Beachman scores the best stock picks for 2025
HowTos: A primer (and update) on how I evaluate and score stocks
Some of the most frequent questions that I get from readers are “Which is the best MAG-7 stock to own?” or “Which cybersecurity stock is the industry leader?” or “Is this xyz semiconductor stock better to own than that abc stock?”
All these queries highlight the need for an unbiased, dependable stock analysis method that holds up in different market conditions.
I have been on a mission to solve this challenge for many years now and here is my latest effort in this quest.
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Bambino stocks
The WSJ recently wrote about the Babe Ruth effect.
Decades before “Moneyball”, fans still understood that a team with the Babe in the lineup had good odds of winning. The Sultan of Swat’s home-run record, which stood for decades, spoke for itself…
How many times have you heard someone say that, when picking stocks, “all you need to do is be right 51% of the time?” First of all, good luck with that. Second, it’s whether you can hit for power that really matters.
Arizona State business professor, Hendrik Bessembinder, tracked thousands of US stocks from 1925 to today. Only 86 stocks accounted for half of the wealth created. Think about that for a second…only 86 stocks! 96% of US stocks could not even beat the returns from Treasury bills over that time period.
I don’t know about you, but I want to find the best Babe Ruths for my portfolio. I want to be right about a stock as close to 100% of the time and I want my portfolio performance to smash the market every single year.
In order to achieve these lofty goals…
…every quarter, I analyze and score about 50 of the most interesting stocks that my readers are talking about…that the best financial analysts are recommending. I compare these stocks' performance, over multiple quarters, in terms of their past business performance and their future business prospects.
This exercise helps me identify stronger companies where I might want to put my money to work.
2025 needs a smarter scoring approach
I have discussed several times, most recently here, how the higher scoring stocks in my algorithm consistently outperform the lower scoring stocks. I have been publishing these results for more than three years now.
But 2025 is a different beast. I realized that I needed to get more granular in my process. My old method is not good enough now to separate the wheat from the chaff.
The Q1 earnings season starts in earnest this week and given all the recent tariff and macro uncertainty, companies have started pulling their 2025 forward guidance, analysts are likely to overestimate future earnings and investors could walk away confused and frustrated.
Wedbush’s Dan Ives, who has been a perma-tech-bull investor, said recently,
We estimate that 10-15% (could be conservative) of many cloud and AI initiatives in the US we are tracking in the field could be pushed/slowed down during this period of uncertainty and Mag 7 names will be front and center in this economic period of uncertainty.
Uncertainty is the key word of the times.
In these moments, it helps to fall back to the comfort of numbers, facts and data.
It helps me to make better investing decisions by leaning on my Beachman scoring method.
Breaking it down
Every stock on my watchlist gets evaluated across three dimensions:
Fundamentals
Growth
Valuation
Each of these examinations produces a score on a scale of 1 to 10, 1 being poor and 10 being very positive.
The scores can be found in the portfolio file pinned here.
Using these three scores, I can tell where the stock has strengths and weaknesses. e.g. Currently I can see that META and GOOG are the most fundamentally strong among the MAG-7 stocks. However, NVDA has the best forward growth score and the most attractive valuation (as of the time of this writing). MELI, another popular international stock, has decent fundamentals, but its forward growth is on the cusp of a downgrade if we get an economic slowdown…thus making its current valuation less attractive above $1,900.
Inputs for the scoring algorithm
I use the following metrics in my scoring process…
Revenue growth YoY
Revenue growth FWD YoY ***
Revenue growth estimate for next 5 years
Revenue growth QoQ for last 4 quarters + est. next quarter
Is revenue growth pivoting higher within the next 2 quarters? ***
RPO (Remaining performance obligations) increase for last 5 quarters ***
Gross margin ***
Gross margin expansion over the last 5 quarters ***
EBITDA margin expansion over the last 5 quarters
Earnings growth FWD YoY
Earnings growth estimate for next 5 years
Operating cash flow margin expansion over the last 5 quarters
Free cash flow margin expansion over the last 5 quarters
Free cash flow per diluted share expansion over the last 5 quarters
Customer growth for last 5 quarters (preferred large customers) ***
Net retention rate expansion for the last 5 quarters
Cash on balance sheet ***
Total debt/cash on balance sheet
Institutional ownership expansion over the last 5 quarters
Did Morningstar increase or decrease it’s fair market value for the stock?
Is a tailwind helping the business?
Is the company buying back shares?
Does the company have a market dominant position? ***
Is the company entering new markets or releasing new products?
Are there external factors putting pressure on the business?
Enterprise value/gross profit
(Enterprise value/gross profit)/FWD growth rate
*** denotes metrics that are given a higher weight in the algorithm.
PS Morningstar fair market value: Morningstar is conservative in their valuation methods and they do not change fair market values every time the stock rises or falls. They update their valuations about once a quarter based on the earnings report. This lines up with how I analyze stocks.
Recurring revenue businesses
The RPO metric above gives a small advantage to stocks that sell their services on a subscription or consumption basis. This is by design because their business model creates a contractual 2-5 year revenue pipeline…that’s a good thing.
Net retention rate also provides an advantage to companies that track and report this metric. I will take into consideration any measurement that reports how much a company is cross-selling or upselling to existing customers.
Context and trend
It is important to understand that the number score by itself is not always a sure thing because it does not take into consideration product cycles or industry developments or macro forces.
There is no silver bullet stock scoring or grading system that will give an investor a crystal clear signal as to whether a stock is a good investment or not.
One has to dig a bit more to understand what is happening with the company today and likely to happen in the near future.
Often, one needs to spot trends across multiple quarters which could be signaling either a topping or a bottoming in the business cycle.
Numbers > feelings
I am a numbers guy at heart. I keep my methods simple and grounded in facts - actual, reported business data that is in the earnings reports of these companies.
I do not conduct any fancy discounted cash flow analysis, extrapolations or price target forecasting. That would just end up with guesses upon assumptions that might not come to fruition.
I use GAAP numbers because they allow me to compare apples to apples. I do not use adjusted numbers because each company defines these differently, usually to the benefit of their quarterly reports.
And I do not give more credence to “good calibre” management teams or “founder-led” companies because these are subjective measures and in the eye of the beholder. If the management team is good, then their superior leadership will be reflected in the score…in the business performance…in the product strategy…in the forward prospects of the company.
Bottom line
In many ways, my Beachman scores serve as a guide to whether I want to buy a stock, when I should trim to log some gains and when to exit because the forward thesis is broken.
This year, in 2025, the Q1 and Q2 earnings seasons are the most important…
for our portfolio performance in 2026
Yes, that is not a typo. The stocks we own now will decide how our portfolio performs next year. Markets are a forward looking voting machine with stock prices as a reflection of how a company is expected to do 9-12 months from now.
It is extremely important for us to tune into these earnings reports and then understand which stocks could provide us with the best returns going forward.
The Beachman scores, fall as they may each quarter, give me confidence to make a clear cut, investing decision on every stock that I analyze.
John, I ditto that!
Great update, Beachman! It gives me more confidence than ever to invest using this methodology. This primer is definitely going into my notebook so I can refer back to it.