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Medium-term horizon, long/short equity, research analyst, portfolio strategy
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In a previous article, I subtitled a section “No Apologies: A Diagnosis," in which I lamented that stocks that were essentially difficult, if not impossible, to value, and which fell outside of our screening process, ended up being some of the best performing stocks in the period.

But then I thought, why ignore them? After all, they are identified systematically in our alpha search. I may not know much about them, and they may not suit my investment plans, but they are making money for someone.

As outlined in that article, my methodology identifies the best performing portfolio on a given date, and the alpha of the portfolio is very close to linear in the period. However, this does not last and the portfolio subsequently tends to index returns, or less.

What happens is that a new portfolio can be formed which continues to outperform as shown in the following graphs. The bifurcation is quite pronounced. The newer portfolio may retain some of the stocks of the previous portfolio, but adds upward movers and drops laggards. The upward movers are usually near neighbors on my risk/reward metric, so there is consistency in the methodology.

My experience is that stocks at this end of the risk/reward spectrum have limited time for continued out performance, usually two to three weeks. This is a high turnover strategy.

I have identified stocks that look as if they may form a portfolio at a bifurcation point. All have received mention in SA either as part of a general list or as a specific stock or sector analysis. This tends to provide additional support for their consideration/inclusion in a trading portfolio.

It is interesting that the current list contains many stocks related to the oil industry. This is a trial and I will be closely monitoring these stocks to see how they perform over the next two weeks.


GCO

Genesco

Apparel Retailers

Buy Out

CNS

Cohen & Steers

Asset Managers

Dividends

AEA

Advance America

Consumer Finance

Stock Pick

EQT

EQT Corp

Gas Distribution

Sector Play

BBG

Bill Barrett Corp

O&G Exploration & Production

Sector/Small Cap

BRY

Berry Petroleum

O&G Exploration & Production

Stock Pick

COG

Cabot Oil & Gas

O&G Exploration & Production

List

CVI

CVR Energy

O&G Exploration & Production

List

WNR

Western Refining

O&G Exploration & Production

Sector/stock Pick

CPX

Complete Prod.

Oil Equipment & Services

List

HAL

Halliburton

Oil Equipment & Services

List

HLX

Helix Energy

Oil Equipment & Services

List

HP

Helmerich & Payne

Oil Equipment & Services

List

PDS

Precision Drilling

Oil Equipment & Services

Sector

DPZ

Domino's Pizza

Restaurants & Bars

Sector

AVD

American Vanguard

Specialty Chemicals

Sector

ABG

Asbury Automotive

Specialty Retailers

List

Source: Building an Evolving Portfolio