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.
For the MTD December, the Core Long Model is down -0.37 % on a simple cumulative return basis (sum of daily returns). This compares to the S&P 500 up +0.15%, the Nasdaq down -0.49%, and the Russell 2000 down -1.45%. The Core Long/Short Model is down -6.09%.
|12/7/2017||Lam Research||(LRCX)||Nomura maintains $215 price target and upgrades to Buy from Neutral|
|12/5/2017||Applied Materials||(AMAT)||Wells Fargo initiates with $65 price target and Outperform.|
|12/5/2017||(FB)||Evercore ISI initiates with $225 price target and Outperform.|
|12/5/2017||Peabody Energy||(BTU)||Jefferies raises price target to $43 from $38 and maintains Buy.|
|12/1/2017||Arista Networks||(ANET)||Deutsche Bank raises price target to $250 from $225 and maintains Buy|
|12/7/2017||Flowserve||(FLS)||Goldman downgrades to Sell from Neutral with a $37 price target.|
|12/1/2017||Axalta Coating||(AXTA)||Vertical Research reduces price target to $31 from $37 and downgrades to Hold from Buy.|
Low-quality stocks in the short sale model have received 13 positive price target revisions and 3 ratings upgrades, led by Sage Therapeutics (SAGE) with nine positive price target revisions.
SAGE was stopped out and was assumed closed in the Core Short Sale Model portfolio on December 8 for an assumed -81.08% loss.
The rally in the short sale model was not reserved to SAGE, thought it was by far leading cause for the MTD short sale loss. As indicated prior to the market close on December 8, the accumulated loss in the Opportunistic Short Sale Model caused it to assume a 100% cash position at the December 8 close and lock in a short sale loss of -5.72% for December.
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.