPL on my watch list but am not recommending it right now. That said, I believe that CEO Tim Cook is doing the best he can with a mature company, as its results have been more resilient than many had expected. Should the stock drop to a 12X or 13X PE range again, where margin risk is at least being partially discounted in the shares, AAPL could become a good stock for a value investor.

In the meantime, there are several other great value stocks I just recommended in my Value Authority service. If you’re looking to add more conservative positions with strong margins of safety to help diversify and balance your portfolio amid a choppier market environment, then Value Authority might be the right fit for you. Click here to claim a risk-free trial before it’s too late.

Have You Spring Cleaned Your Portfolio?

May 9, 2017, 10:27 am

With spring comes spring cleaning, and I’m not just talking about your home! It’s just as important to give your portfolio a good cleaning to evaluate where you stand, what your investments look like and most significantly, how you’re saving for the future. Whether you’re 25 or 65, you should be preparing for retirement.

I believe the best way to do this is through investing. I know it might be scary with stocks trading at all-time highs, but it’s not worth trying to time the market. After all, those who jumped out during the financial crisis would have failed to profit from the enormous recovery over the last 10 years. Over the long run, you will make money.

Make sure to watch the video below for my ideas on the sectors to invest in for long-term growth, including the top pick I think is a good buying opportunity right now. You don’t want to miss this!

[ Click here to play message from Hilary Kramer ]

Thanks for watching!

The First Step to Constructing Your Portfolio

May 1, 2017, 4:02 pm

Among the questions investors ask me most often, those having to do with the mechanics of building a portfolio are at the top of list. However, constructing a portfolio is a bit like a fingerprint. Everybody’s situation is unique. For that reason, I can’t recommend a specific one-size-fits-all solution, but I can share my thoughts on the bigger picture to help you align your portfolio with your goals and financial needs.

Most money management firms distinguish between three broad types of investors: Conservative investors rely on their portfolio for current income and so need to maintain cash flow across a rolling two-year window, which is generally as long as it takes even in an extended downturn to play out. Moderate investors have outside income sources and a little more time for the market to recover from a bad year, so they can afford to take on more risk and aim for more reward. And everyone else is generally considered Aggressive.

The main focus is the time you have before you’ll need to draw down the assets in order to pay the bills, but you should also consider how you tolerate risk and potential volatility. If you’re going to lose sleep over more aggressive investments, dial the risk down a bit by focusing on more moderate and conservative strategies.

If you’re already living off your investment portfolio or plan to start spending it down in the next year or so, I highly recommend a more conservative approach. You may want to allocate at least enough funds to pay a year of expenses into relatively stable assets that are unlikely to decline in value much or at all, such as cash, bonds, CD, money market accounts, and so forth. At that point, you could consider riskier assets like stocks that might decline substantially in a given year but have always bounced back strong in the past. And if you need income, dividend-paying stocks can help generate it throughout most of the cycle.

Your goal here is not to live on the minimal interest that cash accounts and Treasury bonds pay. Most of the time, the rest of the portfolio should appreciate enough to help fund your current income needs. What this does is create a cushion to give those other assets time to recover from a bad year without forcing you to draw down the account for external purposes. Sometimes you’re forced to sell, but ideally you want to avoid that situation.

Over the last 20 years, a one-year cushion has been enough to withstand every market downswing with at worst minimal drag. Since this includes the 2008–2009 crash, the odds are statistically good that’s about as bad as it gets. And in the meantime, any longer decline will give you time to pivot your exposure as the market environment changes. If, for example, bonds and value stocks become the only good game in town for a multi-year stretch, most investors will catch on by around the second year.

Either way, if you’re retired or a year or two from it, it’s a good idea to keep that year of cash or fixed-income assets where you can get to it when the market goes south. It’s hard to put a percentage allocation on this because everybody has a different amount of cash and different cash needs, but I would say generally it shouldn’t be more than 30% of a healthy retirement portfolio – and odds are good that the percentage will actually be a whole lot lower.

Another rule of thumb some investors like is to subtract your age from 110, with the resulting number being the percentage you allocate to stocks. For example, if you are 60 years old, you could have 50% of your portfolio in stocks. The old formula was to subtract your age from 100, but with people living longer, many think 110 (or some even say 120) is better to make sure you get enough exposure to growth to increase the odds that your money will last as long as you need it to.

I hope this gives you some guidance on where to get started with your portfolio allocation!

How to Read (and Understand!) a Financial Statement

April 24, 2017, 4:05 pm

I go through extensive research when sizing up a new company, and thought it might be helpful to share my process with you, especially when it comes to financial statements. These number-heavy documents can be overwhelming, so I’ve simplified the process with a handy guide that you can use when researching any prospective names for your own portfolio.

Some of the terms and explanations are likely to be familiar to you, especially if you’ve been investing for a while. Others you may not be as familiar with, and I hope it gives you some helpful food for thought.

Please note that not every company displays every characteristic listed below. This is simply a guideline for choosing healthy business entities that have the wherewithal to continue growing. I want you to be able to look beyond the conventional P/E ratios, press reports or rumors when picking stocks. It’s important to understand what the numbers in a financial statement tell you – and it’s equally important to know that companies change over time, so their trends can change, too. When you know what to look for, you can continue to evaluate the worth of a stock on an ongoing basis.

The Income Statement

1) Revenues: Simply put, these are the sales that a company makes during a given period, quarterly or annually. Keep in mind that sales are recorded on an accounting basis and do not represent cash that is being earned. (More on this later when we discuss the cash flow statement.) I do like to see annual sales growing at least a high single-digit rate. And I especially like to see double-digit growth rates year-over-year, since that’s an even better indicator that a company is gaining traction among existing customers and/or growing their customer base.

2) Margins: There are two margin lines I like to look at: gross margins and operating margins (or EBIT, which stands for earnings before interest and taxes). Gross margins are equal to revenues minus the cost of goods sold, or COGS for short. COGS includes the cost of making a product, from software to machines to clothes, that a company sells to its customers. This line item typically includes material costs and direct labor costs. It does not include expenses like salaries, research and development, etc. It’s always good to see gross margins on the rise, because it means that a company is showing pricing power, controlling its production costs, or both.

Operating margins are one of the more important income statement line items because they take into account not just the direct costs of making a product, which are captured in gross margin, but also the impact of all the operating expenses a company must carry, including research and development, staff salaries and the like. I generally like to see double-digit operating margins on a longer-term trend of growth.

In some cases, though, operating margins may be negative. Newly-established companies just out of the gate often incur heavy start-up and operating costs before they see much in the way of sales or profits. Some industries show this trend more than others, particularly the biotech sector. In looking at biotechs, I want to see some real promise in the novel therapies being developed, their specific targeting of disease and advantages over existing treatments. This will translate into strong revenues, and eventually the company will generate some real profit and cash flow strength.

3) Net Income: This is the “bottom line,” which means the money that is left over to stock investors after all expenses are deducted. Net income is usually presented on a financial statement after one-time items – such as special charges for, say, a product recall, a win or loss in a lawsuit (with damages paid) or even failure of some equipment or due to a tornado or other weather-related event.

There are a million reasons why such special items may show up on an income statement, but they can have the effect of making net income turn into a net loss, or vice versa. So even though Wall Street looks at the bottom line perhaps more than any other place on an income statement, net income can be a misleading metric at times. Make sure you know what the earnings power of a business is before these items. Analysts and investors typically look at the tax-effective operating income when judging the success of a quarter’s earnings result.

4) Balance Sheet: This is a snapshot of a company’s financial position at a given point in time, whether at the end of a quarter or the end of the year. When I look at a balance sheet I generally want to see a rising cash and investments position, which indicates that a company is growing its business. I also want to see a quick ratio above one. The quick ratio lets us know that a company can cover its liabilities in a pinch. You can calculate this ratio on your own by dividing current assets by current liabilities. Ideally, the result will be at least 1.

There are also varying opinions about debt, but it really depends on the industry. In some cases, debt is a necessary cost of doing business. Biotechs and even some energy companies, for example, must get funding in place before they can get operations up and running – particularly if their products have yet to hit the marketplace.

5) Cash Flow Statement: There’s an old saying in the investment world that “cash is king.” That’s because a company must generate cash to sustain its operations. However, it’s also because over the past several years some unscrupulous management teams have manipulated income statements and balance sheets to hide deteriorating financial performance (Enron, anyone?). You MUST look at the cash flow statement in order to judge the financial soundness of a company during your due diligence.

In my experience, the most important part of the cash flow statement includes the first of the three sections typically listed on the financial statement, known as the operating cash flow segment. This shows how an accounting convention, net income, gets turned into cash. A simple rule of thumb is to look for increasing and positive operating cash, and then to subtract a line item from the next section, the cash flow from investing activities. This line typically reads “purchase of property, plant and equipment.”

That’s also known as capital expenditures (capex), or the cash that is being reinvested into the business through buying or building new production plants or even buying other companies in order to grow. Operating cash flow minus the capex equals free cash flow, or what is “left over” to fund future activities. The greater the free cash flow, the more likely it is that the company will see even better growth in the future as it has the resources to compete against peers.

I hope this helps to give you a better understanding of what I look for and the financials you should check out before investing in a new company. Keep these numbers in mind during your research, and you’ll be on your way to finding the right stocks that are worth your money!

The Best of Both Worlds: Fundamental and Technical Analysis

April 17, 2017, 4:14 pm

The market reacted with uncertainty to a mixed bag of bank earnings last Thursday, initially showing some resilience before taking a more pronounced turn lower in the afternoon. While the earnings results mostly beat expectations thanks to strong investment banking, there were some signs of worsening consumer credit conditions – although from very low levels. Comments from management indicated that business conditions as well as the economy remain sound.

With the first-quarter earnings season officially underway, results will continue to run Wall Street for the next two weeks. This week will be dominated by more financial company reports, but it’s the following one that will be critical as tech and industrials release their numbers.

The S&P 500 appears to have come under a bit of pressure recently after falling through its 50-day moving average (the blue line), but I’m not overly concerned about the action. In fact, I suspect the index will drift in a range between 2,320 and 2,360 (the black lines) until the full-year earnings outlook becomes clearer. With interest rates still low and no indication that they’ll move higher in the near term, I think the earnings bar is set low enough that any downside in the broad market is limited.

S&P Chart

Also helping limit near-term downside are the financials and large-cap tech stocks. The Financial Select Sector SPDR ETF (XLF) is nearing a point of support, and the PowerShares QQQ ETF (QQQ) is holding above its 50-day moving average. As long as tech leadership remains intact, I suspect the overall market strength will be tough to fracture.

I believe one of the best ways to play the current market environment is by analyzing both the charts and fundamentals and buying only stocks with the most favorable near-term technicals. This is exactly what we do in my Breakout Stocks service, and the strategy has put us in good shape to lock in solid gains. If you’re interested in learning how to win in the stock market with a mix of technical and fundamental analysis, Breakout Stocks could be a good fit for you. Click here to claim a risk-free membership before it’s too late

How to Grade Management

April 10, 2017, 4:28 pm

We’ve talked a lot about the fundamentals and technicals I watch when looking for potential investment opportunities. One factor we haven’t touched on very often is management, and I do get questions about judging management’s effectiveness, so I’d like to share some thoughts on ways to do that with growth companies in particular.

First let me say that I do not have specific criteria when it comes to evaluating management. Almost all CEOs are highly educated, intelligent and have enjoyed a lot of success in life. Since I tend to select stocks that have a solid history of growth, the CEOs have also had some measure of success in their position. In addition, most of the companies are growing while still investing big for their futures, so I do not think management tends to be focused solely on how much they can pocket in the near term.

Strong quantitative data is often a good indicator of the quality of management. However, we know that business is dynamic and not static in nature. Therefore, a good executive must be able to adapt to change. Growth businesses tend to attract more competition over time, and in technology, product obsolescence is often an issue. Given this, I look for management’s plans for future growth in their investor presentations and public filings, and how realistic they are. Companies that are slow to adapt to changing market conditions will at some point see their stock prices take a hit.

I also judge management by how they allocate incremental capital – the cash they take in each year in cash flow. Since they consider themselves as steering growth companies, most CEOs do not want to pay dividends, which is perfectly fine. But what I don’t like to see is a company buy back shares when its stock trades at above-average PEs. To me, this is not investing in growth, but actually a tool used to hide dilution (from issuing stop options). Unfortunately, this practice has become so ingrained among most U.S. companies it is hard to be critical of specific management, as this is an institutional issue.

It’s also important to gauge management’s ethical behavior. For years, Wells Fargo (WFC) was one of the most admired companies, not just in banking but in the market as a whole. In fact, Warren Buffett used WFC as a benchmark when evaluating other potential investments. It took decades to discover that the company’s strong growth in fee income was often achieved by illegal practices. While the bank was able to survive the crisis in decent shape, that may not be the case with smaller companies that do not have a franchise as strong as Wells Fargo.

Due to increased regulations, brokerage firms are spending less on conferences and instead disclosing everything over the Internet, so most investors have much less access to senior management than they did 20 years ago. Still, evaluating where a CEO is taking a company is an important part of determining a stock’s potential.