Our criteria for the selecting stocks in these model portfolio strategies, which heavily weight proxies for cash flow growth and ROIC, include the following:
- Relative Value
- Operating Momentum
- Consensus Estimate Revision Momentum
- Fundamental Quality
The highest ranked stocks are selected for our long-model portfolios and the lowest ranked stocks are selected for our short model portfolios. These criteria are explained in more detail in our September 2015 report. Intraday price target alerts and returns are posted on our Seeking Alpha blog.
As of the February 29, 2016 close, 15 stocks have left the long-only model, 13 have been added, and 8 were assumed to have been rebalanced.
21 Long Stock Ideas for March 2016
New Long Ideas
American Eagle Outfitters, Inc. (NYSE:AEO)
Skechers U.S.A., Inc. (NYSE:SKX)
Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)
Lowe's Companies, Inc. (NYSE:LOW)
Boardwalk Pipeline Partners, LP (NYSE:BWP)
First Citizens Bancshares Inc. (FCNC.A)
VCA Inc. (NASDAQ:WOOF)
Sirona Dental Systems Inc. (NASDAQ:SIRO)
JetBlue Airways Corporation (NASDAQ:JBLU)
Deluxe Corp. (NYSE:DLX)
Canadian Pacific Railway Limited (NYSE:CP)
Lam Research Corporation (NASDAQ:LRCX)
Cisco Systems, Inc. (NASDAQ:CSCO)
Rebalanced Long Ideas
PrivateBancorp, Inc. (NASDAQ:PVTB)
Signature Bank (NASDAQ:SBNY)
United Therapeutics Corporation (NASDAQ:UTHR)
Amgen Inc. (NASDAQ:AMGN)
Manhattan Associates, Inc. (NASDAQ:MANH)
Linear Technology Corporation (NASDAQ:LLTC)
NVIDIA Corporation (NASDAQ:NVDA)
NetEase, Inc. (NASDAQ:NTES)
Our favorite new long idea is Lowe's Companies, Inc.
Our favorite long stock idea at the moment is Lowe's Companies. In the simple models below, which were constructed in part using XBRL Analyst, consensus estimates imply that ROIC should accelerate in the quarters ahead. Yet the company still trades at a decent relative value. This is an idea we would like to explore in more detail.
25 Short Sale Stock Ideas for March 2016
Our list of short ideas are composed of low-quality stocks. When the market anticipates an improving economy from low price levels, low-quality stocks will at times out-perform high-quality stocks as the expected improvements in fundamentals are discounted from a relatively more depressed price level.
The majority of these companies will likely show a recovery in ROIC over the next year. As a result, many of these stocks will likely only work well as short sale ideas in the short-term during periods of heightened market uncertainty or volatility.
New Short Sale Ideas
Tesla Motors, Inc. (NASDAQ:TSLA)
Concho Resources, Inc. (NYSE:CXO)
Targa Resources Corp. (NYSE:TRGP)
Vermilion Energy Inc. (NYSE:VET)
National Oilwell Varco, Inc. (NYSE:NOV)
Devon Energy Corporation (NYSE:DVN)
Legg Mason Inc. (NYSE:LM)
Ionis Pharmaceuticals, Inc. (NASDAQ:IONS)
Sensata Technologies Holding NV (NYSE:ST)
Qorvo, Inc. (NASDAQ:QRVO)
NCR Corporation (NYSE:NCR)
LinkedIn Corporation (LNKD)
Autodesk, Inc. (NASDAQ:ADSK)
Yahoo! Inc. (YHOO)
Tableau Software, Inc. (NYSE:DATA)
Methanex Corporation (NASDAQ:MEOH)
Rebalanced Short Sale Ideas
TripAdvisor Inc. (NASDAQ:TRIP)
Melco Crown Entertainment Limited (MPEL)
Apache Corp. (NYSE:APA)
Noble Energy, Inc. (NYSE:NBL)
Royal Dutch Shell plc (NYSE:RDS.B)
Hess Corporation (NYSE:HES)
RPC Inc. (NYSE:RES)
Yandex N.V. (NASDAQ:YNDX)
Albemarle Corporation (NYSE:ALB)
Our favorite new short idea is Autodesk, Inc.
Autodesk is one of a handful of companies on our theoretical short sale portfolio in which consensus does not imply a recovery in ROIC over the next year. There seems to be no fundamental recovery in sight for this company, and so it deserves to be studied in further detail as a short sale idea.
February 2016 Model Portfolio Report Commentary
(The Core model and Opportunistic model hold the same stocks and use the same stock-specific price targets, with the Opportunistic model portfolio occasionally moving to a 100% cash position during periods of extreme volatility or when short-term portfolio return targets are reached.)
Both the theoretical Core Long Model and Opportunistic Long Model increased 0.51% in February versus a -0.28% decline in the S&P 500.
The theoretical Core Short Model posted a gain of +7.16% and the theoretical Opportunistic Short Model posted a gain of +11.86% for the month. The Opportunistic Short Model assumed a 100% cash position just prior to the close on February 8 while the Core Short Model continued to assume short sale positions in stocks.
The theoretical Core Long/Short Model improved by +7.67% (0.51% + 7.16%), and the Opportunistic Long/Short Model improved by +12.37% (0.51% + 11.86%).
For the year to date, the theoretical Core Long Model is down -9.64% and the theoretical Opportunistic Long Model is down -11.07%, versus the -5.27% YTD decline in the S&P 500. YTD, the theoretical Core Long/Short Model is up +12.80% and the Opportunistic Long/Short Model is up +10.75%.
The best model portfolio stocks in February 2016
The best performing stock in the long model was Sprouts Farmers Market, Inc. (NASDAQ:SFM), which was assumed closed on February 26 for a 22.37% gain. The worst performing stock was Jones Lang Lasalle Inc. (NYSE:JLL), down -27.47%.
The best performing stock in the short model portfolio was Williams Partners L.P. (NYSE:WPZ), down -39.78% (for the assumed equivalent short sale gain) when the position was assumed closed at the end of trading on February 8, 2016. The worst performing stock in the short model was Freeport-McMoRan Copper & Gold (NYSE:FCX) which was assumed closed for on February 17 for a short sale loss of -55.65%.
Long running advice regarding the use of our model portfolio report
Wayne Gretzky said it best - "skate to where the puck is going to be, not where it has been." Quantitative screens like the one in this report show where a stock has been and assume the trajectory is fixed. Of course, this is not always the case. The best investors will use this model portfolio as guidance, and not the end all. At the same time, the model does well enough on its own, often beating the indices with ease (though not this past month). With a little effort, we hope that active fundamental portfolio managers will do even better.
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.
Additional disclosure: There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. I receive compensation from FinDynamics if you make a purchase of XBRL Analyst using the link provided in this report. We do our best to provide accurate information but we do not guarantee the accuracy of information in this report.