NSP Overview

 The Making of a Methodology

The very foundation of the NSP methodology essentially boils down to just a few simple concepts. In a nutshell, we are looking for stocks with a strong chance to perform over the short-term.

Simple enough in theory, but where do we go from there? Of course the universe of stocks to select from literally numbers in the thousands. So exactly how does the NSP pare down that intimidating list to arrive at what it believes to be those with a strong immediate potential for success?

Well, for obvious reasons, the exact criteria used are proprietary in nature but let's at least shed some real light on the nuts and bolts. For starters, it is completely mechanical and the concoction all comes together from some rather simple ingredients. You will see what we mean in the "Concepts Behind the System".

Concepts Behind the System

1. First of all, we are interested in stocks which have exhibited relative strength and performed well in the recent months in the most basic sense. That determination is made completely mechanically and is simply based on actual price changes over time and a couple of moving averages.
2. Next, our search takes us to those stocks which also have a low price/sales ratio. Relatively low price/sales ratios have commonly been utilized as a gauge of those stocks which may be undervalued and still have potential to grow. Our research indicates that it can be a very valuable fundamental factor--when used in the "CORRECT" way.
3. Let's face it--news, rumors, etc. can be factors when dealing with stock prices in the short term. Therefore, with all of the news driving prices out there we are also looking for those stocks which have displayed a level of buy-in from the investment community. This is also one simple fundamental numerical value applied to each stock.
4. We are also including only those stocks which have shown some trending tendencies in recent times. Once again, one simple mechanical measure.
5. Next up--a very KEY COMPONENT of the entire methodology. While taking into account the previously mentioned factors we are also searching for stocks which have recently pulled back some in price. In other words, our objective quite simply is to buy at a level off the highs rather than just chasing higher prices which may already be exhausted and could lead to an immediate whipsaw effect. That very characteristic will become somewhat obvious when examining the selected stocks each week.

That's essentially all there is to it. See what we mean? Simple!

OK, that is all well and good that it is simple but some of the more obvious questions become, "Does it dramatically outperform"? and "What are its chances for success in the future"? 

Let's tackle that last question first before digging deeper into the performance details. That is the most important one after all. First of all, as the old saying goes, "Past performance is not necessarily indicative of future results". Number one, we whole-heartedly agree with the accuracy of that statement. It is a reason why one should be leery of all aspects when engaged in system development in the first place. Even if one were to get to spectacular tested results from the past, exactly how did they arrive there. For instance, did they unreasonably tweak here, overly form fit there etc. In the end, the final numbers may look wonderful but really what chance is there that all of those circumstances will continue to come perfectly together again in the future to achieve similar results?

Taking this thought into consideration, why do we believe that the NSP method can continue to be highly successful going forward? There are a few reasons really:

• Besides being simple, we also feel that the concepts behind it are tried and true tested, just "make sense", and can continue to do so going forward. It is largely based on some very commonly used principles that have positively withstood the test of time. From the very beginning, that "make sense" factor was kept out in the forefront and was pivotal in the entire design of the system.
• The method behind the selection of stocks each week is 100% mechanical in nature. That means absolutely no interjection of human fear or greed biases to muddy the waters. Eliminating unnecessary emotional overreactions is the name of the game here.
• Consistency of results in both good times and bad. Certainly the markets as a whole have endured their share of tough times while also exhibiting much roller coaster activity in the years 2001-2009. We feel that the results of the NSP by comparison speak for themselves.

A Little More on Actual Stock Selection

Now let's take a closer look at how stocks are selected each week.

Once again, an individual stock must pass the grade on each of the 5 measurements listed above in the "Concepts Behind the System" just to be considered for further evaluation.

For those still under consideration following that weeding out process: Prior to the start of business on Monday each week, a "NSP Power Factor" is calculated for all remaining stocks priced above $3 and with an average daily volume of more than 75,000 shares exchanged. While it should be noted that a great majority of the stocks have MUCH higher prices and volumes, those are the absolute minimum requirements that must be met for inclusion in the system. 

The NSP Power Factor

A NSP Power Factor is mechanically generated for each individual stock. It appears as a numerical value between 1 and 99, and the higher the number, the better. That being said, remember that all of these stocks must have already passed through the initial screening process just to be ranked in the first place however.

Therefore, these stocks could all potentially become worthy candidates. However, no stock ranked under 50 will ever be included as having met the complete NSP criteria.

How Many Stocks Can be Expected Weekly?

That number can certainly fluctuate and vary based on ever-changing market conditions but let's at least examine some history dating back to 2001.

• Over the more than 450 week period reviewed, the number of system stocks have ranged from about 20 to more than 900. 
• On average, there have been more than 240 stocks per week.
• Almost 90% of the time at least 100 stocks met the ranking criteria.

As you can see, we are often talking about a large number of stocks that may be ready to rock-and-roll. Each week we will reveal the top 200 (or all stocks if less than 200 are eligible).

General Stock Characteristics

So what exactly are the characteristics of the "typical" NSP system stock? Well the word typical just may not provide the most accurate of definitions.

Perhaps one of the most exciting features of the NSP is that the types of stocks really run the whole gamut--everything from low-priced high flying growth companies to some of the most well known companies out there.

Have you ever heard of companies such as General Electric, Wal-Mart, Procter & Gamble, Chevron, American Express, Federal Express, Amazon, or Walt Disney?

How about computer giants Google, Microsoft, Apple, Hewlett Packard, or IBM?

What about drug companies Pfizer or Merck, or financial leaders J.P. Morgan or Bank of America?  

Well each of the above mentioned dominators in the business world were selected by the NSP at one time or another--in just the last 3 months of 2009.

On the other end of the spectrum however, there have also been monster successes turned in by some much lesser known companies. For an example, one would need look no further back than July 2009 to witness a crown jewel performance turned in by Medarex (MEDX). Yes, from out of the #9 position of the NSP Value Plus, MEDX gained a spectacular 96% in only 1 weeks time (from 7/20 to 7/27). Incidentally, MEDX then continued to trade in that same general price range of 7/27 before being purchased by Bristol-Myers Squibb Company on September 1st.     

Additional examples of lesser-known NSP Value Plus stocks that would have produced returns of at least 40% or more at one time or another includes companies such as Conn's (CONN), Palm (PALM), LHC Group (LHCG), International DisplayWorks (IDWK), Inter Parfums (IPAR), Carrier Access (CACS), Avaya (AV), and Stratasys (SYSS). Remember again, these stellar gains were all achieved in only one week's time also.  

NSP Summary

So there you have it. With up to 200 stocks presented on a weekly basis by the NSP system, there can potentially truly be something there for everyone--no matter what their preferences. 

From out of the NSP system comes the NSP 100 Index which is constructed, unveiled, and specifically tracked on a weekly basis. For more information on the NSP 100 Index for subscribers please click here.