New Year NAPS - Top Stocks For 2019 And The Symmetry Of Risk

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Includes: BT, BTVCY, CGROF, DFORF, DRTGF, EVRZF, INVVY, JSNSF, MONDY, OCWSF, PLSQF, WNCNY
by: Stockopedia
Summary

The NAPS is a process that can be used once or twice per year to generate a stock market portfolio with a good chance of market-beating returns.

In practice, it's a simple, rule-based approach that generates a portfolio of 20 high ranking stocks from different market sectors.

The NAPS Portfolio ended down 11.4% for 2018 in comparison to a 12.6% fall for the FTSE All Share.

Well, it had to happen eventually, hadn't it? After a barnstorming 43% return in 2017, the No-Admin-Portfolio-System (NAPS) hit a wall in 2018. My musings on the benefits of ignorance last January led to nearly 100,000 reads over the year but, if private investor sentiment is anything to go by, I've a feeling that this year's more sober reflection may not prove as popular. I think this would be a shame, as it's in the harder times that the best investment insights are learned.

As usual, this is an extensive piece, ruminating on the sources of risk and return since the inception of the NAPS, reviewing the portfolio selection criteria and culminating in the list of 20 stocks for the year.

Yes, these are the "top stocks for 2019" according to my current NAPS criteria, but I have absolutely no crystal ball as to where each stock will go. Up, down, sideways, in circles - I have no idea. I know this is a controversial thought to traditional stock pickers, but the individual stocks don't matter to me. I wouldn't bet my home on a single one of them. What matters to me is how the stocks have been selected, what traits they bring, and how they synthesise into a portfolio. The NAPS seeks the perfect portfolio, not the perfect stock.

What is the NAPS?

(Long term readers can skip this section.) The NAPS is a process that can be used once or twice per year to generate a stock market portfolio with a good chance of market-beating returns. It's based upon a few fundamental principles:

  1. Behavioural Investing. Many stock market investors (myself included) are plagued by behavioural biases that can lead to investment mistakes. A disciplined, rule-based approach to stock selection helps counter these biases.
  2. Factor Investing. Market-beating stocks are regularly driven by a common set of factors or traits (such as quality, value & momentum). We can screen the market for stocks with these traits to select potentially, market-beating portfolios.
  3. Diversification. It's the only free lunch in investing. Since most investors either don't diversify or don't know how to, rigorous diversification helps avoid the risk of ruin and maximises the potential of profiting from factors.

In practice, it's a simple, rule-based approach that generates a portfolio of 20 high ranking stocks from different market sectors. It's been extremely powerful, leaving the vast majority of active fund managers & passive index trackers dead in their tracks. You can read all the back-history of this approach in the NAPS Portfolio Blog Archive, and a brief of the performance in the next section.

2018 Performance Review

The market wobbled in January 2018 before recovering. But the foray back above the previous highs proved short-lived. Since May, most international markets have been on a downswing, topped off by a particularly black December. The NAPS Portfolio ended down 11.4% for 2018 in comparison to a 12.6% fall for the FTSE All Share. But since the inception of the NAPS in 2015, it's generated a 91% capital return before dividends, at almost an 18% annualised rate of return. You can visualise the four years of history in the chart below.

(NB - Please note that for the rest of this article, all performance statistics exclude the last couple of day's trading of 2018. To improve publishing timeliness I wrote the bulk of the piece at the weekend which excluded the final end of year rally. I hope to update the data when I'm back from holiday in the office next week.)

One of the issues with relative return charts like the above is that drawdowns between the two lines are not compared like for like. The NAPS return year-to-date looks worse than the FTSE All Share drawdown, when in actuality it's less. It's a visual distortion. Looking at the returns as a column chart makes the picture clearer. The NAPS have outperformed the FTSE All Share in 3 out of 4 years.

I don't want to treat a -11% return as a positive. Capital losses are frankly dreadful and nobody enjoys bearing them. But I do want to treat this loss in context. From the start of the project I've made it clear that my version of the NAPS is a fully invested, long-only portfolio. I'm not using any stop losses, and not trading intra-year to minimise losses. So negative years are to be expected. It's just the nature of stock markets. Significant downside volatility comes with the territory of long-only investing. No pain no gain.

Last week I posted a major analysis of nearly 100 years of stock market data. If you haven't yet read it, I recommend you do. It helps to set your expectations about the base rates of the stock market. History shows that the stock market falls roughly once every three years. In the UK we've seen two falls in the last four years and low returns, so the period in which the NAPS has been invested has been worse than the typical four year period from the study. But the NAPS have only fallen for one of these four years, and have returned more than 10% annualised above the long run average equity market return of 8%. Yes, we might have been lucky - but this outperformance appears more and more significant as time accrues.

The NAPS has beaten all benchmarks

In each of the four years that I've written about the NAPS I've had a few comments critical of my choice of the FTSE All Share Index as benchmark for performance comparison. e.g.

  • "Most individual investors invest in small caps so you should use a small cap index like the AIM All Share"
  • "The FTSE All Share is market cap weighted and full of miners - you should use the FTSE 250 as it's more representative"

The critique has been stronger in big up years like 2015 and 2017, as though some readers want to attribute all the outperformance to a small cap effect. But the NAPS is an all-cap strategy, full of mid and large companies, and the outperformance has been generated not just in up years... but also by reducing the downside in down years (such as 2015 and 2018).

The following chart should show that the choice of benchmark is a moot point. I've printed the full four-year performance of the NAPS against seven different benchmarks - a range of UK FTSE indices, as well as the S&P 500 (as the major US benchmark), and an MSCI iShares All-World ETF (for the globally inclined). The NAPS has more than doubled the performance of the best benchmark (the FTSE AIM 100).

But more notable is the recent downside minimisation. Last year I showed that the portfolio had not only outperformed the FTSE All Share, but it had done it at a lower volatility/risk.

This year the NAPS has fallen less than every benchmark except the S&P 500. But if the S&P 500 is denominated in pounds rather than dollars, the NAPS would have outperformed all the indices in the set above.

It's the measures put in place to reduce downside risk that I will be discussing for much of the rest of this piece.

Winners and Losers in 2018

Unfortunately, being a down year, the win/loss ratio is not looking nearly as rosy as last year. Of the 20 stocks in the portfolio, 6 have shown a profit and 14 a loss. A complete inversion of the result in 2017. As you can see from the graphic below, this is the worst win/loss ratio since the inception of the NAPS. On average over the last 4 years though, the portfolio has maintained an annual win rate of 61.25% - i.e., 6 winners for every 4 losers per year.

The biggest winner of the year was Plus500 (OTC:PLSQF) - the stock that everybody loves to avoid. PLUS runs a CFD business that profits from punters trading cryptocurrency. It's certainly not a stock that Buffett would buy. Indeed I hate the stock so much myself that I found my monkey brain wanting to manually ditch it from the portfolio at the start of the year. I'm very glad that I stuck with the method and ignored my biases. Without PLUS the year would have ended much more dismally.

In the stock market your upside is potentially infinite but your losses are capped at 100%. We've seen 300% winners in the NAPS before (IQE, GAW) but this year we've seen our biggest loser - a full 73% lost in Indivior (OTCPK:INVVY). But there are a few things to note regarding Indivior:

  1. At the start of the year Indivior was marked with a "Speculative" RiskRating. So a 45%→70% annualised volatility was to be expected on the upside or downside. While it's a bad loss, it's at the edge of normal for a stock of that volatility.
  2. At the start of the year a group of extremely wise readers mentioned that Indivior was facing significant risks in 2018 and wouldn't touch it. I'm not so smart, so I held it. Perhaps a smart human on top of the algorithm could add value. But the problem with discretionary decision making like this (for a time poor investor like me) is that I could have made the same rationale for avoiding Plus500. I'm happy to embrace the contrarian error rate, it has benefits as well as drawbacks.
  3. This is the third year in a row that Indivior has been owned by the NAPS. In the 2 previous years it was handsomely profitable. From a nominal starting portfolio of £100k, INDV made a pair of £3.5k profits and now a £7.8k loss... so overall it's been less than a £863 loss... which is less than 0.45% impact on the ending capital. INDV has fallen 43% since the first purchase at the start of 2015. A 43% loss in the stock's price over 3 years was almost turned into an overall profit through annual rebalancing. Ben Hobson has written about this Robin Hood Rebalancing Alchemy of stealing from the rich to give to the poor before.

I'm actually a fan of stop-losses - and I think they would have helped the portfolio in 2018. But they don't sit well in a 'no-admin-portfolio-system' so I chose early on not to use them. The theory and practice of stop losses is that they don't tend to increase your upside, but they do minimise your downside. I know a lot of subscribers who do use them are currently 'stopped out' and holding a lot of cash right now. They may have ensured their overall 2018 drawdown is less than 11%, but at the potential cost of being a late participant in any rallies from the lows.

What's protected the portfolio - sector or risk diversification?

The original NAPS began as the Noah's Ark of investing. 2 stocks from each sector, chosen for their handsomeness according to the StockRank. Nice and simple.

But over time, and as the tools have developed at Stockopedia, I've sought broader forms of risk management. After the first year I spread the holdings more evenly across Size Groups - to diversify away from the micro caps that had burned me before in bear markets. Then I took if further, and diversified more evenly according to each stock's volatility using the RiskRatings.

I'm biased but I do believe it's a groundbreaking innovation for individual investors. It provides an 'at a glance' classification of each share into one of 5 risk buckets - Conservative, Balanced, Adventurous, Speculative and Highly Speculative. We publish them at the top of every StockReport. If you use them, you really know what to expect from a share's price action.

Since the market topped in May 2018, lower volatility shares have significantly 'outperformed' the rest of the market, while higher volatility shares have crashed. This is neatly summarised by the following chart produced by Oliver Cooper. Conservative (low volatility) shares in blue have fallen far less than Speculative (high volatility) shares.

This is all very well across the whole market but do the RiskRatings really have the same impact in a small portfolio? Well to answer this question I've aggregated the performance of the 2018 NAPS positions into their respective RiskRating buckets and created the charts below. The losses endured by "Conservative" (low volatility) shares have been far lower than any of the other classifications. And if we remove the anomaly of Plus500 from the "Speculative" bucket you can see the trend even more clearly. Increasingly volatile shares have had a far higher downside contribution. Conservative → Balanced → Adventurous → Speculative.

When I initially forced half of the NAPS Portfolio into lower volatility shares I was anxious. If the bull market kept roaring ahead would the portfolio lag the market? What falls less fast, also tends to rise less fast... there's a symmetry to risk.

But the market did fall, and the prudent diversification really paid off. Without the Conservative & Balanced spine of the portfolio, the NAPS would have fallen by far more than 11%. I think the intelligent use of the RiskRatings has made a fundamental contribution to the NAPS outperformance vs major benchmarks.

Defensive Sector Diversification failed...

Here's a couple of charts to show the performance of the NAPS positions by sector. Ironically, in a year where recession and Brexit fears have come home to roost, the "Cyclical" sector picks have outperformed the "Defensive" sector picks.

The observant will comment that Indivior is absolutely NOT a defensive stock... and I completely agree. My point is that traditional sector classification naming schemas can be misleading. It is far more prudent to use measurable volatility as a predictor of future downside risk (represented by the RiskRatings) than an arbitrary sector classification (such as "Defensives").

I am not suggesting that we throw sector diversification out of the window. It's prudent to spread bets across different areas of the economy as sectors peak and trough at different times. But if you want to minimise your downside volatility during substantial market corrections (such as December 2018) then you absolutely must prioritise the ownership of low-risk, low-volatility stocks.

This is why I advocate the use of a bar-bell portfolio. Owning Conservative low-volatility shares provides spine to a portfolio, but owning Speculative shares provides thrust. Spine and thrust mean you can protect yourself in down markets, but participate strongly in up markets.

Which factors work best in which market environment?

Adding in a blend of lower volatility stocks has clearly helped enormously in the poor market of 2018 but is it likely to hold us back in an up market? Yes quite possibly. But I have absolutely no crystal ball. Lots of intelligent market forecasters are predicting a volatile year in 2019, and my own study last week confirmed this likelihood. But it could be volatile up or down.

There's a growing body of research that attempts to discern which factors (Quality, Value, Momentum, Size, Volatility etc) are the best 'plays' for different stages of the market, or economic cycle. One piece that caught my eye was from Amundi Asset Management called "Equity Factor Investing according to the Macroeconomic Environment," from which I'll be quoting.

In this 2015 piece they define four stages of the economic cycle (expansion, deceleration, recession and recovery) using US NBER data, and calculate the performance of individual factor-based portfolios in each. The table below shows which factors over or under-perform in each state of the cycle. Most of these factors map neatly Stockopedia ratings data. Quality, Value, Momentum and Growth to a variety of StockRanks, Minimum Volatility to the RiskRatings, etc.

While we aren't in a recession at this stage, the risks are picking up. Most believe there's a deceleration going on. So from this perspective it's best to focus on lower Volatility, higher Quality, higher Dividend stocks. Value stocks tend to do best in recovery, and Momentum tends to do best in expansion. Should we switch our strategy away from High Flyers and into Conservative Quality?

Well, there are risks in factor timing and it's notoriously difficult to get it right. I've been designing the NAPS Portfolio as an all-weather strategy and not trying to be too clever. Yes, I'm a little concerned that the significant exposure to Value stocks (like Wincanton (OTC:WNCNY) and Dart (OTCPK:DRTGF)) may bite in a downturn, but there is a lot of research that suggests that a diversified all-factor Q+V+M approach may remain performant. Perhaps, the more agile among you will attempt to factor-time these swings. If you do, please do keep us updated.

2019 Selection Rules

So after all the above musings, and in the interests of consistency, I've decided to stick to the 2018 selection rules with only very minor tweaks.

The 2019 NAPS Portfolio rules select:

  • The top 20 stocks in the UK ordered by descending StockRank qualifying for the following constraints:
  • Diversification:
    • by Sector - Maximum of 3 from each sector, and no more than 1 in any industry group.
    • by Size - no more than 8 stocks in any of the large, mid or small cap buckets.
    • by Risk - Half the portfolio in lower volatility RiskRatings (Conservative & Balanced) and half in higher volatility RiskRatings (Adventurous & Speculative). No extreme volatility Highly Speculative stocks.
  • Tradability:
    • by Size - A minimum market capitalisation of £50m.
    • by Liquidity - A bid-ask spread of less than 5%.

The resulting portfolio is diversified across size, risk and sector as below. There's zero discretion involved (aside from selecting the strategy). What worries me? Well, there's only one from each of the healthcare and technology sectors but two utilities. If I was applying discretion I might seek some additional exposure in those two sectors. But then again, we've had some nice winners in utilities, and perhaps there's a reason they are in vogue again. Spine and thrust, spine and thrust. I'm also concerned that there are only 3 "Conservative" RiskRatings in this set. I'd rather we owned 5. But this is how the cards have fallen, and I will stick to them.

Before I hand over to the analyst team I wanted to make a couple of asides.

  • Firstly, I may end my running of the NAPS Portfolio series at the end of the year. It will have been a full 5-year period and my personal investing interests are moving onwards. For those concerned, this does not mean that the NAPS Portfolio will cease to exist, but it may mean that it's put more on autopilot or handed over to the team to run. I'm keen to explore a more focused, actively invested, systematic portfolio as a diary on the site. I haven't thought of a good acronym yet, but perhaps the HATS (high-admin-timing-system) will do. No promises, but watch this space.
  • It's been 18 months of change at Stockopedia. We've grown from 12 staff to 25, and the organisation has changed shape considerably. My time has been pulled away from writing and research over this period, but I've now repositioned myself away from the operational side, back to the research and content side. I'm hoping that I'll have a lot more time to think, write and make videos. I hope you haven't been completely un-entertained by these long articles as you may be in for more regular musings in 2019.

The 2019 Portfolio

Thanks to Ben Hobson and Jack Brumby for their excellent work writing up all the 2019 portfolio selections. There are a few that naturally make me extremely nervous - but if you've toiled through 90 minutes of the 5-year StockRank Webinar you'll know that factor investing requires frogs to be eaten whole. With Plus500 and Wincanton in the list there's plenty for the community to comment about as they obviously have some big downside risks. If the regulators or rate-setters don't blow them up, then you never know, one of them might just end up a winner in 2019. All I do know is that the big winners are always a surprise. Perhaps you'd be willing to have a guess which will do best in the comments below?

Safe Investing once again for 2019.

Ed

Consumer Defensives

Carr's Group

Sector: Consumer Defensives / Food & Tobacco

Market Cap: £135m, Stock Rank: 98

Risk/Size/Style: Adventurous, Small Cap, Super Stock

Carr's Group has two operating segments. Its Agriculture division sells animal feed and equipment to farmers in parts of Britain, Germany, the US, and New Zealand, while its Engineering division provides remote handling equipment and fabrications to the nuclear, oil and gas, and petrochemical industries. Weak demand for animal feed in the US and a major contract delay in its UK manufacturing business saw Carr's net profit nearly halve in FY2017 but the company has confirmed a swift recovery in subsequent trading updates as a result of increasing demand in its agricultural markets, investment in operations and acquisitions. In the group's full-year results in November, Carr's chairman Chris Holmes said: "The breadth of our product offering, investments in acquisitions and research, and our international footprint leaves us well positioned for further growth across both our divisions in the medium term."

Britvic

Sector: Consumer Defensives / Beverages

Market Cap: £2.12bn, Stock Rank: 91

Risk/Size/Style: Conservative, Large Cap, High Flyer

Britvic (OTCQX:BTVCY), the soft drinks maker and distributor, had a solid year in 2018 and its shares were largely unaffected by the market downturn late in the year. Better than expected earnings came as the company benefited from a trend towards low sugar drinks in the UK.

Britvic boasts some decent quality traits, including consistent double-digit margins. Its return on capital has come under pressure in recent years but is still robust at 15.6%. Brokers upped their earnings forecasts for 2019 in response to last year's earnings beat. As such, Britvic displays the classic high quality, strong momentum characteristics of stock market High Flyers.

In the full year results in November, Britvic chief executive Simon Litherland, said: "Whilst political and economic uncertainty will undoubtedly continue, we are confident we will continue our long-term track record of growing earnings, dividends and shareholder value."

J Sainsbury

Sector: Consumer Defensives / Food & Drug Retailing

Market Cap: £5.8bn, Stock Rank: 90

Risk/Size/Style: Balanced, Large Cap, Super Stock

The UK grocery market is incredibly competitive. Price wars and the battle for market share have been exacerbated in recent years by new threats from discount stores like Aldi and Lidl and the spectre of online players like Amazon entering the fray. But Sainsbury's (OTCQX:JSNSF) has been taking the fight to the competition. First it bought Argos and now it's attempting to get approval to join forces with Asda. New store formats, new staff contracts and work on a new banking platform have been costly but necessary.

Grocery retailing is a low margin business, but on the upside Sainsbury's has a consistently solid earnings track record. If its strategy pays off then buying it on an apparently cheap rating could pay off handsomely.

In the interim results 2018, Mike Coupe, Sainsbury's chief executive, said: "Our proposed combination with Asda will create a dynamic new player in UK retail, with the ability to further lower prices and to reduce the cost of living for millions of UK households."

Consumer Cyclicals

SCS

Sector: Consumer Cyclicals / Speciality Retailers

Market Cap: £80m, Stock Rank: 99

Risk/Size/Style: Adventurous, Small Cap, Super Stock

SCS Group sells furniture and flooring, with a focus on fabric and leather sofas. It has had a lukewarm reception since listing in early 2015 despite paying large dividends year-in, year-out. Today, its forecast dividend yield is c7.5 percent and is covered 1.6 times by earnings. What's more, the group's shops generate lots of cash, meaning SCS's cash flow from operations was comfortably ahead of net income in 2018 (£17.9m vs. £10.2m).

The group had this to say in its AGM update in November: "We believe the group's increasing resilience and value proposition will enable us to manage the continued economic uncertainty and take advantage of opportunities."

Character Group

Sector: Consumer Cyclicals / Leisure Products

Market Cap: £114m Stock Rank: 99

Risk/Size/Style: Balanced, Small Cap, Super Stock

Character (OTC:CGROF) designs, develops and distributes of toys, games, and giftware. The company encountered a tricky year in 2018. It was the demise of iconic toyshop chain Toys "R" Us that did the damage but the group survived this difficult patch and management now sounds much more optimistic about the group's prospects. The company boasts a return on capital of nearly 37 percent and a free cash flow yield of 7.9 percent but only trades on a forward P/E ratio of 11.

In its full-year update in November 2018, the company said:

"The new financial year has started well and in line with management expectations; we are confident in the prospects for the current autumn/winter trading period, which includes the all-important Christmas season."

Redrow

Sector: Consumer Cyclicals / Homebuilding

Market Cap: £1.81bn, StockRank: 98

Risk/Size/Style: Adventurous, Mid Cap, Super Stock

Redrow is a developer of residential housing in England and Wales, where it has approximately 100 live developments. Its range of properties includes Heritage Collection, Regent Collection, Abode Collection and Bespoke Collection.

Although the London sales market remains subdued due to Stamp Duty Tax and Brexit uncertainty, Redrow continues to see strong demand in its regional businesses.

The group qualifies for a total of 16 Guru Screens and boasts Quality, Value and Momentum ranks of 98, 87 and 75 respectively. With a 2018 dividend yield of 5.7% covered three times by earnings, a price-to-book value of 1.23 times and high Quality metrics, Redrow shares continue to look attractive despite the strong performance over the past few years.

In the group's November AGM statement, Morgan commented: "Redrow has an industry leading, highly desirable product, an excellent forward sales position and a very healthy balance sheet. We are in great shape to deliver another year of progress for the business."

Basic Materials

Evraz

Sector: Basic Materials / Metals & Mining

Market Cap: £6.99bn, Stock Rank: 99

Risk/Size/Style: Speculative, Large Cap, Super Stock

Evraz (OTC:EVRZF) is a steel, coal mining and vanadium business based mainly in Russia but with operations in territories ranging from the United States and Canada to the Czech Republic, Italy and Kazakhstan. Its production of 14 million tonnes of steel in 2017 placed it among the top producers in the world.

In 2017, it swung from several years of net losses to a profit of $700 million. This year that net profit figure is forecast to reach $1.9bn. Debt has been falling in recent years as cash flow has started to rise. Margins and return on capital have leapt as rising steel prices have fed through to the company, and its balance sheet now looks solid.

In the interim results last year, Evraz's chief executive Alexander Frolov, said: "In the first half of 2018, the group delivered a solid financial performance, supported by the ongoing improvement in the global steel market environment. In the second half of the year, despite possible price correction, we expect market conditions to remain positive overall."

Mondi

Sector: Basic Materials / Containers & Packaging

Market Cap: £7.8bn, Stock Rank: 92

Risk/Size/Style: Balanced, Large Cap, Super Stock

Integrated paper and packaging giant Mondi (OTCPK:MONDY) has been a regular fixture in the Naps and Snaps portfolios in recent years. It has a solid track record of earnings growth and brokers love it, which you can see in a consistent run of earnings forecast upgrades through last year. Mondi's quality characteristics are also strong with its return on capital and operating margins both well into double figures.

The numbers are supported by a well refined business model whereby Mondi manages its own forests and takes raw materials such as wood fibre, which it processes in its pulp and paper mills and turns into packaging and paper.

In a trading update in October 2018, the company said: "With our robust business model and culture of driving performance, we remain confident of continuing to deliver an industry leading performance, and sustaining our track record of delivering value accretive growth."

Industrials

Ocean Wilsons Holdings

Sector: Industrials / Transport Infrastructure

Market Cap: £415m, Stock Rank: 99

Risk/Size/Style: Conservative, Mid Cap, Super Stock

Bermuda-based Ocean Wilsons Holdings (OTC:OCWSF) is an investment holding company with two main subsidiaries. Wilson Sons provides a variety of maritime services in the port terminals of Brazil, while Ocean Wilsons Investments runs an investment portfolio with roughly $275m of assets under management. Its maritime services include towage, port terminals, ship agency, offshore, logistics and shipyard services.

The stock scores well against our QVM framework and brokers have upgraded their earnings per share forecasts for the stock recently. Interestingly, Ocean Wilsons calculates its own net asset value per share as £16.21 compared to a share price of around £12.

Management said in the company's recent first quarter update:

"The company remains focused on increasing cash flow and improving capacity utilisation across all businesses in order to maximise value for stakeholders."

Wincanton

Sector: Industrials / Freight & Logistics Services

Market Cap: £293m, Stock Rank: 98

Risk/Size/Style: Adventurous, Small Cap, Super Stock

Wincanton (OTC:WNCNY) is a logistics business and it has long been a marmite stock among investors. On the upside, it has a strong record of earnings growth and it put out some solid trading updates through 2018. Debt, which has dogged the investment case for many years, has fallen substantially. The downside is that Wincanton's pension deficit is still considerable and payments to fund it account for half of the company's profits. If interest rates were to rise, the pension problem could ease, but until then, the weak balance sheet is something that deters value investors like Paul Scott.

That said, shares in Wincanton had a strong year in 2018 and they resisted the broader downward pressure, reinforcing the view that this is a very much a value and momentum play.

In a trading update in October, the company said: "The group has continued to experience good levels of trading in the first half of the year and the board expects results for the financial year to 31 March 2019 to be in line with expectations."

Dart Group

Sector: Industrials, Passenger Transportation Services

Market Cap: £1.14bn, StockRank 97

Risk/Size/Style: Speculative, Mid Cap, Super Stock

Dart Group makes it back to the NAPS Portfolio as its valuation has moderated and price action remained robust in 2018. As one of the biggest long term Stockopedia winners, well publicised early on by David Stevenson in the FT, it's familiar to many subscribers. But it's even more familiar to lovers of the TV Show Love Island who book flights on Dart's Jet2.com airline with abandon. In spite of deeper H2 losses, the analyst community almost doubled their profit forecasts for 2019 for Dart putting it on a very low forward PE Ratio of 8.9x. Many in the investment community are worried that Dart is cyclical and could suffer if consumer sentiment continues to plummet post Brexit. The question is whether those worries are fully priced in.

Chairman Philip Meeson stated at the half year: "Our strategy for the long term remains consistent - to grow both our flight-only and package holiday products. On the assumption that the UK Government secures a pragmatic and balanced Brexit agreement with the EU, the outlook remains bright and we continue to have confidence in the resilience of both our Leisure Travel and Distribution & Logistics businesses."

Financials

Plus500

Sector: Financials

Market Cap: £1.58bn Stock Rank: 99

Risk/Size/Style: Speculative, Mid Cap, Super Stock

Plus500 is an international financial firm that divides opinion among investors. It provides online trading services in contracts for difference (CFDs) across various markets. Recently, business has been good for the financial trading firm. Its shares have shot up by more than 400% since January 2017 but they still only trade on around 8 times forecast earnings. Regulators continue to eye the Contracts for Difference and Spread Betting sub-sector, but Plus500 has rolled with the punches (chucking off bags of cash in the process) and has profited from the cryptocurrency boom.

Plus500 chief executive, Asaf Elimelech, said in a recent update: "We believe we are in a good position for 2019 and continue to focus on acquiring high value customers as well as growing in existing and new jurisdictions."

Morses Club

Sector: Financials / Banking Services

Market Cap: £207m, Stock Rank: 96

Risk/Size/Style: Adventurous, Small Cap, Super Stock

Morses Club is a home collected credit business, and in the 12 months to its half-year at the end of August its net loan book grew by 4.3% to £68m. Doorstep lending is an area of the consumer credit market that's coming under a lot of scrutiny from the FCA. Morses says it's doing all the right things, but it looks like the market is still wary. The stock has the profile of a solid, growing and high quality business with strong margins. The shares have resisted the pressure of falling markets through 2018 but still don't look outrageously expensive.

In its interim results in October, Morses' chief executive Paul Smith, said: "Our focus on successful integration, the sustainable growth of the loan book and high-quality lending has resulted in a robust performance across all of our key financial metrics and delivered significant earnings growth for investors."

U and I

Sector: Financials

Market Cap: £257m, Stock Rank: 95

Risk/Size/Style: Balanced, Small Cap, Super Stock

Formerly known as Development Securities, U and I is a property regeneration business which specialises in taking unused brownfield sites and transforming them into something new. Its share price easily outpaced the falling market in 2018 and the business looks to be performing well. Brokers upgraded their EPS forecasts through 2018 but the cyclical nature of U and I's sector means the shares continue to look relatively cheap. So this is very much a value and momentum play that will hopefully continue to perform well given the positive conditions in the sector.

In its interim results last October, Matthew Weiner, chief executive of U and I, said: "We are confident that we have the strategy, team and pipeline to meet our £45-50 million development and trading target for the full year and we remain well placed to benefit from the shortfall of quality mixed-use schemes, which continue to drive strong demand in our key, high-growth, geographies of London City Region, Manchester and Dublin."

Healthcare

EMIS

Sector: Healthcare Equipment and Supplies

Market Cap: £566m, StockRank: 89

Risk/Size/Style: Balanced, Mid Cap, High Flyer

EMIS develops software that is used in pharmacies, GP surgeries and hospitals to help manage and share information. The company hit some serious contractual and performance reporting problems last year, which rocked its share price. However, it appears to have moved quickly to repair the damage and its shares have rebounded in a falling market.

EMIS throws off a lot of cash and ranks well for consistently above-average returns on capital and margins. The group is growing, profitable and pays a dividend, so it's no surprise that the stock is on a high multiple. High quality, strong momentum stocks like EMIS are known as High Flyers. They can be hugely rewarding but they often look expensive.

EMIS Group chief executive, Andy Thorburn, said: "With a strengthened senior leadership team now in place and further growth in recurring revenues, we remain confident of delivering on our expectations for the year as a whole."

Energy

NWF

Sector: Energy / Oil & Gas

Market Cap: £78m, Stock Rank: 99

Risk/Size/Style: Balanced, Small Cap, Super Stock

NWF is in the business of delivering fuel, food and feeds. Dependably profitable and cash generative, with an excellent dividend track record, the company reported record results in the year to May 2018. Revenue was up 9.9 percent to £611m due to both increased activity across its three divisions and favourable tailwinds of increased commodity prices in both feed and fuels.

Headline profit before tax jumped 20 percent to £10.2m, passing the £10m mark for the first time ever, while net debt more than halved to £6.4m.

In its most recent trading update in December, management said: "The group expects that overall trading for the half year will be ahead of prior year and the board remains confident of delivering its full year expectations."

Technology

D4t4 Solutions

Sector: Technology

Market Cap: £69m, Stock Rank: 94

Risk/Size/Style: Speculative, Small Cap, Super Stock

D4t4 Solutions (OTCPK:DFORF) is a software business that helps companies to collect, manage and analyse customer data. It used to be called IS Solutions but rebranded in 2016. D4t4 has some strong quality characteristics, with margins well into double figures and trending upwards in recent years. There are some suggestions that lumpy revenue has dragged on the share price performance. Even so, its profitability has been rising and momentum has been strong in the stock over the past year.

In the half-year results, Peter Kear, the chief executive of D4t4 Solutions, said: "Overall, our business is in a good position and together with a strong pipeline of opportunities makes this an exciting time for the group and we look forward to the rest of FY19 with a high degree of confidence."

Telecoms

BT

Sector: Telecoms / Telecommunications Services

Market Cap: £23.6bn, StockRank: 98

Risk/Size/Style: Balanced, Large Cap, Super Stock

It's set to be all change at telecoms giant BT in February 2019, when ex-Worldpay boss Philip Jansen steps up to take the reigns from outgoing CEO, Gavin Patterson. Under Patterson's tenure, there was no let-up in pressure from competitors and regulators. Add to the woes a £500 million accounting scandal in Italy, and you can see why BT felt a change at the top was needed.

The stock market giant has been rising from the ashes over the past few months in response to these changes. The shares trade on a forecast price/earnings ratio of around 10 times and have a forecast yield of just over 6.0 percent.

In its half-year report last November, BT's outgoing chief executive, Gavin Patterson, said: "Our strategy is delivering, with benefits evident from the steps we've been taking to simplify and strengthen the business and improve efficiency."

Utilities

OPG Power Ventures

Sector: Utilities/Electric Utilities

Market Cap: £88m, StockRank: 94

Risk/Size/Style: Speculative, Small Cap, Super Stock

OPG Group develops, owns and operates private sector power projects in India. The electricity it generates is sold to public sector undertakings and heavy industrial companies in India or in the short-term market.

Its share price performance over the past twelve months suggests its Turnaround classification is justified, having fallen by more than 80% by late November only to spike up again on a positive half-year update. Operational performance has been solid and the group trades on a forecast PE ratio of just over 4 times, with investors set to receive a 4.69% dividend.

In its results for the six months to 30 September, the company commented: "Healthy operational performance, an increase in tariffs and continued reduction in coal prices keep us optimistic about the prospects for the Company in FY19. All these factors are expected to provide the basis for OPG to demonstrate robust profitability in FY19."

Jersey Electricity

Sector: Utilities

Market Cap: £139m, Stock Rank: 92

Risk/Size/Style: Conservative, Small Cap, Super Stock

Jersey Electricity is the sole supplier of over a third of Jersey's energy needs. Despite its relatively small size in the utilities sector, it has a track record of consistent financial performance, with earnings and dividends both growing over several years (albeit at a pedestrian pace).

In terms of business quality, the key for investors here is consistency. Jersey Electricity has delivered double-digit margins over the past three years, cash and debt levels have been stable and profitability has been growing at low single-figure rates, as has the company's dividend. The current yield on the stock is just over three percent.

In its full year results in December, Jersey Electricity chairman Geoffrey Grime, said:

"The Group recorded its best-ever financial performance for the third year in succession. Group revenue for the year 2017/18 was £105.9m, 4% higher than 2017 and profit before tax increased to £15.3m up from the £13.5m achieved last year."

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.