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Harry Domash
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Harry Domash publishes DividendDetective.com, a site specializing in high-dividend investing. He also publishes WinningInvesting.com, a free site featuring “how to” investing tutorials and other resources. His best selling book on fundamental analysis, “Fire Your Stock Analyst,”... More
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Fire Your Stock Analyst
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  • For Every Stock, There's A Season

    When you buy is just as important as what you buy. Here's an example.

    Earn 9% in 30 Days
    Investors who held Internet stock Yahoo! (NASDAQ:YHOO) would be ahead about 4% if they had sold the stock last Wednesday (August 5) after holding for a year. But they could have tripled that return if they had held the stock for only one-month, specifically in November 2014. That is, if they had bought on October 31 and sold on November 30. In fact, holding Yahoo only in November would have been a profitable trade in each of the past five years. You would have averaged a 9% return each time, but your money would have only been tied up for one month.

    Seasonality
    The relationship between the month of the year and a stock's price performance is called seasonality. Here's another example of how that works. Netflix (NASDAQ:NFLX) has been a hot stock by any measure, but you could have averaged a 43% return each year simply by holding it during the past five Januarys.

    Find Your Stock's Season
    You can use StockCharts.com to find the seasonality data for almost any stock. From StockChart's home page, select Free Charts and then scroll down to the Seasonality Charts section at the bottom of that page.

    Entering a ticker symbol displays, for each month, the percentage of years that holding the stock would have been profitable during that month, and the average return for the month over the past five years. For instance, when I checked Walt Disney (NYSE:DIS), I found that Disney would have been profitable each of the five years (2011-2015) in February, November, and December, but February, averaging 9.5%, was the best month.

    If you feel that five years isn't enough history to go by, you can use the slider just below the Seasonality chart to extend the measured timeframe for up to 20 years. In fact, you could use the slider to select any 20-year period going back to 1990. However, because 2008 and 2009 were abnormal years, including them might distort your results. Consequently, I suggest either not going back further than 2010, or skipping those years if you do. Over the 2010 through 2015 timeframe, February was still the best month for Disney, this time averaging an 8.9% return.

    Here are some other odds and ends that I found interesting by checking various stocks.

    Facebook, Blackstone & H&R Block
    December, when it averaged 16% returns, would have been the best month to own Facebook (NASDAQ:FB). On the other hand, Blackstone Group (NYSE:BX), which has been up in each of the past five Januarys, averaged an 11% return for just that month. Owning shares in income tax preparer H&R Block (NYSE:HRB) is a losing proposition in April, when you'd think that it would do the best. Actually, January and October are the best months to hold H&R Block.

    Many factors other than seasonality could affect a specific company's share price. Even if the historical seasonality continues into the future, this could be the year that your stock bucks the long-term trend. Nevertheless, the information you can come up with is interesting. Once you've started, you'll probably check all your stocks' seasonality numbers. Why not? It's free.

    Tags: YHOO, NFLX, DIS, FB, BX, HRB, Seasonality
    Aug 10 11:49 PM | Link | Comment!
  • Validea Gurus: Still There For You

    It's time to check back on Validea (www.validea.com), the site that helps you to picks stocks by emulating the strategies of 10 famous gurus such as Joel Greenblatt, author of the best seller, "Magic Formula Investing," and Warren Buffet, who needs no introduction. Besides for the 10 gurus, Validea also includes its own momentum stock picking strategy and a strategy developed by Motley Fool (fool.com) for finding fast growing, small-cap stocks.

    What makes Validea most useful is that it tracks each portfolio's returns by year going back to 2003 as well as annualized returns since each portfolio's inception (usually 2003).

    If you check those you'll see a lot of year-to-year variability in terms of performance vs. the overall market as gauged by the S&P 500. For instance, in 2013, 10 of the 12 Validea portfolios generated double-digit returns and eight of them beat the S&P's 30% return. By contrast, last year, only three managed to end the year in positive territory and only one of those beat the S&P's 11% number.

    Three Best Portfolios
    Nevertheless, since their 2003 inception, three Validea portfolios have averaged impressive double-digit annual returns compared to only 7% for the S&P. More on those three in a minute.

    You'll need a subscription to see the current portfolios on Validea's site, but you can see eight of them, including the six top returners, for free on the NASDAQ stock exchange site (www.nasdaq.com).

    Get there from the NASDAQ home page by selecting Investing and then Guru Screener in the Investing Tools section. Once there, use the "Find Stock Based on Guru Interest" section to pick a specific Guru strategy. Specify "Strong" for interest level to see stocks meeting each Guru's full selection requirements, or "Some" for a larger list of stocks meeting about half of the requirements.

    You can also use the section labeled "Find Good Stocks Based on Guru Interest" to see stocks that simultaneously have "strong" or "some" interest" from at least two, and up to five different Guru strategies. However, I've found the best results by specifying "strong interest" from only a single Guru. Now back to the top three portfolios.

    Best Returning Portfolios Since 2003: #3
    Kenneth Fisher's Price/Sales Investor, averaging 11% annually, produced the third highest returns since 2003. Fisher, a money manager and long-time Forbes' columnist, introduced the concept of using price/sales ratios for valuing stocks in his best selling book, "Super Stocks." To insure sufficient trading volumes, I honed down each portfolio list to stocks with $1 billion minimum market capitalization, or trading at least 300,000 shares daily. Using those criterion, Sanderson Farms (NASDAQ:SAFM) and Winnebago Industries (NYSE:WGO) were the only investible stocks on Fisher's list.

    Best Portfolios: #2
    Validea's Momentum Investor, returning 13%, produced the second best average annual returns. It looks for stocks with strong price charts, among other characteristics that Validea doesn't want to share. Selecting "Strong" interest for that strategy produced only two investible picks: Amtrust Financial Services (NASDAQ:AFSI) and Credit Acceptance Corp. (NASDAQ:CACC).

    #1 Portfolio
    The Value Investing strategy, returning 14%, on average, annually, produced the highest returns since 2003. It's based on conservative, low-risk strategies described in "Security Analysis," by Graham and Dodd, first published in 1934.

    Running that screen turned up six investible stocks: National Oilwell Varco (NYSE:NOV), Hemerich & Payne (NYSE:HP), Reliance Steel & Aluminum (NYSE:RS), Joy Global (NYSE:JOY), Universal Corp. (NYSE:UVV), and Chart Industries (NASDAQ:GTLS).

    All of the returns mentioned assumed buying each strategy's 10 highest-rated stocks and holding for one year.

    Detailed Guru Analysis
    After you run a screen, you can click on the name or ticker symbol of any of the stocks listed to see how it would be scored by any of the 10 strategies offered on the NASDAQ site. From there, you can select Detailed Analysis to see a detailed explanation why the stock passed or failed each of the strategy's requirements. You'll learn a lot by reading these.

    In fact, you can see that information for any stock by entering its ticker symbol in the View Guru Analysis section.

    As always, consider the stocks turned up by Validea's screens as research candidates, not a buy list. The more you know about your stocks, the better your results.

    Tags: SAFM, WGO, AFSI, CACC, NOV, HP, RS, JOY, UVV, GTLS
    Jun 30 12:40 AM | Link | Comment!
  • Finding Bulletproof Stocks

    It doesn't matter whether you're looking for the next rocket to jump on or researching slow moving value plays, priority number one must be to avoid companies that might run short of cash in the event of an unexpected business slowdown. In a bankruptcy, shareholders typically lose everything and, in fact, just the rumors that your stock might be facing bankruptcy would ruin your day.

    Thus, it's best to stick with stocks unlikely to suffer that fate. I call them "bulletproof stocks."

    Identifying bulletproof stocks requires defining a set of requirements that firms with problematic balance sheets can't possibly meet. Once you've done that, you can use a stock screening program to generate your list of bulletproof stocks. Stock screeners are programs available on certain financial websites that allow you to search the entire market for stocks meeting your specific requirements. Here's what you need to specify to identify bulletproof stocks.

    No Debt - No Problem
    Start by limiting your list to debt-free firms. The debt to equity ratio compares long-term debt to shareholders equity (book value). Zero values reflect no long-term debt and the higher the ratio, the higher the debt. Although specifying a zero ratio may sound like a good idea, most firms do carry some incidental debt such as long-term leases. So specify 0.2 for maximum allowable D/E.

    Cash is King
    Next, isolate stocks with sufficient cash on hand to cover current bills. The quick ratio compares the total of cash in the bank plus accounts receivables (cash due from customers) to current bills (current liabilities). Specify a minimum quick ratio of 1.0 to assure that cash plus receivables can cover current liabilities.

    Avoid Cash Burners
    While having cash in the bank is important, you also need to confirm that passing firms aren't burning through available cash. Do that by checking operating cash flow, which measures the actual cash that flowed into or out of a firm's bank accounts from its main operations. Unlike earnings, which can be manipulated, cash flow must match real bank balances. You only need to establish that cash flowed into a firm's bank accounts, not out (burning cash), the amount doesn't matter. So require a positive number for operating cash flow. If your screener doesn't offer a cash flow parameter, requiring a positive price/cash flow ratio would be just as good.

    Trust But Verify
    While the positive cash flow requirement should be sufficient to assure that passing firms are profitable, you can't underestimate the creativity of motivated accountants. Check for positive net income helps to assure that the firm is profitable. Requiring a positive number for the price/earnings ratio would accomplish that.

    Real Company?
    Sometimes a stock screen can turn up firms that don't have real businesses. Rule them out by requiring at least $50 million of revenues (sales) over the past 12-months. Almost all stocks could easily beat that requirement.

    Avoid Cheap Stocks
    Cheap stocks get that way when savvy investors spy serious problems ahead. Require a minimum $10 per share minimum trading price to rule out stocks facing issues that your screen may have missed.

    I used the free screener offered by Zacks Investment Research (www.zacks.com) to run the screen, which turned up 298 Bulletproof Stocks. Use this link to see the list.

    Qualifying as bulletproof means that a stock isn't a bankruptcy candidate, not that you'll make money owning it. There's a lot more that goes into that equation.

    Tags: stocks
    Jun 16 7:41 PM | Link | Comment!
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