In horse racing, it can often be helpful to eliminate the likely losers before trying to pinpoint the winner. In most cases, there are several longshots with almost zero chance of crossing the wire ahead of the rest of the field -- and every minute spent assessing their odds is valuable time that could have been better spent handicapping the stronger contenders.

In every issue of StreetAuthority's premium Market Advisor newsletter, editor Paul Tracy takes a similar approach with his "Inside the Numbers" segment. By running the entire stock universe through a series of screens, he systematically narrows a field of thousands down to a workable number of quality stocks that stand a better than average chance of outrunning the market.

In the February 2007 issue, for example, he went in search of some of the most explosive foreign firms around, crossing out all those that didn't offer robust operating margins of at least 15% and trailing 3-year annualized earnings growth of +35% or better. And to eliminate overpriced stocks that might have gotten ahead of themselves, he also screened for reasonable PEG ratios below 2.0.

In the end, only about a dozen finalists were left standing, all of which represented attractive companies worthy of further analysis. Of course, not every stock has raced ahead in the months since, but the group as a whole has turned in whopping gains. For example, four of the firms qualifying for that month's list, Agnico-Eagle Mines (NYSE: AEM, $66.44), BHP Billiton (NYSE: BHP, $87.83), and Rio Tinto (NYSE: RTP, $505.99) Petroleo Brasileiro (NYSE: PBR, $64.58), have cashed in gains of +65%, +119%, +140%, and +173%, respectively.

In this month's newsletter, Paul sets his sights on bargain-bin companies that have fallen to fresh new 52-week lows. But not just any beaten-up stock made the cut, only those with steady past and projected top and bottom-line growth that are poised for a swift rebound. One, for example, is a world-class biotech company with a promising drug pipeline and over $2 billion in annual free cash flow that is now trading at its most affordable level in years.

To learn more about this underpriced company, and to see the complete list of this month's "Inside the Numbers" finalists, we invite you to become a Market Advisor subscriber. Just follow this link to learn more.
 

Nathan Slaughter StreetAuthority Staff Writer

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