4 Stocks For O'Shaughnessy's Trending Value Strategy

by: Jersey Trader

O'Shaughnessy's recently wrote a piece for MarketWatch describing some of the findings in his 4th edition of What Works on Wall Street. In the original edition, one of the main findings was that a combination of a low valuation ratio and high momentum was one of the top performing strategies. In the 4th edition, O'Shaughnessy updates it with a new twist: using a combination of valuation ratios:

The strategy makes use of one of the main innovations from the book: the use of a composite value factor. In the original publication, we identified price-to-sales as the most effective value factor. In this latest edition of the book, we have learned that a composite that combines several different value factors delivers stronger returns and more consistency than any individual factor.

By spreading our bets and ensuring that a stock is cheap in a variety of ways, we believe we can identify better stocks. One version of the composite value factor combines the following measures of value:

  • Price-to-Sales

  • Price-to-Earnings

  • Price-to-Book

  • Price-to-Cash Flow

  • EBITDA/Enterprise Value

  • Shareholder yield (dividend yield + rate of share repurchases)

Each stock in the universe gets a score of 1 to 100 for each of these factors. The final value score is an average of these scores. The Trending Value portfolio narrows the investable universe to the 10% of stocks with the best score based on the value composite, and then selects a concentrated portfolio of 25 stocks based on trailing six-month momentum.

With this in mind, I thought I'd take a look at several stocks that have characteristics as described by O'Shaughnessy.

Patrick Industries (PATK)

Patrick Industries is a manufacturer and distributor of building products and materials to the recreational vehicle and manufactured housing industries. In addition, the company is a supplier to certain other industrial markets, such as kitchen cabinet, household furniture, fixtures and commercial furnishings, marine, and other industrial markets. Patrick manufactures a variety of products, including decorative vinyl and paper panels, wrapped moldings, interior passage doors, cabinet doors and components, slotwall and slotwall components, and countertops.

Price to Earnings 5.89
Price to Sales 0.11
Price to Book 1.22
Price to Cash Flow 3.33
Enterprise Value to EBITDA 4.39
26 Week Return 118.1%
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Analysts International (ANLY)

Analysts International is an information technology services company. The company provides IT Staffing to Project-Based Solutions. AIC provides a range of services designed to help businesses and government agencies. As of January 1, 2011, the company had employed approximately 900 IT professionals, management and administrative staff and is focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America.

Price to Earnings 8.82
Price to Sales 0.24
Price to Book 1.55
Price to Cash Flow 7.25
Enterprise Value to EBITDA 4.96
26 Week Return 60%
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Cobra Electronics (COBR)

Cobra Electronics Corporation is a designer and marketer of two-way mobile communications and mobile navigation products in the United States, Canada and Europe. The company operates through the Cobra Consumer Electronics business segment, which sells under the COBRA brand name, and Performance Products Limited business segment, which sells under the SNOOPER brand name. The company’s product lines include two-way radios, radar detection, Citizens Band radios, power inverters and jumpstarters, marine electronics, photo-enforcement and safety detection and mobile navigation for professional drivers.

Price to Earnings 8.05
Price to Sales 0.23
Price to Book 0.79
Price to Cash Flow 3.85
Enterprise Value to EBITDA 6.35
26 Week Return 39.3%
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PC Connection (PCCC)

PC Connection, Inc. is a direct marketer of a range of information technology solutions. The company helps companies to design, enable, manage, and service their IT environments. It provides a range of products, including computer systems, software and peripheral equipment, networking communications, and other products and accessories that it purchases from manufacturers, distributors, and other suppliers. The company also offers a range of design, configuration, and implementation of IT solutions.

Price to Earnings 9.84
Price to Sales 0.13
Price to Book 0.99
Price to Cash Flow 8.07
Enterprise Value to EBITDA 4.8
26 Week Return 36.2%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.