What's better than one investment guru? Two investment gurus, of
course.
That's what I've found over the years using my Guru Strategies,
each of which is based on the approach of a different investing
great. When one of these models is high on a stock, it bodes well
for those shares. But when two or more of these guru-inspired
strategies like a particular stock, it can really mean good times
are ahead.
For example, on August 16, my models issued a Trade Alert for
GameStop Corp. based on the interest it was getting from my Joel
Greenblatt- and Benjamin Graham-inspired models. Since then, shares
of the video game giant have jumped 16.8% (through September 25),
while the S&P 500 has gained just 1.8%.
These Trade Alerts are issued when a stock demonstrates
fundamental characteristics that earn it a certain level of
interest from one or more of my models (usually multiple models are
involved). Through back-testing, I've found that stocks that have
had these characteristics in the past have tended to perform well
over a subsequent period (usually the next three or six months).
For example, according to my back-testing, stocks that in the past
have met the conditions that triggered the Greenblatt/Graham alert
have gone on to gain an average of 18.8% over the following six
months.
While there are of course no guarantees in the market, I have
had a lot of success with these Trade Alerts. Of the 18 alerts that
are currently ongoing (not including any that have been triggered
in the past month, as they haven't been active long enough to
judge), 15 are beating the S&P 500. Here are a few stocks my
alerts have found in recent months that still get high scores for
my models, as well as a couple of the most recently issued
alerts.
Homeowners Choice, Inc. (
HCII
):
Tampa-based Homeowners ($220 million market cap) is the parent of
Homeowners Choice Property & Casualty Insurance Company, which
provides homeowners insurance in Florida. My system triggered a
Trade Alert for the stock on June 27 based on its scores on my John
Neff-based model and my Motley Fool-inspired approach (which is
based on the writings of Fool co-creators Tom and David Gardner).
Since then the stock is up 34.3% vs. 8.2% for the S&P. The
alert, which historically has generated average returns of nearly
23% over a three-month period, expires on Sept. 26, but my
Fool-based approach is still quite high on the stock. It likes
Homeowners' excellent 147% EPS growth rate and 99% sales growth
rate in the most recent quarter (vs. the year-ago quarter), as well
as its reasonable 0.52 P/E-to-Growth ratio and red-hot relative
strength of 98.
j2 Global Inc. (
JCOM
):
My Graham- and Greenblatt-based models triggered a six-month alert
on this Los Angeles-based cloud computing company ($1.5 billion
market cap) on May 7, and since then it's up 23.7%, vs. 5.3% for
the S&P 500. My Greenblatt-based model still has strong
interest in the stock, thanks to its 12% earnings yield and 78.5%
return on capital. My Graham-model doesn't have quite as much
interest in the stock since its price (and thus P/E and price/book
ratios) have jumped. But my Warren Buffett-based strategy does
currently give j2 very high marks. A few reasons: Its annual EPS
have dipped just twice in the past decade, it has no long-term
debt, and it has averaged a 23% return on equity over the past 10
years.
USANA Health Sciences, Inc. (
USNA
):
Utah-based USANA makes nutritional and personal care products such
as vitamins, nutrition bars, and skin and hair cleansers. It has
customers in the U.S., Canada, Australia, New Zealand, Mexico, the
U.K., and a number of countries in Asia. Its subsidiary, BabyCare,
Ltd., has a direct selling business in China.
On April 26, my Graham- and Greenblatt-based models flashed a
six-month Trade Alert for USANA, and the stock has responded by
gaining 16.4% vs. just 3.0% for the S&P. My Greenblatt-based
approach still has strong interest in USANA, thanks to its 13.5%
earnings yield and 63% return on capital. As was the case with j2,
the Graham approach has lost some interest in the stock since the
alert, mainly because its valuation has jumped, but my
Buffett-based model is now high on it. The Buffett-based approach
likes that the firm has upped EPS in all but one year of the past
decade, has no long-term debt, and has averaged a 37.7% return on
equity over the past ten years.
Nu Skin Enterprises, Inc. (
NUS
):
Utah-based Nu Skin ($2.3 billion market cap) is a direct selling
company that sells personal care, nutrition, and technology
products. My Greenblatt- and Kenneth Fisher-based models just
issued a Trade Alert for the stock on Sept. 21. The
Greenblatt-based approach likes Nu Skin's 48.5% return on capital
and 14.7% earnings yield, while the Fisher model likes its 1.1
price/sales ratio, $2.26 in free cash per share, and 33.8%
long-term inflation-adjusted EPS growth rate (based on an average
of the three-, four-, and five-year EPS growth rates).
Historically, this particular Trade Alert signal has averaged
returns of 6.3% over a three-month period.
Scholastic Corp. (
SCHL
):
New York City-based Scholastic ($1 billion market cap) is the
world's largest publisher and distributor of children's books and
is also involved in educational technology and children's media.
Its Trade Alert was triggered on Sept. 21 by the same models that
triggered the Nu Skin alert. My Greenblatt-based model likes the
stock's 16.4% earnings yield and 40.2% return on capital; my
Fisher-based approach, meanwhile, likes its 0.5 price/sales ratio,
$4.24 in free cash per share, and 56.2% long-term
inflation-adjusted growth rate.
I'm long USNA, JCOM, and NUS.