When I invest in a company, I try to look at it from every angle I can. But obviously, some angles are more important than others. In this article, I’ll discuss the factors that are most important to me.
I’m not really a buy-and-hold investor. I like to buy companies with strong earnings reports, and if the next quarter’s report isn’t very strong, I’ll often sell the stock. This practice may not work for everyone, but it’s worked for me: with a portfolio of between twenty and fifty stocks, I’ve made a compounded annual return of 48% since late 2015, when I started using factor-based ranking systems to choose stocks, with lower drawdowns during stock market downturns than those of the major indices.
Like Peter Lynch, I believe in investing in boring, little-known companies rather than cutting-edge, exciting, controversial, highly hyped, or turnaround companies. This strategy has proven to be especially strong lately: after my portfolio went up 105% in 2020, it went up another 73% in 2021 and 27% so far in 2022.
In this article I’m going to spill my secret sauce, as it were, and tell you the factors most important to me in my investing decisions. I’ve intensively tested all these factors using Portfolio123, where I have created ranking systems based on them in order to choose the stocks I buy and sell.
Here are my top ten factors, in order of importance:
I don’t usually sell stocks short, preferring to buy puts on the rare occasions they’re not overpriced. Here’s what I look for in companies whose price I expect to fall, in order of importance:
Based on all these factors, as well as a number of others, if I were to confine myself to U.S.-listed stocks with a minimum daily dollar volume of $50,000 and a minimum price of $3, I would suggest going long the following ten stocks: DLH (DLHC), Valhi (VHI), P.A.M. Transportation Services (PTSI), Summit Financial (SMMF), StealthGas (GASS), BGSF (BGSF), Investar (ISTR), Hudson Global (HSON), Radiant Logistics (RLGT), and Metrocity Bankshares (MCBS). I own shares of all these stocks myself.
Given the same restrictions, I would suggest shorting or buying puts (if the price is right) on the following ten stocks: Arcimoto (FUV), Ebet (EBET), Danimer Scientific (DNMR), GrowGeneration (GRWG), Toughbuilt Industries (TBLT), Renalytix (RNLX), DermTech (DMTK), Purple Innovation (PRPL), Intrusion (INTZ), and Vapotherm (VAPO).
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
My marketplace service, The Stock Evaluator, comprehensively ranks over 7,000 stocks weekly based on a sophisticated multi-factor system with deep roots in accounting and valuation methods. It has a strong out-of-sample record: since the service began over four years ago, high-ranked stocks have consistently outperformed the market while low-ranked stocks have consistently underperformed it.
This article was written by
I am the author of Zora and Langston: A Story of Friendship and Betrayal, as well as other books; I am also product manager at Portfolio123, a small financial technology firm. In my spare time I invest, primarily in microcaps; investigate investment conundrums; and write about my investigations on Seeking Alpha and on my blog, http://backland.typepad.com/investigations. I am now offering a subscription service, The Stock Evaluator, which sends out weekly rankings for over 4,000 stocks; you can reach it here: https://seekingalpha.com/author/yuval-taylor/research.
Disclosure: I/we have a beneficial long position in the shares of DLHC, VHI, PTSI, SMMF, GASS, BGSF, ISTR, HSON, RLGT, MCBS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.