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Shiraz Lakhi
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Full Time Investor, Writer & Blogger. Founder: TradePilot.com
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  • Following The Smart Money: Five Stocks With Low Price-To-Free-Cash-Flow (P/FCF) & Strong Institutional Buying - List Updated June 2011...
    Following The Smart Money: Five Stocks With Low Price-To-Free-Cash-Flow (P/FCF) & Strong Institutional Buying - List Updated June 2011...

    By Shiraz Lakhi - Self Directed Trader/Publisher

    At the start of each month I check (and publish here) the top five stocks I watch closely throughout the remainder of the month - stocks which exhibit strong fundamentals, based on two key metrics - a low price-to-free-cash-flow ratio (P/FCF), and strong institutional buying...

    It is true to say most retail investors and traders have access to more information and data crunching capabilities than ever before. Equally true is the fact that the smart money always manages to remain a step ahead, maintaining the elusive edge, with pooled resources, specialist experience and ever focused pin-sharp industry and company specific analytics. My objective with this strategy, is to follow the smart money, coupled with identifying the most undervalued stocks, based on P/FCF...

    The P/FCF ratio is a more accurate measure of  stock's value than the commonly observed price-to-earnings (P/E) ratio. A company’s ability to generate cash flow is one of the most important indicators of its financial well being. The P/E ratio is unable to provide an accurate reflection of a company and its 'efforts' to generate cash flow. Hence, cash flow ratios examine the 'flow' of money into the business. Moreover, the pure P/FCF ratio quickly and effectively identifies the strongest (and weakest) companies in this context.

    Below is the select, up to date list (June 2011) of stocks which meet this simple criteria. Each company is valued at a minimum $300m, has had a sharp increase in 'institutional' ownership (smart money moving into the stock) exceeding a very positive 20% over the most recent quarter, and coupled with the stock exhibiting a low price-to-free-cash-flow (P/FCF) ratio of less than 10. Put simply, free cash flow accounts for a healthy 10% plus, of each company's overall valuation.

    Stock #1: Newcastle Investment Corp (Symbol: NCT)

    With a P/FCF of 9.08, institutional ownership comprising 42.4% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 38%, NCT also exhibits additional positives, including an ultra-low PEG ratio (0.38) and positive year-on-year earnings growth. NCT is currently priced at $5.29/share, up 75.3% over the last 12 months.

    Stock #2: Boise Inc (Symbol: BZ)

    With a P/FCF of just 4.16, institutional ownership comprising 88.8% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 39%, BZ also exhibits additional positives, including an ultra-low PEG ratio (0.37), a low price-to-book (P/B) value of 1.0. BZ is currently priced at $7.98/share, up 40% over the last 12 months.

    Stock #3: Met Life Inc (Symbol: MET)

    With a P/FCF of just 6.49, institutional ownership comprising 73.66% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 27%, MET also exhibits additional positives, including a low price-to-book (P/B) value of 0.90, and the technical Relative Strength Index (RSI) indicator crossing above the oversold level (bullish). MET is currently priced at $42.68/share, up 4.5% over the last 12 months.

    Stock #4: Western Refining Inc (Symbol: WNR)

    With a P/FCF of 7.71, institutional ownership comprising 63.77% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 37%, WNR also exhibits additional positives, including a low price-to-sales (P/S) ratio of 0.19, and 'insider' ownership of 38.38%. WNR is currently priced at $16.21/share, up 241% over the last 12 months.

    Stock #5: TeleNav Inc (Symbol: TNAV)

    With a P/FCF of just 5.24, institutional ownership comprising 32.87% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 21%, TNAV also exhibits additional positives, including low debt-to-equity (almost negligible), and solid gross margins of 81% (net margins 21%). TNAV is currently priced at $16.36/share, up 94% over the last 12 months.

    Wishing you every success in your investments... and good spirit...
    Shiraz Lakhi - Self-Drected Trader/Publisher

    Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
     
    Jun 03 3:40 AM | Link | Comment!
  • The Yin & Yang Of Stock Selection - How To Mix Both 'Fundamental' And 'Technical' Analysis Towards Seeking Out Undervalued Stocks With Multiple Technical Buy Signals...
    The Yin & Yang Of Stock Selection - How To Mix Both 'Fundamental' And 'Technical' Analysis Towards Seeking Out Undervalued Stocks With Multiple Technical Buy Signals...

    By Shiraz Lakhi - Self Directed Trader/Publisher

    While the majority of stock investors seek, what is in my view, an irrational tendency towards 'either' the fundamental analysis camp (studying stock reports, earnings, growth rates, management competence, etc.), 'or' the technical analysis camp (price study, charting, indicators, overlays, etc.), there is a third way - an option increasing numbers of self-directed traders, have begun to exercise, towards seeking out potential stock plays which offer a healthy reconciliation of both schools of study...

    The stock selection strategy which I frequently bring into play, especially during bull market trends, involves a simple, common-sense mix of 'both' fundamental and technical analysis, designed to seek out undervalued growth stocks with robust fundamentals, combined with precise entry 'timing' signals offered by popular technical analysis indicators...

    It starts by making use of two freely available, web-based stock screeners, namely finviz.com (fundamental screener) and tradepilot.com (technical screener)...

    The finviz 'fundamental' stock scan is applied approximately once per week (usually over the weekend), to identify and shortlist the latest list of fundamentally superior, undervalued growth stocks, based on a simple 3-step process, fully disclosed below. From the list of qualifying stocks, I then utilize the free-to-use tradepilot stock scans service to continually track each of these stocks for precise technical entry 'timing' signals.

    In detail - starting with the fundamental screen - I apply a simple 3-point screening criteria, where I look for base fundamental metrics - specific stocks with a 'PEG ratio' of less than 1 (stock price 'undervalued' relative to expected earnings), a 'Price-To-Cash-Flow' ratio of less than 10 (cash flow measures the true earnings ratio of a business, based on absolute cash flow, which I place preference over the commonly applied 'P/E' ratio), and proven year-on-year earnings growth (current annual earnings growth should consistently exceed the previous year's annual earnings growth)...

    Once I have a list of stocks which meet the above criteria, I remove stocks with an average trading volume of less than 300,000 shares per day, to ensure 'liquidity'. In addition, I remove all 'financial' sector related stocks.

    The objective of this initial 3-step process is to produce a short list of stocks which provide an element of 'quality' (undervalue, cash flow, and growth), behind the businesses I am potentially investing in. Moreover, this simple, once-a-week process narrows down an original database of over 5,000 stocks, to around 20-30 key stocks I can practically focus on...

    At this point, I apply the technical screener at tradepilot, to each stock within my fundamental watch list, to identify any specific stocks, which are also exhibiting strong, preferably 'multiple' technical bullish signals...

    The stock charts screen at tradepilot not only provides a continually updating list of 'multiple' technical indicators signaling a bullish (or bearish) signal for any stock entered into the symbol field, but also displays a simple trend indicator directly below the chart, which provides an instant snapshot of the short-term technical bias for any selected symbol.

    Any qualifying stock - effectively a fundamentally robust stock, with [multiple] trading signals - is then shortlisted  for a potential trading opportunity, which I consider towards my 'long stock/short ETF' hedged pairs trading strategy.

    To summarize - the stock selection process applied, is based on a precise, rule-based combination of both fundamental and technical analysis filters...

    Fundamental analysis ensures I am trading only 'quality' stocks with key qualifying metrics, such as a low (<1) PEG ratio. The PEG ratio measures the stock price 'relative' to the company's expected earnings growth. When the PEG ratio for a company is significantly below 1 (relative to it's industry average), the stock is considered 'undervalued'...

    In addition, I also ensure the stock exhibits a low (<10) Price-To-Free-Cash-Flow (P/FCF) ratio, which indicates that the company generates free cash flow (net cash after all expenses) of at least 10% of it's market capitalization, further 'solidifying' the undervalue opinion on the stock. This key ratio provides a superior insight into a business than the commonly used, earnings based 'P/E' ratio. Finally, the stock exhibits a continually rising earnings growth curve, where annual earnings growth consistently surpasses the previous years growth.

    There are many additional metrics/filters traders can apply, but for my own personal stock selection process, the above three steps adequately (without excessive 'over filtering') provide a healthy list of stocks to focus on...

    On each of the stocks within the watch list, I then (and only then) apply technical analysis towards 'timing' my entries into any specific stock I wish to invest/trade in. Here, the free-to-use tradepilot stock charts (and stock scans) screens provide any imminent signals (often multiple technical indicators) in any one or a number of my list of stocks. These are ideal candidates which I consider towards a risk managed long stock/short ETF pair trade.

    It is a good idea to take the time to learn as much as one can about fundamental metrics as well as technical indicators, towards develop your own unique 'mix' strategy. There is a synergy in uniting both approaches towards a cohesive trading plan. The above method is one of a number of key strategies I utilize towards the stock 'selection' process. Hopefully, I have provided some valuable, productive insights, and food for thought...

    Wishing you every success in your investments... and good spirit...
    Shiraz Lakhi - Self-Drected Trader/Publisher

    Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
     
    May 21 1:15 PM | Link | Comment!
  • A Simple Trading Strategy To Seek Out Undervalued Stocks Combining Both Fundamental And Technical Analysis...

    A Simple Trading Strategy To Seek Out Undervalued Stocks Combining Both Fundamental And Technical Analysis...

    By Shiraz Lakhi - Self Directed Trader/Publisher

    One of the core trading strategies we regularly bring into play involves a simple, common-sense mix of both fundamental and technical analysis, designed to seek out strongly trending, undervalued stocks...

    By applying a precise 4-point screening criteria, we look for stocks with a PEG ratio of less than 1, a Price-To-Cash-Flow ratio of less than 10, consistently proven year-on-year earnings growth, and a strong rising technical trend. This allows us to quickly drill down from over 5,000 stocks to around 20-30 key stocks we can practically focus on...

    To apply these simple rules and check which stocks are in play right now, go directly to the stock scanner, click on 'Screener' at the top of the screen, then click 'All' (last of the 4 tabs). Select the following rules into the scanner, save them (under 'My Presets') and you can check any time for the latest trading opportunities based on these key parameters...

    1: First and foremost, a stock must exhibit a Price-Earnings-To-Growth (NYSE:PEG) ratio of less than 1. The PEG ratio measures the stock price 'relative' to the company's expected earnings growth. When the PEG ratio for a company is significantly below 1 (relative to it's industry average), the stock is confirmed 'undervalued' and is shortlisted for the next step...

    2: Secondly, the stock must exhibit a Price-To-Free-Cash-Flow (P/FCF) ratio of less than 10, which tells us that the company generates free cash flow (net cash after all expenses) of at least 10% of it's market capitalization, further solidifying the undervalue opinion on the stock. This key ratio provides a superior insight into a business than earnings alone...

    3: Thirdly, the company must maintain a consistent track record of growth, with proven, positive earnings growth year-on-year...

    4: Finally, once these core metrics are entered into the stock screener, we usually see around 40-50 results - only at this point do we engage technical-analysis/study on each of these stocks, to isolate the specific stocks which exhibit a robust, rising underlying trend...

    Shiraz Lakhi KLIC Trade

    The snapshot above shows KLIC on our radar today. This stock clearly meets our 4-point criteria, currently trading at a PEG ratio of 0.33 (significantly below 1, making the stock heavily undervalued). This year's EPS was up over 280%. The stock trades at a P/FCF ratio of an exceptional 7.73. Also note the strong technical bias to the upside (with strong support at $7.15). This places KLIC firmly within our radar...

    Our objective with this trading strategy is to firstly zero in on only fundamentally superior 'undervalued' stocks. Technical analysis is then applied as a means to better 'time' our entries/exits...

    Wishing you every success in your investments... and good spirit...
    Shiraz Lakhi - Self-Drected Trader/Publisher

    Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
     

    Jan 20 7:31 AM | Link | Comment!
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