With corporate earnings season just around the corner, Todd Gervasini, a portfolio manager at Wakefield Asset Management, is giving a lot of thought to potential stock-market winners and losers.
1. Exploit the psychology of sell-side analyst crowd behavior to find big, unexpected earnings growth: Job security is fundamental. On Wall Street, this translates into a basic rule of thumb for sell-side analysts: It’s better to be wrong with the pack than on your own as an outlier. After all, if you’re wrong with the group, you can always say “Well, everyone else got it wrong, so don’t fire me!”
A good example, Gervasini says, is Meta Platforms, a stock he purchased in February 2023. Even though the shares are up 138% so far this year, Gervasini still likes Meta because it continues to rank well in his estimate revisions model. A more recent purchase that ranks well is Marathon Petroleum, which he bought in August.
3. Take the emotion out of investing: The sell decision always seems to be much harder than the buy decision. Why is this? It’s all about emotion. “If you have a company that has done unbelievably well, it is hard to sell. You fall in love with the company,” Gervasini says. The same thing can happen in the opposite direction: Too many people hold on to losers because it is hard to admit they made a mistake.