mark ballard

Mark's Investment Blog

This blog is intended to keep clients and friends current on my investment management activities. In no way is this intended to be investment advice that anyone reading this blog should act upon in their personal investment accounts. There are other significant factors involved in my investment management activities that may not be written about in this blog that are equally as important as the things that are written about that materially impact investment results. Neither is this blog to be construed in any way to be an offer to buy or sell securities. To be notified via e-mail when new posts are made, CLICK HERE TO SUBSCRIBE

Ranking Stocks for Investment – Sixth in Series

Our Ranking System

Our proprietary investment analysis system is able to rank the 1200 companies I keep in our database according to several factors. These factors lead us to six ranks based upon traditional investment concepts: Earnings Growth, Financial Strength, Value, Momentum, Quality and Fundamentals. Each of the rankings combines several financial ratios that reflect each of the above investment concepts, and they are chosen based upon years of analysis that show that these specific ratios provide me with a clear picture of how the company fairs under each concept. They are ranked from 100 (best) to 1 (worst) on a relative basis to their industry and to the S&P 1500.

Companies Ranked as Candidates For Investment

In the first four entries in this series, we looked at Quality Ranked companies , Earnings Growth Ranked companies, Financial Strength Ranked companies, and Fundamental Ranked companies. Today, we are going to look at companies to see if they are Candidates For Investment based upon aggregating the four ranking systems.

Over the years, I have found that when a company ranks highly on all four of the ranking systems, they are a strong candidate for further due diligence to see if they make the cut to be included in client portfolios.

Below are a selection of companies from our database with a rank above 90 on each of the four ranking systems and a history of above average bear market performance plus those with a rank below 60 on each of the ranking systems and a history of very weak bear market performance.

Company Name Quality Rank Earnings Growth Rank Financial Strength Rank Fundamental Rank 10-yr Avg Return
Avery Dennison Corp
98.4
96.3
93.8
92.3
19.55%
Cabot Oil & Gas Corp
97.8
95.2
99.4
95.1
0.93%
Jazz Pharmaceuticals PLC
98.6
95.1
91.1
95.6
18.91%
Mercury General Corp
92.9
94.6
98.7
98.1
8.37%
NVR Inc
99.9
98.2
97.7
93.6
21.08%
Rio Tinto PLC
96.5
95
94.1
99.9
4.98%
Southern Copper Corp
91.5
98.3
93.6
95.6
9.39%
The Toro Co
92.4
93
92.6
94.7
22.59%
Werner Enterprises Inc
90.2
96.1
94.3
97
7.84%
Winnebago Industries Inc
98.3
99.6
98
94.2
22.40%
Altisource Portfolio Solutions SA
31
4.7
13.1
27.2
-6.74%
FuelCell Energy Inc
24.7
25.6
21.1
27.2
-26.28%
Fluor Corp
49.2
30.4
49.1
59.9
-9.00%
The Howard Hughes Corp
40.8
37.8
20.9
43.8
4.53%
Ocean Power Technologies Inc
59
29.4
11.8
10.8
-42.96%
Spirit AeroSystems Holdings Inc
40.2
13.1
14.8
38.5
9.08%
Triumph Group Inc
34.8
43.1
45.2
44.3
-7.61%
Tata Motors Ltd
22
41.7
34.4
46
0.93%
AgEagle Aerial Systems Inc
9.4
30.1
11.5
15.3
-32.32%
Wynn Resorts Ltd
32.9
16.3
13
33.2
1.64%

A review of the chart above will indicate that the companies highly ranked ranked performed better on average over the past ten years than those ranked low. So, lets look at the scatter graph for a visual analysis:

high and low quality 6

Looking at the graph, it is easy to conclude that the companies ranked highly on all four ranking systems have materially out-performed those with low ranks on all four ranking systems on average over the past ten years.

Why Is This Important Now?

In the first entry in this series, I mentioned that the Federal Reserve had begun to discuss tightening monetary policy, an event that has in the past led to stock market corrections and sometimes full bear markets. Given their recent statements, it is prudent to know how companies will perform when there is not a significant stimulus pushing their stock prices higher.

Investment Strategy

In the normal course of portfolio management during this period in time where we have been warned that monetary tightening is in the plans, we want to book the gains on the companies that show the least ability to withstand a bear market and focus on the companies that have the best ability to withstand a bear market. We do not want to see the gains we have made be lost by not monetizing them when the market tells us it is time.

Summary

In the six posts in this blog series, we looked at four of our Ranking Systems and compared them to the 3-year Average Return for companies ranked both high and low by the systems. We then looked at how the combining the systems compared to both 3-year and 10-year Average returns. The analysis showed that by relying on the results of the analytical ranking systems provides a start for further due diligence on those that appear to be strong candidates for investment to see if they should in fact be included in client portfolios.

-Mark