January marked a reasonably positive beginning for the markets, with the Nasdaq gaining 1.02%, the Dow Jones rising by 1.22%, the S&P increasing by 1.59%, and the TSX experiencing a 0.66% gain for the month. Given the early stage of the year, the year-to-date figures below align with the monthly gains.

As previously outlined in our investment outlook for 2024, we believe we are in the early stages of a new bull market following a challenging bear market that began in late 2021 and early 2022, depending on the index. Looking ahead:

• We anticipate no federal reserve rate cuts in the first half of the year, considering rates are at historical norms, and the US economy continues to outperform expectations in 2024. Modest decreases might occur in the second half, a trend exemplified by the recent job additions in the US economy reported last week that surpassed expectations.
• Conversely, we hold a less optimistic view for the Canadian economy and market, anticipating a more subdued and challenging performance.

For a more detailed overview of our 2024 outlook and beyond, we encourage reviewing last month’s commentary.

Below we provide an overview of how Investment Strategies approaches security selection, particularly for growth companies, as part of our overall investment strategy.

At Investment Strategies, our approach involves bottom-up analysis to determine market direction and economic performance. We identify clues to changes in economic conditions through the performance of industry sectors and the stocks within those sectors long before traditional economic indicators reflect those changes.

Our selection process for individual securities is rigorous, guided by specific criteria. Future commentaries will delve into our sell rules and risk management strategies.

Here is a summary of the criteria utilized by Investment Strategies to evaluate potential securities for purchase. The selection process involves assessing seven major criteria for company selection.

1. We target companies with quarterly earnings showing a minimum of 25% increase in earnings per share. Emphasis is placed on those meeting or surpassing the earnings per share (EPS) gain in the most recent one or two quarters. Additionally, we seek sales growth of at least 25% in the most recent quarter.
2. Our focus extends to companies demonstrating powerful annual EPS growth, with a rise of at least 25% over the past three years. Preferably, these companies also exhibit substantial sales increases of 20% or more over the same three-year period.
3. We actively seek companies with innovative products, aligned with emerging trends and potentially reaching or surpassing new price highs. Our interest lies in companies with breakthrough products or services propelling explosive earnings growth within new industry trends. We also consider any recent changes in management.
4. In assessing the stock, we consider if the stock is under strong demand reflected in increase trading volumes that should be at least 40% above the average buy point we have identified.
5. We evaluate companies to ascertain if they stand as true market leaders within their industries, prioritizing those that drive trends and exhibit exceptional relative strength. Top position rankings in industry groups, considering company-related fundamentals and stock-related price performance, are essential.
6. Our stock selection involves identifying stocks being accumulated by institutional buyers. This is a powerful driver of stock prices as a technical indicator.
7. We consider the general stock market indexes weakness or strength. It usually is an uphill battle for individual stocks to buck that trend. In fact, decades of market history show three out of four stocks will follow the underlying trend, either up or down. We only aggressively buy stocks when the market is trending higher.

These seven criteria encompass a comprehensive analysis, covering both fundamental aspects (such as sales, earnings, products, and industry trends) and technical elements (including price and volume action, support, and resistance in the stock chart). The fundamental analysis includes further financial metrics as does the technical analysis. That combination of fundamental and technical analysis gives us an advantage over investors who only look at one or the other.

Our strategy for stock selection remains consistent despite market fluctuations, as adjustments to exposure levels in the market and individual stocks are made based on evaluations of economic conditions, market direction, and trends. Given the market’s role as a leading indicator, we incorporate future economic conditions into our strategic approach.