Some people were starting to believe that value investing was dead.
Yes, that sounds extreme. However, for the bulk of the last several years the path to stock market success was paved with buying growth companies no matter how much momentum…no matter how high their nose bleed PE.
I am referring to every hot trend from Crypto to Electric Vehicles to Cannabis to 3D Printers to Metaverse to (fill in the blank).
This growth only investment blueprint appears to negate the virtue of classic value principles pioneered by Benjamin Graham (and his most famous pupil Warren Buffett) as these “in favor” investments have gravity defying multiples.
Those who walked away from value investing point to 3 fatal flaws: Value Traps (where stocks head lower and lower)
Classic Value Metrics Don’t Work Anymore
Lack of Timeliness Deadens ROI
So, what’s the solution?
Please give me just a few minutes of your time so I can spell it out for you. Especially as value investing is making a strong come back in 2022.
This includes sharing details on our coveted Top 10 Value Stocks strategy that has scored an average +37.67% gain since 1999. That is a full 372% better than the S&P 500 over that stretch.
Let me first tell you more about this computer generated model. Then we will discuss how it solves all 3 of the fatal flaws of value investing.
That journey starts with a brief discussion of our quant ranking system; the POWR Ratings.
If you have spent any time on StockNews.com you have certainly seen information on our exclusive POWR Ratings system. Indeed, these ratings really do help investors gain a decided advantage over the market, as can clearly be seen in the performance chart below. Where Does the Outperformance Come From?
The POWR Ratings model is the most complete review of a stock available to individual investors today. All in all, we look at 118 different factors of a stock before assigning an A to F rating.
Which 118 factors?
The simple answer is ONLY the ones that lead to more profitable stock selection. Truly this is like a DNA check of each stock getting down to the molecular level to appreciate the stocks built to outperform.
Once that analysis of the overall POWR Rating is done, we then break down those 118 factors into 6 additional grades to appreciate the virtue of a stock on the following dimensions: Value
Growth
Momentum Stability Quality Sentiment For those quick on the draw, you probably just figured out that if you combine a strong overall POWR Rating with a healthy Value score, that you are well on our way to picking the best value stocks.Gladly that process will get you going in the right direction.Sadly you will still end up with a list of over 700 stocks to research.That is not so bad if picking stocks is your full-time job. However, for most of you that is far too time consuming.This led to an “Aha!” moment.What if we could develop a strategy to unearth the 10 top value stocks at any time producing consistent outperformance?So, we went back to the same Data Scientist who created the POWR Ratings and asked the seemingly impossible—could he turn up the volume on the value metrics and somehow exceed their already market beating returns?After months of research and rigorous testing the Top 10 Value Stocks strategy was born. Not only did we narrow to just 10 value stocks. But we also greatly increased performance to +37.67% per year since 1999.The hallmark of this screen is a zealous focus on the 31 individual value factors that help to consistently discover the market’s best value stocks (and just as importantly, ignoring the 100’s of factors that actually don’t work at all!).Combining those 31 unique value factors together in optimal fashion leads to uncovering this incredibly consistent winning strategy. The Key Word is “Consistency” That’s because the POWR Ratings also focuses on the consistency of growth. Not just earnings growth, but also improvements in revenue, profit margins and cash flow.Then our rating model goes further into the Quality of a stock by drilling down on the main metrics that show the health of operations over time.The steps noted above solve the #1 fatal flaw of value investing. That being how to avoid the value traps that are really just poorly run companies that go from bad to worse. The focus on Growth and Quality aspects are the best possible health checks to alleviate these problems.Meaning that we look beyond the overly simplistic […]
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