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John Reese

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  • A Sampling of Investment Advisors Seeking Dividend Growth for Your Retirement Portfolio [View article]
    David,

    This is a very good article.

    For investors that want to learn more about these firms, you can go to the SEC's RIA web site and access both ADV Part I and Part II, which are disclosure documents that regulators require advisors to submit annually. For instance, on the ADV Part I you can see how big the firms are in terms of assets and clients. On Part II, it's a written narrative of their business, their strategies, fees, disciplinary actions and more. It’s a good resource for anyone looking to place funds with a registered investment advisor.

    www.adviserinfo.sec.go...
    May 4 11:24 AM | 11 Likes Like |Link to Comment
  • Top Picks of Guru Martin Zweig's Hedge Fund [View article]
    All but one of these names get solid scores from the Zweig-based model on Validea (www.validea.com). I've included the analysis on RHT below so readers can see the detailed, bottoms-up analysis based on my interpretation of Zweig's stock selection methodology.

    ----
    Growth Investor Strategy Score = 77% out of 100%

    P/E RATIO: [FAIL]

    The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. RHT's P/E is 85.47, based on trailing 12 month earnings, while the current market P/E is 18.00. Therefore, it fails the first test.


    REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS]

    Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. RHT's revenue growth is 23.16%, while it's earnings growth rate is 12.80%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, RHT passes this criterion.


    SALES GROWTH RATE: [PASS]

    Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (25%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (21.2%) of the current year. Sales growth for the prior must be greater than the latter. For RHT this criterion has been met.


    The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


    CURRENT QUARTER EARNINGS: [PASS]

    The first of these criteria is that the current EPS be positive. RHT's EPS ($0.17) pass this test.


    QUARTERLY EARNINGS ONE YEAR AGO: [PASS]

    The EPS for the quarter one year ago must be positive. RHT's EPS for this quarter last year ($0.12) pass this test.


    POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS]

    The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. RHT's growth rate of 41.67% passes this test.


    EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL]

    Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for RHT is 6.40%. This should be less than the growth rates for the 3 previous quarters which are 20.00%, -20.00% and 62.50%. RHT does not pass this test, which means that it does not have good, reasonably steady earnings.


    This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.


    EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS]

    If the growth rate of the prior three quarter's earnings, 12.12%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 41.67%, (versus the same quarter one year ago) then the stock passes.


    EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS]

    The EPS growth rate for the current quarter, 41.67% must be greater than or equal to the historical growth which is 12.80%. RHT would therefore pass this test.


    EARNINGS PERSISTENCE: [PASS]

    Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. RHT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.29, 0.36, 0.39, 0.45 and 0.55, passes this test.


    LONG-TERM EPS GROWTH: [FAIL]

    The final important criterion in this approach is that Earnings Growth be at least 15% per year. RHT's long-term growth rate of 12.80%, based on the average of the 3, 4 and 5 year historical eps growth rates, fails the minimum required.


    TOTAL DEBT/EQUITY RATIO: [PASS]

    A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. RHT's Debt/Equity (0.00%) is not considered high relative to its industry (24.30%) and passes this test.


    INSIDER TRANSACTIONS: [PASS]

    A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For RHT, this criterion has not been met (insider sell transactions are 74, while insiders buying number 26). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.
    May 16 05:10 PM | 3 Likes Like |Link to Comment
  • How Graham, Lynch, And Other Gurus' Strategies Have Quadrupled The Market Since '03 [View article]
    Serenity,

    On Validea I run 10 and 20 stock model portfolios that are comprised of the top stocks according to each strategy.

    http://bit.ly/S4MEf2

    We track portfolios using three re-balancing frequencies - monthly, quarterly or annually. Using the monthly re-balancing as an example, the 10 stock Graham portfolio holds the highest scoring securities based on our implementation of the Graham model as of the last re-balancing. On the next monthly re-balancing, which will take place on 8/31/12, we will sell some of the stocks (those that have fallen in score) and replace those stocks with higher scoring securities. There are a few practical issues, like added liquidity filters (to ensure we are not adding ultra small or micro cap securities) as well as a consistent methodology on how we break ties when stocks get the same score from a particular method, but hopefully this gives you a good overview of how I've implemented the strategies an active portfolio management system.
    Aug 9 12:17 PM | 2 Likes Like |Link to Comment
  • Plenty of Debate About Whether the Market Is Overvalued or Undervalued [View article]
    David,

    Your research presents some interesting findings. Like you suggested, while the high government debt and spending is scaring everyone, it may in fact be a contrarian "buy" indicator.
    Apr 21 07:05 AM | 2 Likes Like |Link to Comment
  • There’s Magic in Joel Greenblatt’s 'Magic Formula' [View article]
    Edward, that is a good point and thanks for the thoughts.

    The models I’ve developed on Validea are all 10 and 20 stock portfolios. My reasoning – I want to make the models followable for the everyday, average investor. When you start talking 30, 40 or 50 stocks it becomes difficult for many to follow. The other thing is that I offer monthly, quarterly or annually rebalanced portfolios.

    Your right that there will be a difference in the performance say between a 10 and 30 stock portfolio (like Greenblatt outlined), but I think the key thing here is that you are buying a basket of stocks that meet certain investment criteria and by doing this, you are putting the odds in your favor that a certain percentage of those stocks are going to be winners. If you find a strategy that gets 50-60% winning positions over time, that same winning percentage will apply to a 10, 20 or 30 stock portfolio.
    Jan 30 09:01 AM | 2 Likes Like |Link to Comment
  • Embrace The Headwinds For HollyFrontier [View article]
    Thanks for all of these points guys. The question that started this was a bit beyond my areas of expertise -- appreciate the feedback.
    Oct 17 04:22 PM | 1 Like Like |Link to Comment
  • How Graham, Lynch, And Other Gurus' Strategies Have Quadrupled The Market Since '03 [View article]
    Here a a few Seeking Alpha articles that summarize my implementation of the Graham value model. The last link shows how I've captured the strategy on the Validea site.

    http://seekingalpha.co...

    http://seekingalpha.co...

    Validea Graham Guru Analysis (on the site you can analyze about 6,000 stocks using this model along with 11 other guru-based strategies)

    http://bit.ly/Pcxoz5
    Aug 15 08:32 AM | 1 Like Like |Link to Comment
  • Plenty of Debate About Whether the Market Is Overvalued or Undervalued [View article]
    Thanks for the comments Dancing and thanks for the link.

    I agree with you that earnings growth is very important, and that is why I tried to incorporate the market's PEG ratio, which takes earnings into consideration even if it's looking in the rearview mirror to get the earnings number.

    Remember that forecasting earning growth can be difficult and tricky. Most strategists/analysts were forecasting growth in 2000 and 2008, but most were also very wrong.

    But valuation is important. For instance, if you go back to 2001 and 2002, the market was trading a P/E of 29x at the end of 2001. S&P earnings between 2001 and 2002 actually increased by about 18% but the S&P dropped by 22%.

    So I think the conclusion here might be that both growth and valuation should to be taken into consideration, which is why I think the market PEG ratio could be another useful indicator to look to, and like David said above as an investor you should probably look at multiple measures but understand that sometimes the market will react in a way that is unexpected, at least in the short run.

    If anyone is interested, we highlight both Shiller and Siegel on our blog, The Guru Investor.

    theguruinvestor.com/ta.../
    theguruinvestor.com/ta.../
    Apr 22 08:44 AM | 1 Like Like |Link to Comment
  • Growth or Value? O'Shaughnessy Method Generates Big Returns Using Both [View article]
    O'Shaughnessy runs a number of funds for RBC in Canada with good long term records, and he uses his strategies to manage money for private investors. Like all systematic based strategies, his models have seen periods of underperformance but that doesn't mean they haven't delivered value over time.

    I have been running a version of O'Shaughnessy's model using 10 and 20 stock model portfolios on Validea.com and the performance is about triple the market since mid-2003. These are live model returns, not back tested data.

    10 stock model: www.validea.com/stocks...

    20-stock model: www.validea.com/stocks...

    For those who want to see Zweig's comments on O'Shaughnessy's funds/strategies, go here:

    books.google.com/books...
    Feb 14 08:09 AM | 1 Like Like |Link to Comment
  • The Piotroski Approach: 56% Gains in 2010, Thanks to a Little-Known Guru [View article]
    JCW, thank you and if you have question on the analysis and screening options, please feel free to contact me directly.
    Feb 11 07:57 AM | 1 Like Like |Link to Comment
  • The Piotroski Approach: 56% Gains in 2010, Thanks to a Little-Known Guru [View article]
    The model does tend to pick up some hi-yielding stocks. For example, in the 20-stock Piotroski model we run it has these semi high yielding names (I am unsure on the dividend growth rates these stocks).

    COMPANHIA DE SANEAMENTO BASICO
    THE TRAVELERS COMPANIES, INC.
    AXIS CAPITAL HOLDINGS LIMITED
    TELECOM ITALIA S.P.A.
    Feb 9 11:56 AM | 1 Like Like |Link to Comment
  • The Piotroski Approach: 56% Gains in 2010, Thanks to a Little-Known Guru [View article]
    David, you are correct that the original study included running a long/short model. At the current time, we only run the long side of the Piotroski strategy on Validea.
    Feb 9 11:52 AM | 1 Like Like |Link to Comment
  • 5 Stocks - Including Apple - With Moats To Keep The Competitors Out [View article]
    Good points on growth, bgold. But better to buy before capex picks up while valuation is cheap than to buy when growth is popping, no?
    Apr 9 02:12 PM | Likes Like |Link to Comment
  • Why HCI Is Still A Buy After Last Year's Gains (And Last Week's Losses) [View article]
    The talk on HCI's recent decline is focused on its earnings, which surely played a role. But what's interesting is that when it got hit in January, that coincided with its announcement that it was the first Fla. P&C insurer to offer flood insurance. The more recent hit coincided not only with earnings but with new federal flood insurance legislation being passed, which I believe caps what insurers can charge. Is the street just really down on HCI because of flood insurance? I'd welcome everyone's thoughts.
    Mar 10 02:16 PM | Likes Like |Link to Comment
  • Forget Bubbles: Bargains Abound In This Overlooked Industry [View article]
    Yes, the CR looks only at current liabilities, not long-term liabilities -- can be a bit confusing.
    Dec 4 03:57 PM | Likes Like |Link to Comment
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