Selection of Value Stocks September 2021
Our approach
One of the most effective ways to identify such stocks is the Piotroski f-score. This metric along with some additional value criteria shown below allows us to limit the universe of around 80K stocks to just ~60. Equities presented in this list are potential candidates for newly created equity portfolios or re-balancing of existing ones. Such a portfolio has the potential to withstand inflationary pressures and benefit from the rotation towards value sectors.
- In our analysis this month we focus on cyclical sectors excluding sectors from our selection where value investing theory is not easily applied (e.g. financials, insurance).
- Sectors where we see no room for over-performance are excluded from our list. This month we continue to exclude Healthcare from our research, however, we have added back Airlines & Tourism in an attempt to identify travel companies with solid fundamentals when their balance sheets show signs of recovery after the pandemic shock.
- Our focus remains on pure ‘value’ companies within the energy, tech, commodities, agricultural, materials, consumer goods and telecommunications / utilities industries.
Technology
Investors tend to analyze technology stocks differently focusing on their growth potential (e.g. growth in subscriptions) rather than value metrics. This combined with software growth potentials largely explains the rally of technology companies even with large losses. In this environment we focus on technology stocks with solid fundamentals in an effort to seek value equities within a sector that is largely overvalued and in some cases extremely expensive.
Criteria/ Filters applied:
Equities Universe (USA, Europe), Piotroski score > 6.30, Market capitalization > 3 $ Billion , P/E 5y avg < 30, Net Debt/ EBITDA < 4.60, Free Cash Flow Yield on Price (Market Cap.) > 4.50 %, No earnings manipulation / cooking the books warnings, Price change (1Y) = Positive, Price change (6M) = Positive.
Excluding: Healthcare, Financials, Insurance, Tobacco
Ranking Methodology
We have also included a ranking methodology in our analysis, which aims to automatically highlight the 15 highest ranked stocks from the list.
The methodology is based on our filtering criteria. Specifically, it applies 1/3 weighting on the Piotroski f-score and 1/3 on the P/E ratios (both of which are strong value indicators). This month we have changed our trend indicator, applying 1/3 weighting on the Sharpe Ratio (6 months) which is used as a trend indicator aiming to identify these stocks that show positive momentum with limited volatility. This methodology is ideal for discretionary mandates with monthly re-balancing.
We are happy to inform you that from now on, our value-based methodology is available for our clients in Interactive tools.This gives ours clients the ability to further filter and analyse the set of stocks that our methodology has produced. Results will be posted monthly and all previous months will also be available for historical use.