Long/Short Equity, Growth At A Reasonable Price
Contributor Since 2009
J. Stephen Castellano founded the equity research and financial modeling consulting firm Ascendere Associates in 2009, building upon a diversified 20-year career in sell side and buy side equity research. His roles included coverage of the steel industry at PaineWebber and telecom services at Warburg Dillon Read (the predecessors to UBS), where he worked closely with institutional sales people, traders and investment bankers. In addition, he provided analytical support for numerous independent valuation, consulting and investment banking studies, including for mergers, secondary offerings and IPOs. At Ascendere Associates, in addition to developing equity research for family offices and other clients, he has consulted for a wide range of startups, established businesses, and global consulting firms. Mr. Castellano holds a B.A. in English from Oberlin College, an MBA from the F.W. Olin School of Business at Babson College, and has passed the first two levels of the CFA exam.
This is an update to our model portfolio report 35 Stocks for December 2017.
The short sale model performed well today, with stocks in the overall short model declining -1.03% for the assumed inverse short sale daily gain of +1.03%. Portola Pharmaceuticals, Inc. (PTLA) is Goldman Sachs top biotech pick with a $75 price target, and seems to be the favorite idea of a number of Seeking Alpha readers as well.
For the MTD December, the Core Long Model is down -2.46% on a simple cumulative return basis (sum of daily returns). This compares to the S&P 500 down -0.68%, the Nasdaq down -1.63%, and the Russell 2000 is down -1.78%. The Core Long/Short Model is down -2.36%.
In November, 12 stocks in the long model have received 36 positive price target revisions, and 6 stocks have received 8 ratings upgrades from sell side firms, led by Facebook, Inc. (FB).
In November, five stocks in the short sale model have received 17 negative price target revisions, and 5 stocks have received 8 ratings downgrades, led by Under Armour, Inc. (UAA).
Our criteria for selecting stocks in these model portfolio strategies, which heavily weight proxies for cash flow growth and ROIC, include the following:
We rebalance our model portfolios every month and have been tracking long-only and long/short theoretical daily returns since March 31, 2009 (up +503.7% and 407.4% through November 30, 2017, respectively).
These models also tend to generate some solid ideas for 12-month holding periods (up an average +25.88% versus an average of +16.24% for the S&P 500 Index since December 31, 2015, and up an average of +13.11% versus an average of +9.06% for the S&P 500 since December 31, 2014).
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: As a simple quantitative model based on fundamental rankings, the portfolio models do not take into account rumors or pending M&A transactions. Theoretical return data reflect simple cumulative returns (not compound returns) and do not assume the impact of costs such as execution fees, margin fees, slippage, the availability of stocks for short selling, or any other kind of cost. 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. We do our best to provide accurate information in this report, but do not guarantee its accuracy.