The site of OHI operator Maplewood Senior Living's new Manhattan retirement home (via City Realty).
OHI: Healthier Now
I've written in the past (e.g., here) about how Omega Healthcare Investors (NYSE:OHI) had failed one or the other of Portfolio Armor's two screens to avoid bad investments. After seeing how OHI has performed since late April, I thought it might pass the first of those screens, which looks at total returns.
I was right: OHI passes that first screen. It also passes Portfolio Armor's second preliminary screen, plus an additional test. I elaborate below, but first, here are two reasons why you should care about these screens.
Why You Should Care
The first reason you should care about the two preliminary screens is that they can help you avoid stocks that are heading for drawdown over the next 6 months. On October 9th of last year, I noted that OHI had failed both preliminary screens and, consequently, was not healthy enough for my system. Here's how OHI performed over the next 6 months, taking into account its dividends.
The second reason you should care is that the names that pass these screens with the highest scores tend to outperform the market over the next 6 months, on average. I've been sharing the top 10 names from this system with my Bulletproof Investing subscribers each week since June 8th of last year, so we have 6-month performance numbers for 25 of those weekly cohorts. As you can see in the table below, 21 out of 25 outperformed the market over the next 6 months.
Starting Date | Portfolio Armor 6-Month Performance | SPY 6-Month Performance |
---|---|---|
June 8, 2017 | 14.49% | 9.99% |
June 15, 2017 | 19.85% | 10.97% |
June 22, 2017 | 24.46% | 11.27% |
June 29, 2017 | 18.24% | 11.68% |
July 6, 2017 | 21.03% | 14.81% |
July 13, 2017 | 28.25% | 14.85% |
July 20, 2017 | 25.04% | 14.62% |
July 27, 2017 | 33.52% | 17.10% |
August 3, 2017 | 20.72% | 12.66% |
August 10, 2017 | 13.05% | 8.36% |
August 17, 2017 | 10.71% | 13.48% |
August 24, 2017 | 15.23% | 13.72% |
August 31, 2017 | 8.42% | 10.87% |
September 7, 2017 | 12.75% | 11.61% |
September 14, 2017 | 29.19% | 11.19% |
September 21, 2017 | 22.56% | 9.42% |
September 28, 2017 | 14.30% | 4.73% |
October 5, 2017 | 11.53% | 5.26% |
October 12, 2017 | 15.46% | 5.38% |
October 19, 2017 | 20.73% | 6.08% |
October 26, 2017 | 18.10% | 5.13% |
November 2, 2017 | 12.64% | 3.11% |
November 9, 2017 | 5.41% | 5.34% |
November 16, 2017 | 6.11% | 6.22% |
November 23, 2017 | 5.18% | 6.19% |
Average | 17.08% | 9.76% |
Portfolio Armor's top ten names averaged 17.08% over the average of these 25 6-month periods, versus the SPDR S&P 500 ETF's (SPY) average of 9.76%, an average outperformance of 7.32% over 6 months.
Portfolio Armor's Current Take On OHI
As you can see in this screen capture from Portfolio Armor's admin panel below, everything is coming up Milhouse for OHI.
Here's a close-up of the more relevant parts:
Portfolio Armor's first preliminary screen is for the mean of the most recent 6-month return (labeled "Short Term Return" above) and the average 6-month return over the last 10 years ("Long Term Return") to be positive. It is, in OHI's case: it's 12.47%, where it appears under the "6m Exp Return" and "Exp Return" columns.
The second screen is a gauge of options market sentiment. The site attempts to hedge OHI against a greater-than-9% decline over the next several months using an optimal, or least expensive, collar capped at the mean of its short and long-term returns, 12.47%. As you can see below, in the screen capture from the Portfolio Armor iPhone app, it was possible to hedge OHI this way on Friday.
So, OHI passed Portfolio Armor's 2 preliminary screens. Since it passed the 2nd screen without needing to have its cap dropped down from 12.47%, ordinarily, 12.47% would have been Portfolio Armor's potential return estimate for OHI over the next 6 months. But OHI also passed a third test, in that it was also possible to hedge it against the same decline over the same time frame using optimal puts, as you can see below.
Historically, only about 20% of the securities that pass Portfolio Armor's two preliminary screens pass this "AHP" ("Also Hedgeable with Puts") test, and the ones that do outperform the ones that don't by 37% over the next 6 months. Because of that, the site boosts OHI's potential return by 37%, as you can see in the "w/AHP" column below.
The Big Picture
Portfolio Armor's universe consists of practically every security (stock and exchange traded product) with options traded on it in the U.S. That's about 4,500 names, out of which 1,880 passed the two preliminary screens on Friday (the number that passes both screens varies based on market conditions; only about 700 passed both screens during the correction in early 2016, for example). Of the 1,880 names that passed both preliminary screens, OHI was ranked #426, as you can see in the screen capture from Portfolio Armor's admin panel below.
So it's unlikely to appear in one of the top 10 names or one of the hedged portfolios I present to subscribers next week. But OHI longs should be encouraged that it passed these screens and the additional AHP test nonetheless, as it suggests it's more likely to have a positive return over the next 6 months.
To see this week's top 10 names, you can sign up for a free two-week trial here.