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John P. Reese  

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  • Buy European Stocks - Before The Going Gets Good [View article]
    My O'Shaughnessy-based value model does also like BP, thanks to its size, cash flow, and big 6.9% dividend. My strategies aren't so high on AZN, though -- its P/E, P/CF, P/B, and price/dividend don't fall into the market's cheapest 20%, for example, and its 9% ROE (which is nowhere near GSK's) and weak earnings trend also cost it points on the Dreman-based contrarian model.
    Nov 25, 2015. 01:52 PM | Likes Like |Link to Comment
  • Buy European Stocks - Before The Going Gets Good [View article]
    Yes, you are right – Unilever sold Slim-Fast to Kainos Capital last year, retaining a minority stake. Good catch Larchmont.
    Nov 25, 2015. 01:42 PM | Likes Like |Link to Comment
  • Market Got You Down? Don't Bail - Get Defensive [View article]
    Thank you Rich, Validea is the provider of Guru Analysis on NASDAQ and a subset of the models I run and offer on are offered through NASDAQ as well. You can access the NASDAQ tool by clicking the link below.
    Aug 13, 2015. 09:48 AM | Likes Like |Link to Comment
  • Market Got You Down? Don't Bail - Get Defensive [View article]
    I use an average of the 3-, 4-, and 5-year EPS growth rates to determine the long-term rate, and on that basis Merck's growth rate is close to 40%. That's in part because its earnings were just $.28 per share in 2010, so its five-year growth rate is extremely high. But you're right in that a firm that size is unlikely to grow at that pace over the long term going forward. Still, given its current dividend yield and P/E ratio, moderate growth could still make the stock of good play.
    Aug 12, 2015. 05:10 PM | Likes Like |Link to Comment
  • WSFS Financial: A 'GARP' Financial Stock In The Peter Lynch Mold [View article]
    there was a 3:1 stock split yesterday and it doesn't look like the quote vendors have updated their pricing files completely yet.
    May 20, 2015. 08:24 AM | Likes Like |Link to Comment
  • A Small-Cap Growth Approach That Produces Big Results [View article]

    Here is a list of the criteria, as well as an example of how analyzes a stock using the criteria:

    Analysis of Lannett Company (LCI), using Validea's Motley Fool-inspired strategy:


    This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. LCI's profit margin of 34.25% passes this test.


    The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. LCI, with a relative strength of 93, satisfies this test.


    Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for LCI (146.94% for EPS, and 70.53% for Sales) are good enough to pass.


    LCI's insiders should own at least 10% (they own 17.09% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well.


    A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. LCI's free cash flow of $0.54 per share passes this test.


    LCI's profit margin has been consistent or even increasing over the past three years (Current year: 20.86%, Last year: 8.82%, Two years ago: 3.21%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.


    LCI has reduced their R&D expenditures(currently $27.7 million) over the past two years which is unacceptable. LCI is jeopardizing the future in order to boost current EPS numbers. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant.


    LCI's level of cash $146.3 million passes this criteria. If a company is a cash generator, like LCI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.


    This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for LCI was 21.54% last year, while for this year it is 16.38%. Since the inventory to sales is decreasing by -5.16% the stock passes this criterion.


    This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for LCI was 17.48% last year, while for this year it is 22.40%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.


    LCI's trailing twelve-month Debt/Equity ratio (0.25%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK.


    The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (LCI's is 0.38), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. LCI passes this test.

    The following criteria for LCI are less important which means you would place less emphasis on them when making your investment decision using this strategy:


    LCI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. LCI currently has 37.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.


    Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. LCI's sales of $368.8 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". LCI passes the sales test.


    LCI does not pass the Daily Dollar Volume (DDV of $54.6 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.


    This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. LCI with a price of $60.78 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.


    LCI's income tax paid expressed as a percentage of pretax income this year was (36.50%) and last year (35.30%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.
    Apr 30, 2015. 12:25 PM | 1 Like Like |Link to Comment
  • What Do We Really, Really Hate? The Magic Formula Screen Tells All [View article]
    I have been tracking Greenblatt's Magic Formula since 2006. These are live returns, not back-tested and I run 10 & 20 stock portfolios using a monthly, quarterly or annually rebalanced time period. The best is the Quarterly 10-stock portfolio, up 10.5% per annum vs. 5.5% for the S&P.

    To your point about the variability of the strategy - all of these value models have a significant amount of year over year variability and many investors have a difficult time sticking with a portfolio that can underperform the market by 10-20% in a given year ... but as Greenblatt points out the fact that investors give up on the strategy is exactly why the strategy, if a good one, will continue to work in the long run.
    Jan 5, 2015. 02:46 PM | Likes Like |Link to Comment
  • Save The Glamour And Glitz For Holiday Decorations -- Not Your Investment Portfolio [View article]
    Interesting theory Andreas, but nope -- I focus on the numbers and only the numbers with my quantitative models. That way I don't do silly things like invest based on past regrets or other emotions.
    Dec 15, 2014. 12:10 PM | Likes Like |Link to Comment
  • The Best Stock Market Guru You've Never Heard Of [View article]
    The max drawdown since inception for the annually rebalanced 10-stock Piotroski portfolio is 64%.

    Nov 7, 2014. 03:47 PM | Likes Like |Link to Comment
  • The Best Stock Market Guru You've Never Heard Of [View article]

    Good question. So I have max drawdowns since inception for my monthly portfolios. (Usually I focus on my monthly rebalanced portfolios; I used annual for Piotroski because that's what he did in his study.) On a monthly rebalanced basis, none of my models has a max drawdown below 20% since inception. But in '08, the Benjamin Graham 10-stock portfolio only lost 14.1% for the full year. (That's full year, not max dd.) Next-best was the Motley Fool-based portfolio, down 25.0% for the year. These are fully-invested 10-stock portfolios, so they tend to be more volatile than the market. I'd think it'd be tough to find many 10-stock portfolios that were fully invested in '08 and had max drawdowns below 20%.

    Let me get back to you on the annually rebalanced Piotroski max drawdown.

    Nov 6, 2014. 05:15 PM | 1 Like Like |Link to Comment
  • The Best Stock Market Guru You've Never Heard Of [View article]
    Piotroski's own back-test was from 1976-96. My Piotroski-based annually rebalanced 10-stock portfolio's performance for those years:
    '07: -2.4% (vs. +3.5% for S&P)
    '08: -34.0% (vs. -38.5% for S&P)
    '09: +38.4% (vs. +23.5% for S&P)

    The 20-stock annually rebalanced portfolio was down 3.0% in 2007, down 40.1% in 2008, and up 72.2% in 2009.
    Nov 3, 2014. 10:56 AM | 1 Like Like |Link to Comment
  • Be Imperfect When You Pick Stocks [View article]
    Good point, and that's a good example of why investing in a well diversified portfolio is important when using quant strategies. But I'd also note that Greenblatt once did a study examining how investors who picked and chose between magic formula approved stocks did vs. those who simply invested in all of the strategy's top rated stocks. Those who picked and chose did a lot worse because they missed out on the biggest winners, many of which were the stocks with the biggest apparent problems. Remember that such stocks usually have really bad scenarios baked into their prices -- the market knows about PDLI's issues and expects very little, so the company just has to do a little better than that for shares to do well.
    Aug 27, 2014. 01:42 PM | Likes Like |Link to Comment
  • The Truth Behind Stock Prices [View article]
    Like Steven Stills said, love the one you're with!
    Aug 12, 2014. 05:08 PM | Likes Like |Link to Comment
  • The Truth Behind Stock Prices [View article]
    Interesting -- i wasn't familiar with that piece. Thanks for sending -- looking forward to checking it out.
    Aug 12, 2014. 05:05 PM | Likes Like |Link to Comment
  • The Truth Behind Stock Prices [View article]
    Agreed. If you can find good stocks with durable competitive advantages, you can at least keep up with inflation.

    Great old article from Buffett on how companies can keep up with inflation:
    Aug 12, 2014. 05:03 PM | Likes Like |Link to Comment