Using Mean Reversion And Momentum For Possible Advantage

Photo Credit: Martin Kenny

Photo Credit: Martin Kenny

One of the challenges of fundamental investing is trying to find decent ideas that are off the radar. There are a number of ways to try to do that by looking at:

  • smaller foreign companies
  • companies that have made some significant losses.
  • companies where the relative performance is so awful that no manager benchmarked to an index would dare touch the company.
  • small companies with modest insider buying.
  • companies in boring industries that you know can’t have any significant growth.  (This excludes “buggy whip” industries.)
  • companies where insiders own so much of the company, that it can’t easily be taken over.
  • complex companies that are difficult to understand.

Okay, tall order.  That said, I’ll do a few articles over the next two months that try to unearth companies that might be suitable candidates for analysis.  Tonight’s article follows up on what I wrote in my last article, where I said:

Sometimes I like to run a screen for stocks have done badly over the last four years, but have begun to outperform over the last year.  This can point out areas that are still ignored by most of the market, but where trend may have shifted.  I’ll post that screen after my software has its weekly update on Saturday.

I’m going to show you the list, with some additional data to give some context, but remember this: the only reason these stocks are here is that they underperformed the market massively for the last four years, and have had a turn in performance in the last year.  Anyway, here is the list:

BADTHENGOOD_21692_image002

 

I’ve been analyzing stocks for over 20 years… out of the 49 companies listed here, I recognize 24 of them.  I own none of them at present, though I have owned four of them in the past [AKS, DYN, TNP & YRCW].  That said, four years of lousy relative performance likely means that few are actively looking at these companies.

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Disclosure: David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any ...

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