How to Avoid the Losers and Find the Winners

Which stocks and ETFs are the most likely to fall after the election and beyond? Which are the most likely to rise?

What about your bank? Was it among the 437 that failed just in the last four years? Could it be among the hundreds that are likely to fail in the next four years?

How strong is your insurance company? Will it hold up well even in the worst of times? Or will it find an excuse to delay — or even renege — on its payments for legitimate claims?

Which major sovereign nations are mostly likely to collapse in the near future? Which ones, if any, will have the means to pick up the pieces?

I’ll give you three simple steps to find the answers in just a moment. But first …

A Few Words of Caution …

Predicting the future of the global economy is never a certain enterprise.

Forecasting presidential elections … the vagaries of a Congress in deadlock … or the manipulations of a Fed chairman gone berserk can be even trickier.

But I can tell you with no hesitation: Consistently identifying the weakest and strongest stocks, ETFs, banks, insurers, or sovereign nations is very possible — and potentially very profitable — in any environment.

In fact, whether events on the immediate horizon are clear or murky, there is always one approach to investing that has never failed me: data on tens of thousands of companies.

Massive amounts of quantifiable financial facts! The real, on-the-ground, nuts-and-bolts world of virtually every U.S. financial institution and business corporation — all collected into one giant database!

No bullish or bearish bias.

No conflicts of interest.

Exclusively objective analysis!

That is what our Weiss Ratings and its partners do. We have amassed a veritable data treasure chest, including nearly every U.S. bank, S&L, credit union, insurance company, stock, mutual fund, and ETF in America, plus major overseas banks and sovereign nations.

We review them all weekly or quarterly, issuing an opinion on each — a letter grade from A (excellent) to E (very weak).

And the bottom line is this:

Independent, objective ratings on thousands of companies (or sovereign countries) are the most consistently accurate guide to investing I’ve ever encountered in a career that spans nearly half a century!

This is why it’s so unfortunate that the Big Four rating agencies (Standard & Poor’s, Moody’s, Fitch, and A.M. Best) have fatally compromised their objectivity by accepting large fees for their ratings from the very same companies they rate — a blatant conflict of interest, which, despite widespread public and official criticism, continues to insert an egregious bias into their ratings to this very day.

This is why Weiss Ratings, unlike the Big Four, never accepts fees from the companies … never gives the companies a preview of their grades … never removes ratings from circulation at a company’s request … and never delays downgrades despite any company appeals.

And this is why the evidence validating our independent, data-intensive approach is so overwhelming!

Our Track Record

Consider banking: The Weiss ratings of U.S. banks have warned of nearly every major and minor bank failure in advance for the past three decades. (See our list of failed banks and ratings for each.)

Consider insurance: The U.S. Government Accountability Office found that the Weiss ratings of insurance companies beat its closest competitor, A.M. Best, by a factor of three to one in accuracy, while outperforming the other Big Three ratings agencies by an even wider margin.

Look at sovereign nations: Weiss Ratings was the first rating agency in the world to recognize the fundamental weaknesses in the credit of the U.S. government by assigning it a low rating. (See press release.)

Remember the debt crisis: Weiss was the only company to name in advance — with an explicit public warning — nearly every major financial institution that failed or required a government bailout during the 2008-09 debt crisis.

We warned about the Lehman Brothers failure 182 days in advance … the Bear Stearns failure 102 days in advance … the Citigroup bailout 110 days in advance … the Washington Mutual failure 51 days in advance … and the Fannie Mae disaster four years before. (For complete documentation, see track record.)

And consider stocks:

In 2005, The Wall Street Journal reported our ratings were #1 in the nation for accuracy and performance — outperforming J.P. Morgan, Goldman Sachs, Citibank, Standard & Poor’s, and every one of the 18 other ratings firms reviewed.

In 2009, the ratings we originally developed earned the Jaywalk Best Stock Selection Award.

In 2010, they earned the ConvergEx Group Award for “first-rate recommendations and insights.”

In 2011, they won the Independent Research Provider Performance Award for “exceptional investment recommendations that have proven to be enormously valuable to clients during these uncertain times.”

And in 2012, we have continued to pick losers and winners with great accuracy.

Here are just a few examples …

•  Just six weeks ago, on September 14, we gave Computer Sciences Corp. a rating of D (weak). The stock promptly plunged by 10.1%.

•  At the same time, we gave JCPenny a D+ rating. Its decline since then is 11.1%.

•  Boston Scientific’s rating was also D+ on September 14, falling 12.4% since.

•  Hewlett-Packard has plunged 21.5% in the short six weeks since we pegged it a D+ on September 14.

•  Or if you think that was a disaster, consider the plight of Advanced Micro Devices: It’s down a whopping 45.1% since September 14, when we also rated it a D+.

And our ratings are equally accurate at picking outstanding winners as many S&P 500 stocks — meriting our A grades on June 1 of this year — have greatly outperformed the market:

Click the chart for a larger view.

During this period, the S&P 500 Index was up by 10.6%. But the best-performing stock on our list, Coventry Health Care, rated A- on June 1, yielded a total return of over FOUR times more — 46.1%

And even the worst performer on this list, Home Depot, also rated A- back in June, provided a return of 22.3%, or more than DOUBLE the S&P’s rise during the same time frame.

Are independent, objective ratings infallible? Of course not!

But again, these examples illustrate the continuing, consistent power of the investment approach I’m talking about here — the power to help protect your portfolio from losers and to help identify the winners as well.

Again, I wish I could say the same for the approach that Wall Street has traditionally relied upon …

Wall Street Ratings Fiascos

In April 1999, Morgan Stanley Dean Witter stock analyst Mary Meeker — dubbed “Queen of the Internet” by Barron’s — issued a “buy” rating on Priceline.com at $104 per share.

Within 21 months, the stock was toast — selling for just $1.50. Investors who heeded her recommendation would have lost 98.56% of their money, turning a $10,000 mountain of cash into a $144 molehill.

Undaunted, Ms. Meeker also issued “buy” ratings on Yahoo!, Amazon.com, Drugstore.com, and Homestore.com … and the Wall Street media rallied behind her.

Then, Yahoo! crashed 97%; Amazon.com, 95%; Drugstore.com, 99%; and Homestore.com, 95.5%.

Why did Ms. Meeker recommend those dogs in the first place? More importantly, why did she stubbornly stand by her “buy” ratings even as they crashed 20%, 50%, 70%, and, finally, as much as 99%?

One reason was that virtually every one of Ms. Meeker’s “strong buys” was paying Ms. Meeker’s employer — Morgan Stanley Dean Witter — to promote its shares … and because Morgan Stanley rewarded Ms. Meeker for the effort with a $15 million paycheck.

While millions of investors lost their shirts, Morgan Stanley Dean Witter and Mary Meeker, as well as the companies they were promoting, cried all the way to the bank.

An isolated case? Not even close.

In 1999, Salomon Smith Barney’s top executives received electrifying news: AT&T was planning to take its giant wireless division public, in what would be the largest initial public offering (IPO) in history.

Naturally, every brokerage firm on Wall Street wanted to do the underwriting for this once-in-a-lifetime IPO — and for good reason: The fees would amount to millions of dollars.

But Salomon had an issue. One of its chief stock analysts, Jack Grubman, had been saying negative things about AT&T for years. A major problem? Not really. By the time Salomon’s hotshots made their pitch to pick up AT&T’s underwriting business, Grubman had miraculously changed his rating to a “buy.”

What if it was abundantly obvious that a company was going down the tubes? What if an analyst personally turned sour on the company?

Would that make a difference? Not really.

For the once-superhot Internet stock InfoSpace, Merrill’s official advice was “buy.” Privately, however, in e-mails uncovered in a subsequent investigation, Merrill’s insiders had a very different opinion, writing that InfoSpace was a “piece of junk.”

Result: Investors who trusted Merrill analysts to give them their honest opinion got clobbered, losing up to 93.5% of their money when InfoSpace crashed.

Merrill’s official advice on another hot stock, Excite@Home, was “accumulate!” Privately, however, Merrill analysts wrote in e-mails that Excite@Home was a “piece of crap.”

Result: Investors who trusted Merrill lost up to 99.9% of their money when the company went under.

Subsequently, the Securities and Exchange Commission (SEC) and other regulators agreed to a global settlement with 12 of the largest Wall Street brokerage firms, forcing them to partner with independent ratings firms to offer their clients a second opinion on each stock they covered.

And the firm representing the SEC to find independent providers turned most often to ONE research firm in particular for the lion’s share of the work — Weiss Ratings.

Here Are the Three
Steps I Recommend …

Step 1. Select the 10 most important investments you have in your portfolio today. It could be a stock, exchange-traded fund (ETF), mutual fund, bank CD, or insurance policy.

Step 2. Sign up at our website, www.weisswatchdog.com — not only to get a free rating on each, but also to receive a free email alert whenever our ratings on your companies change.

Step 3. As the evidence shows, our ratings are a very powerful tool. But you should also seek the additional help of an analyst, adviser, or manager who knows how to use them.

And above all, stay safe!

Good luck and God bless!

Martin