Steve McDonald: Hi, everybody. I’m Steve McDonald. This is your Market Wake-Up Call. Our guest today is the Alex Green, the best money mind in the business. He’s here to talk about momentum in the market and why it’s working. Welcome, Alex.

Alexander Green: Hey, Steve, thanks for having me.

Steve McDonald: It’s my pleasure. Now the market has had, to say the least, a lot of ups and downs this year, but it really hasn’t gone anywhere. What do you think is behind the fact that it’s stalled?

Alexander Green: Well, it’s stalled because there’s a number of positive factors out there, but there’s also a couple of troubling factors. The positive factor is we’re in sort of a “Goldilocks economy,” where we have synchronized global growth. We have low inflation. We still have very low interest rates. The economy’s picking up, thanks to tax reform and deregulation. Business and consumer confidence are up. Corporate profits are up.

All these things are positive. But on the negative side, we’ve got a Federal Reserve that’s intent on taking interest rates higher. And the oldest saw in the business is you don’t fight the tape, and you don’t fight the Fed. And the tape is kind of jagged, and the Fed is tightening right now. But I think the tightening is a good thing because it shows that we can get off of this life support – that we don’t need an economy or a stock market that’s based on nothing but ultra-low interest rates with record low unemployment and a stronger economy and so forth. It’s showing that the economy is healthy and that corporate profit outlook is good. So I think the market’s really going through a normal period of adjustment, and that the outlook is still quite positive.

Steve McDonald: Now, I was going through your track record, your numbers for this year. You’ve had some significant winners in your momentum stocks. Can you talk about why momentum is working in this type of a market?

Alexander Green: Well, I have to say that momentum really works in almost any kind of market because remember when you buy, say an S&P 500 Index fund, you’re buying all the average companies out there. You’re buying the great companies, and you’re buying the lousy companies. But what you really have is an average. (The S&P and the Dow are the averages.) But the average company is seeing sales growth of about 3% and earnings growth of about 8% or 9%, and they give the average stock market return of 9% or 10% over long periods of time.

But think about it… If a company is seeing its sales grow 30% and its earnings growing 50% or 100%, it’s like a growth stock on steroids.

So what we’re doing is we’re focusing on those young, aggressive, fast-growing companies that are in a sweet spot, and they’re seeing massive growth in sales and earnings. And so it’s natural that the share price of these stocks would be much stronger than the average company’s. And indeed, in The Momentum Alert, just the current holdings in the portfolio are up more than four times as much as the S&P 500 year to date, and we’ve owned most of them for only a few weeks. So we’re simply identifying what I call growth stocks on steroids, the fastest-growing companies with the best-performing share prices.

Steve McDonald: I know they’ve done well, but is there a particular type of market, or perhaps is here a particular industry that you think is going to do best?

Alexander Green: Well, you know what? I try to diversify the portfolio across a number of different industries because I don’t want to place my bets on, say, the oil and gas industry, and then oil and gas prices turn down, and the whole thing turns to mush. So instead I’m looking for the fastest-growing companies in the fastest-growing industries. So rather than really picking a type of market or a certain sector, what I’m looking at is companies that have at least 10% sales growth, 25% or better earnings growth, a 15% or better return on equity, which is sales per share divided by book value per share.

Steve McDonald: That’s a lot.

Alexander Green: I’m looking for strong institutional support. I’m looking for great product innovation, companies that are coming out with new products and services. I’m looking for strong technicals. Companies have got to be moving up on strong volume; that’s why it has momentum. I’m looking for massive share buybacks. I’m looking for heavy insider ownership.

I’m looking for big institutional support because remember, most of the volume that takes place in the market is not coming from individual investors like you and me. It’s coming from big institutions like banks and hedge funds and mutual funds and pension plans and endowments and so forth. And if you’re a short-term trader especially, you want to be owning the stocks that they’re accumulating because they’re out there buying the stock day after day, week after week, to accumulate the kinds of positions they need. So we’re like surfers who get a position in a stock and then let the wave of institutional cash push our shares ahead.

Steve McDonald: What about going forward? I mean, it has been flat. We’re showing a little movement here in the last week or so. What do you think is happening going forward?

Alexander Green: Well, Steve, I’m going to tell you something you know you’ve heard me say a dozen times before.

Steve McDonald: You know, I already know the answer, Alex.

Alexander Green: I don’t know what the market’s going to do next, and I’m not the least bit ashamed to say it because nobody else knows either. There’s a great living to be made as a prognosticator, telling people that interest rates are going to do this and the economy’s going to do that and stocks are going to do this. Nobody knows. But here’s what you can take to the bank… Go back through history and you won’t find a single example of a company that posted massive increases in sales and earnings where the share price didn’t tag along.

So while I could offer our listeners a perspective on what happens in the market, it really isn’t worth anything because if you’re a smart investor, you’re not focusing on what the market’s going to do because nobody knows. What you should be focusing on is which companies are just killing it: much better than expected sales, much better than expected earnings, and as a result, naturally much better than expected share price performance. So I’m really not focused on what the market’s going to do or making those kinds of calls. I’m really trying to identify the best companies in the market.

Steve McDonald: Well, even though we couldn’t nail you down on a prediction, we want to thank you for being with us today, Alex.

Alexander Green: You know me. I’m a longtime market neutral guy. And the best companies will do well. You know, even during the Great Recession you could walk into an Apple store, and the places were mobbed with people, and they were trying out the phones and the tablets and the laptops. And so of course, you know, Apple is one of the best-performing stocks from a business standpoint. Even though the economy was lousy and the stock market was down, when a company’s doing everything right, its share prices hold up better in down markets and exceed on the upside in a bull market. So that’s what my job is really – to identify those kinds of companies.

Steve McDonald: Great. Thanks again for being with us, Alex.

Alexander Green: Happy to be here, Steve, anytime.

Steve McDonald: Thank you. And for everybody here at the Market Wake-Up Call, thank you so much for being a part of us. We’ll see you next week.