While there is no crystal ball that can guarantee a successful stock-picking strategy, Charles Schwab's Schwab Equity Ratings system has proven to be a helpful tool for investors. As reported in a recent issue of Fortune, using this system, Schwab's model stock portfolio has returned a total of 97% through 2006 vs 35% for the S&P 500.
According to Schwab's chief investment officer, Jeff Mortimer, the system reviews stocks that have been successful and pinpoints 18 common traits that appear to predict future performance. Schwab breaks those traits into four categories: fundamentals, valuation, momentum, and risk. Schwab then grades the stocks from A through F based on their performance in each category.
Applying the system, Cigna was identified as a potential winner and subsequently has beaten expectations in 16 out of 16 quarters and has recovered from a volatile 2006. Boeing, Mortimer says, has been winning against its competitors, keeping it in a strong market position. Also, MetLife, Mortimer says, is expected to continue to inspire positive analyst expectations. With the market volatile again, Mortimer's advice to investors is to avoid market swings by having a diversified portfolio and to start in the market early in order to not miss out on long-term gains.