If you’re like me, you might still be feeling the effects of enjoying turkey and sides at Thanksgiving dinner last Thursday.

In this edition of Market 360, I want to take a moment to explore how I identify the best stocks in the market. I’ll explain how my system has guided me to make profits early, before a stock’s decline. Most importantly, I will highlight some overrated stocks you should consider selling immediately.

The recent market activity gives me some optimism. This past month, the S&P 500, NASDAQ, and Dow all reached new record highs. These gains are largely attributed to the removal of uncertainties that plagued the market earlier this year.

We are also entering the holiday season, traditionally a strong time for the market as positivity fills Wall Street. However, it’s important to remain cautious.

With earnings season now over, I want to remind you of what typically happens during each quarterly announcement cycle. Stocks with strong fundamentals often surpass their sales and earnings estimates and are rewarded with increased institutional buying.

In contrast, companies lacking solid fundamentals usually fail to surprise Wall Street and can see dramatic drops upon announcing earnings.

With over 40 years in the market, I’ve learned what strategies work on Wall Street. While I can’t predict the future, I believe my Stock Grader tool (subscription required) is the next best thing.

This tool helps me differentiate between fundamentally strong stocks and those that are weak—often before the larger market takes notice.

The Role of Stock Grader in Preventing Losses

In a prior Market 360, I discussed how my Stock Grader tool operates, including the eight criteria making up a stock’s fundamental “grade.” (You can refer to that here if you need a reminder.)

Essentially, I seek strong fundamentals such as favorable margins, robust sales growth, earnings increases, and analyst optimism. These factors form the foundation of the stocks selected in my Growth Investor service.

Another critical aspect that Stock Grader highlights is stocks with persistent institutional buying. This is reflected in my Quantitative Grade.

A stock with a Quantitative Grade of “A” indicates significant interest from institutional investors, often referred to as the “smart money.”

These firms manage billions in assets, which means when they start buying, they usually purchase large quantities. This surge in demand tends to elevate the stock’s price, leading to potential profits for investors.

These concepts may seem straightforward, yet many investors overlook them. This often occurs with growth stocks that receive more attention than they deserve.

While high growth is desirable, sometimes impressive revenues mask underlying issues, creating misleading hype that may lead investors towards the wrong stocks.

Fortunately, Stock Grader also assists us in sidestepping these pitfalls. If we already hold such stocks, it helps us sell them before they plummet.

Despite past performances, it’s vital to recognize that disasters can strike unexpected companies.

Take, for instance, the Enron scandal in the early 2000s…

How My System Uncovered Enron’s Fraud

Was Enron once a superb growth investment? You bet. At its peak, it ranked as America’s seventh-largest company and was honored as “America’s most innovative company” by Fortune magazine for six consecutive years.

Initially, it even received an A-rating from my system and gained 36% after I recommended it. However, as Enron’s fundamentals began to weaken, we took our profits well ahead of the crisis.

This decision occurred before Newsweek proclaimed “Lights out for Enron” in December 2001, while the company’s internal corruption remained hidden. My system had already indicated that its fundamentals couldn’t sustain the hype.

By exiting early, I avoided a significant loss—unlike many investors who suffered when Enron eventually collapsed and many employees lost their retirement funds.

While Enron represents an extreme case, it illustrates that significant financial losses don’t always require major scandals. In fact, even a modest prick can expose a stock bubble.

Now, let’s focus on growth stocks that my system advises selling or avoiding. Each of these stocks carries a Total Grade of either “D” (Sell) or “F” (Strong Sell).

It’s important to clarify that my suggestion doesn’t imply any wrongdoing by these companies. However, Stock Grader indicates that these stocks aren’t investment-worthy at the moment, prompting you to search elsewhere for promising buys.

Where to Find Better Opportunities

By combining a stock’s Fundamental and Quantitative Grades, we can effectively avoid potential losses in our portfolios.

Identifying the right investments with Stock Grader is straightforward. Look to buy when a stock achieves a Total Grade of “A” (Strong Buy) or “B” (Buy) and sell before it drops.

This method has led us to significant winners, such as a 3,000% gain on NVIDIA Corporation (NVDA), which remains in our Growth Investor Buy List currently.

If you’re in search of fundamentally superior stocks, my Growth Investor service offers stocks with extraordinary growth potential, currently averaging 23.7% annual sales growth.