Value Investing / Main Index / previous / next

March, 2015


So far in 2015 we have witnessed multiple days in which the Dow has moved hundreds of points per trading session, often like a roller-coaster both rising and falling in the same week. Other major averages have shown equivalent volatility. While it does not always follow, often periods of increased trading instability presage by a few months bear markets or corrections. One response to this is to pull assets out and wait till most of the turbulence seems behind us. Yet this approach could mean we leave potential profits on the sidelines as well. A better solution may be to focus now on the shares of businesses that show good long-term growth, particularly if they are demonstrating gains despite the market's gyrations.

Worthwhile companies for such a strategy may be those with excellent earnings growth and returns on investment, low debt, sound financial strength, and share price advancement in the latest quarter.

According to the American Association of Individual Investors (AAII), one of the best investment techniques is to buy equities with such a combination of value and momentum. Its model value, growth, and momentum screen of stocks called "Stock Market Winners" has shown a better than 20% average annual return since inception back in 2000 (stats through 2/27/15).

To hopefully create a similarly winning combination, I winnowed a list of stocks that investment services already consider to have lower than market risk by screening for low debt to equity, high five-year average return on investment, and thirteen-week share price gains. From the remainder, I looked for those that apparently have prospects for ongoing growth.

Those left are in the table.

Potential Growth, Value, and Momentum Triple-Winners

Debt to
Return on
Ross Stores, Inc.ROST$
Taiwan Semiconductor Manufacturing Co., ADRTSM$23.880.221.70%23.40%8.70%
Tractor Supply CompanyTSCO$
Ulta Salon, Cosmetics, & Fragrance, Inc.ULTA$
Whole Foods Market, Inc.WFM$

You can repeat this selection process on your own by using info available online for free, such as from The Motley Fool or Yahoo Finance, and/or by gleaning data from services that may be available at your local library, for example, Value Line. Much more (typically free) information is likely yours for the asking from your brokerage firm. When doing research, you might look, for instance, at companies that have high safety ranks or financial strength ratings, ones with debt to equity of 0.30 or below, and corporations with both five-year returns on equity of 10% or better and thirteen-week share price increases of 5% or more.

Once having chosen several good stock candidates, the next steps depend on what kind of investor you are. Most people do not have the time or inclination for frequent trading. If they attempt it, there may be a variety of adverse temptations and distractions, such as from all the flashy television programs, time and again warning of this or that catastrophe right around the corner for otherwise fine stocks or promoting the company-of-the-moment, i.e. till the next commercial break.

Thus for most folks the idea may be to discover a handful of excellent companies, buy shares in them, and essentially forget about them. It is hard to imagine that one will go far wrong in this approach simply buying when the market is way down and holding "forever" a basket of such beauties as Berkshire Hathaway (BRK/B), Coca-Cola (KO), The Walt Disney Co. (DIS), Boeing (BA), or Google (GOOG).

With stocks chosen as I did for the above table, however, a less long-term technique could be useful. Pick your preferred review point, perhaps after holding the stock selection for a year, several months, or, as with AAII's "Stock Market Winners," after just a few weeks. One can also take a fresh look following big market rises or declines. Whatever is your chosen interval, it is best to stick with it, rebalancing one's portfolio then if existing stocks no longer meet the original criteria, selling those and replacing them with ones that do.

"Live long and prosper." (Actor Leonard Nimoy, who played Doctor Spock in successive "Star Trek" television episodes and movies, died late this past month.)


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

Value Investing / Main Index / previous / next