Value/Momentum - Tiny Titans As Of 09/25/2015

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Includes: AIRT, AMOT, ATLC, BAMM, BDL, BGSF, BSQR, CMT, CRV, DLHC, DVCR, FRS, GMAN, HCHC, JAKK, JOB, LAKE, LAWS, LIME, LMST, MTEX, PFSW, PLNR, SNFCA, ZAGG
by: Nelson Nguyen, CFA
Summary

This screen is based on a book by James O'Shaughnessy, titled, "Predicting the Markets of Tomorrow: A Contrarian Investment Strategy for the Next Twenty Years.".

O'Shaughnessy’s research dating back to the late 1790s and found that equity markets tend to move in trends of about 20 years.

Based on 2014 results, Adept Analyst’s Tiny Titans portfolio had an average number of holdings was 25 and turnover was 41.3%.

This screen focuses on Tiny Titans based on a book by James O'Shaughnessy, titled, "Predicting the Markets of Tomorrow: A Contrarian Investment Strategy for the Next Twenty Years." O'Shaughnessy's research dating back to the late 1790s and found that equity markets tend to move in trends of about 20 years. According to this pattern, a 20-year trend began in early 2000 during which greater returns will be earned by small- and mid-cap stocks and large-cap value stocks. The previous 20-year cycle favored large-cap growth stocks, while small- and mid-cap stocks and large-cap value stocks were, on average, underperforming the market.

Based on 2014 results, Adept Analyst's Tiny Titans portfolio had an average number of holdings was 25 and turnover was 41.3%.

Screening Criteria:

Growth Market Leaders:

Begin with the Market Leaders Universe by applying the following five filters:

  • Companies not based in the United States are excluded.

  • Companies in the utility sector are excluded.

  • Companies that trade on the over-the-counter market are excluded.

  • Market capitalization for the latest fiscal quarter (QUARTER 1) is greater than the database average for the same period.

  • The average number of shares outstanding for the latest fiscal quarter (QUARTER 1) is greater than the database average for the same period.

Continue by applying the following filters:

  • Cash flow per share for the last 12 months (12 Month) is greater than the database average for the same period.

  • Sales for the last 12 months (12 Month) are one and a half times greater than the database average for the same period.

  • The price-to-sales ratio is less than the average for the Market Leaders.

  • This value is quantified by screening for the Market Leaders (see above) and calculating the average price-to-sales ratio for this group.

  • Earnings per share growth for the last 12 months (12 Month) is positive.

  • The final results are the 10 companies with the highest relative price strength over the last 52 weeks.

Tiny Titans:

  • Companies not based in the United States are excluded.

  • Companies that trade on the over-the-counter market are excluded.

  • Market capitalization for the latest fiscal quarter (QUARTER 1) is greater than or equal to $25 million and is less than or equal to $250 million.

  • The price-to-sales ratio is less than one.

  • The final results are the 25 companies with the highest relative price strength over the last 52 weeks.

Current Results

The following is a summary of the current performance of this great screen.

 

Tiny Titans

S&P 500

YTD Return:

-11.7%

-4.2%

Five Year Return:

15.0%

13.5%

Ten Year Return:

7.4%

4.9%

Inception:

23.9%

4.1%

Terminology · Risk-Adjusted Return: [(Index Std Dev ÷ Portfolio Std Dev) × (Portfolio Return - Margin Rate)] + Margin Rate Past Performance

Price Gain %

  • Price gain represents the amount that each portfolio has appreciated or lost for the most recent bull and bear market period and for each of the last five years. These price gains only consider price change (does not include dividends).

  Price Gain (%)        
  2014 2013 2012 2011 2010
Value With Price Momentum          
O'Shaughnessy: Tiny Titans 21.4 54.4 20.0 -22.9 21.1
Indexes          
S&P 500 11.9 29.6 13.4 0.0 12.8
S&P 500 Growth (w/divs) 16.0 35.5 14.6 4.7 15.0
S&P 500 Value (w/divs) 11.9 33.7 17.7 -0.5 15.1
S&P MidCap 400 7.5 31.6 16.1 -3.1 24.9
S&P MidCap 400 Growth (w/divs) 7.3 32.8 15.8 -0.9 30.6
S&P MidCap 400 Value (w/divs) 10.5 34.3 20.1 -2.4 22.8
S&P SmallCap 600 1.7 39.7 14.8 -0.2 25.0
S&P SmallCap 600 Growth (w/divs) 0.8 42.6 14.9 4.1 28.0
S&P SmallCap 600 Value (w/divs) 4.7 35.6 17.8 -1.2 24.7
Dow Jones 30 7.6 26.5 7.3 5.5 11.0
NASDAQ 100 20.8 35.0 16.8 2.7 19.2
All Exchange-Listed Stocks 4.7 38.1 14.8 -12.3 26.2

Average Annual Price Gain (%)

  • Average annual price gain is the compound average annual price gain for the last year, last five years, and last 10 years. Returns are calculated through the previous month-end. These figures only consider price change (does not include dividends).

 

Average Annual

     
 

Price Gain (%)

     
 

5

10

Since

Risk

 

Yr

Yr

Incep

Adj

Value With Price Momentum

       

O'Shaughnessy: Tiny Titans

18.4

10.2

25.7

16.5

Indexes

       

S&P 500

13.5

5.8

4.6

4.6

S&P 500 Growth (w/divs)

16.8

8.9

6.5

6.5

S&P 500 Value (w/divs)

15.2

7.4

6.1

6.1

S&P MidCap 400

16.1

8.5

9.0

8.6

S&P MidCap 400 Growth (w/divs)

18.6

10.7

12.1

10.8

S&P MidCap 400 Value (w/divs)

18.0

9.9

8.9

8.7

S&P SmallCap 600

17.2

7.7

8.1

7.8

S&P SmallCap 600 Growth (w/divs)

19.2

9.6

9.5

8.8

S&P SmallCap 600 Value (w/divs)

17.4

8.2

8.7

8.3

Dow Jones 30

11.5

5.5

4.9

5.0

NASDAQ 100

19.7

10.7

9.1

8.0

All Exchange-Listed Stocks

14.2

7.3

10.6

9.5

Price Gain Bull & Bear

  • Price gain bull & bear represents the amount that each portfolio has appreciated or lost for the most recent bull and bear market period and for each of the last five years. These price gains only consider price change (does not include dividends). The Bull Market Return is the total price return reflecting performance in the current bull market. The Bear Market Return is the total price return reflecting performance in the most recent bear market.

 

Price

 
 

Gain (%)

 
 

Bull

Bear

 

Mkt*

Mkt*

Value With Price Momentum

   

O'Shaughnessy: Tiny Titans

272.1

-67.3

Indexes

   

S&P 500

159.1

-52.6

S&P 500 Growth (w/divs)

198.0

-44.4

S&P 500 Value (w/divs)

187.6

-56.0

S&P MidCap 400

195.0

-50.5

S&P MidCap 400 Growth (w/divs)

219.4

-47.7

S&P MidCap 400 Value (w/divs)

224.8

-49.4

S&P SmallCap 600

204.3

-52.2

S&P SmallCap 600 Growth (w/divs)

238.0

-51.1

S&P SmallCap 600 Value (w/divs)

206.1

-51.0

Dow Jones 30

134.3

-49.3

NASDAQ 100

250.7

-50.1

All Exchange-Listed Stocks

219.5

-58.6

Monthly Variability

  • Monthly variability represents the largest gain and losses in terms of months.

 

Monthly

 
 

Variability

 
 

Largest

 
 

Gain

Loss

Value With Price Momentum

   

O'Shaughnessy: Tiny Titans

37.4

-21.0

Indexes

   

S&P 500

10.8

-16.8

S&P 500 Growth (w/divs)

10.8

-16.5

S&P 500 Value (w/divs)

11.3

-17.1

S&P MidCap 400

14.8

-21.8

S&P MidCap 400 Growth (w/divs)

19.0

-22.2

S&P MidCap 400 Value (w/divs)

15.7

-21.8

S&P SmallCap 600

17.3

-20.2

S&P SmallCap 600 Growth (w/divs)

17.0

-21.7

S&P SmallCap 600 Value (w/divs)

18.4

-19.6

Dow Jones 30

11.8

-15.1

NASDAQ 100

25.0

-27.5

All Exchange-Listed Stocks

23.9

-22.1

Risk Measure

  • Risk index is the average standard deviation of return for the stock screen divided by the average standard deviation of return for the S&P 500. Standard deviation is a measure of return volatility and is computed using monthly returns. A risk index of 1.00 denotes risk equivalent to that of the S&P 500 index. Values above 1.00 are riskier than the index and values below 1.00 are of less risk than the index.

 

Risk Meas

 

Risk

 

Index

   

Value With Price Momentum

 

O'Shaughnessy: Tiny Titans

1.93

Indexes

 

S&P 500

1.00

S&P 500 Growth (w/divs)

1.10

S&P 500 Value (w/divs)

1.00

S&P MidCap 400

1.20

S&P MidCap 400 Growth (w/divs)

1.31

S&P MidCap 400 Value (w/divs)

1.12

S&P SmallCap 600

1.28

S&P SmallCap 600 Growth (w/divs)

1.32

S&P SmallCap 600 Value (w/divs)

1.23

Dow Jones 30

0.97

NASDAQ 100

1.81

All Exchange-Listed Stocks

1.38

WHAT System

This is Adept Analyst's WHAT System for Adept Analyst's Tiny Titans.

What to buy?: Shows you passing companies.

How to buy & hold?: Tells you how to buy & hold.

Attitude & aptitude: Disposition you should have.

Time: To profit or cut losses.

   
What to buy?

As of 09/25/2015, these stocks should be bought and held in your Tiny Titans portfolio:

Company name

Ticker

Prev Close

Fair Value Estimate

Margin of Safety

Economic Moat

Growth

Profitability

General Employment Enterprises

JOB

$0.48

$0.63

23.8%

N/A

B

F

BSQUARE Corporation

BSQR

$7.00

$19.38

63.9%

N/A

C

D

Flanigan's Enterprises, Inc.

BDL

$26.77

$18.10

-47.9%

N/A

C

C

Security National Financial Co

SNFCA

$6.81

$5.29

-28.7%

N/A

C

B

Air T, Inc.

AIRT

$19.71

$12.27

-60.6%

N/A

N/A

N/A

Diversicare Healthcare Service

DVCR

$10.13

$9.00

-12.6%

N/A

C

F

Lakeland Industries, Inc.

LAKE

$14.60

$10.06

-45.1%

N/A

C

F

BG Staffing Inc

BGSF

$12.64

$16.88

25.1%

N/A

N/A

D

Porter Bancorp, Inc.

PBIB

$1.40

$0.89

-58.2%

N/A

D

F

HC2 Holdings Inc

HCHC

$7.54

$5.54

-36.1%

N/A

C

B

Coast Distribution System Inc

CRV

$5.49

N/A

N/A

N/A

N/A

N/A

Allied Motion Technologies, In

AMOT

$17.73

$25.86

31.4%

N/A

A

C

Mannatech, Inc.

MTEX

$19.68

$15.79

-24.6%

N/A

D

F

Books-A-Million, Inc.

BAMM

$3.19

$3.93

18.8%

N/A

C

D

Lawson Products, Inc.

LAWS

$22.43

$16.48

-36.1%

N/A

D

F

PFSweb, Inc.

PFSW

$14.24

$4.47

-218.6%

N/A

D

F

Gordmans Stores, Inc.

GMAN

$3.54

$11.79

70.0%

N/A

C

D

Atlanticus Holdings Corp

ATLC

$3.65

$3.54

-3.3%

N/A

C

A

JAKKS Pacific, Inc.

JAKK

$9.04

$20.12

55.1%

N/A

C

F

Frisch's Restaurants, Inc.

FRS

$33.97

N/A

N/A

N/A

N/A

N/A

Zagg Inc

ZAGG

$6.92

$12.16

43.1%

N/A

B

D

Core Molding Technologies, Inc

CMT

$17.81

$17.58

-1.3%

N/A

C

C

DLH Holdings Corp

DLHC

$2.75

$1.62

-69.8%

N/A

D

F

Planar Systems, Inc.

PLNR

$5.95

$7.33

18.8%

N/A

D

F

Lime Energy Co.

LIME

$2.95

$9.63

69.4%

N/A

D

F

How to buy & hold?

Buy companies and hold them if they appear in the "What" section. If you see a new company added since last month then you should add it to your Tiny Titans portfolio.

Attitude & aptitude

This is a quantitative value screen. By applying the WHAT System, you avoid behavioral bias. If you do not want to strictly follow the WHAT System, you can use the screen and cherry pick promising companies from the list.

Time to profit or cut losses

Comparing the Tiny Titans screen to the previous month, if you don't see a previously listed company then you need to sell the position. The reason is because the company does not meet the Tiny Titans screen anymore. If you do not automatically want to sell a delisted Tiny Titans company then you need to do both fundamental and technical analysis to determine your exit strategy.

Conclusion

The Tiny Titans quantitative value strategy delivers high risk-adjusted returns compared to just investing in the S&P 500 index. Historically, this strategy has beaten the simply S&P 500 index buy and hold investor by wide margins.

In addition, this strategy also has higher risk-adjusted returns compared to a buy and hold S&P 500 Index portfolio. As a result, you have a methodology that produces a higher Sharpe Ratio, which can aid you in your journey of Seeking Alpha.

Please consider the Tiny Titans if you'd like to generate more alpha (excess returns above the market rate of return).

   

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.