Valero Energy Corporation (NYSE:VLO): Cheap, and buying back stock

Tobias CarlisleStocksLeave a Comment

Valero Energy Corporation (NYSE:VLO) is the cheapest stock in the Acquirer’s Multiple Large Cap 1000 screener. Like AGX, it’s another stock that I’ve been pitching for six months (here I am pitching it to Jeff Macke as a takeover target last year). While it’s up more than +22 percent since, it remains an incredibly cheap large cap stock, trading on an acquirer’s multiple of 5.7. It’s also disciplined with its capital allocation and returning cash to shareholders through dividends and a buyback.  likes it too. Here’s his rational:

Summary

  • Valero delivered strong results for the first quarter of 2015 which were a record first quarter for the company.
  • According to my calculation, I see better margin in the current quarter for the refining and the ethanol production compared to the first quarter. Therefore, I anticipate a higher profit for Valero in the second quarter. The company will continue to benefit from lower crude feedstock costs, and from cheap natural gas as an energy source.
  • Valero has compelling valuation metrics and strong earnings growth prospects; its Enterprise Value/EBITDA ratio is extremely low at 4.19, and its PEG ratio is also exceptionally low at 0.56. In addition, Valero is generating substantial cash flows and returns value to its shareholders by stock buyback and increasing dividend payments.
  • VLO’s stock has retreated 10.8% from its 52 week high; that offers an excellent opportunity to buy the stock at a cheap price.

Valuation

Valero’s valuation metrics are excellent. The trailing P/E is very low at 7.88, the forward P/E is also very low at 9.42, and its price-to-sales ratio is extremely low at 0.25. Moreover, Valero’s PEG ratio is exceptionally low at 0.56, and the Enterprise Value/EBITDA ratio is also extremely low at 4.19, the sixth lowest among all S&P 500 stocks. According to James P. O’Shaughnessy, the Enterprise Value/EBITDA ratio is the best-performing single value factor. In his impressive book “What Works on Wall Street,” Mr. O’Shaughnessy demonstrates that 46 years back testing, from 1963 to 2009, have shown that companies with the lowest EV/EBITDA ratio have given the best return.

In addition, Valero is committed to disciplined capital allocation and to returning cash to stockholders. The company said that its goal in 2015 is to exceed 2014’s total payout ratio. In 2014, Valero returned $1.9 billion to stockholders, or 50% of net income from continuing operations, with $554 million in dividends and $1.3 billion in stock buybacks. In January 2015, Valero announced a 45% increase in its quarterly common stock dividend from $0.275 per share to $0.40 per share. The forward annual dividend yield is at 2.78% and the payout ratio only 16.6%. The annual rate of dividend growth over the past three years was very high at 51.8%, over the past five years was at 11.8%, and over the past 10 years was very high at 21.9%.

 

Raad why Ari likes it: Why Valero Energy Stock Is A Great Buy Right Now – Valero Energy Corporation (NYSE:VLO) | Seeking Alpha

Norsat International Inc (USA)(NYSEMKT:NSAT) catches an activist

Tobias CarlisleStocksLeave a Comment

Norsat International Inc (USA) (NYSEMKT:NSAT) is a Canada-based satellite communications company and, with an acquirer’s multiple of 7.36, a member of the Small and Micro Cap Screener.

Norsat’s business units include microwave products; satellite terminals, including portable satellite systems; Sinclair Division, through which Norsat provides industry leading antenna and RF conditioning products, engineered systems and project specific design; Maritime Satellite Systems, and Remote Networks, providing end-to-end satellite-enabled network solutions for broadband access and voice, data and video communication services. Norsat also provides engineering consulting.

Its key customers include NATO, the United States Department of Defense, Marine Corps, Army, Navy and Air Force; FOX News, CBS News; Boeing, Reuters, Motorola, TESSCO, and General Dynamics. The company is headquartered in Vancouver, Canada and maintains a presence in the United States, the United Kingdom and Switzerland.

NSAT is cheap. In addition to itsacquirer’s multiple of 7.36, it trades for less than 10 times earnings, and generates OCF and FCF/EV yields of 18 and 16 percent respectively. It’s also buying back stock, so it ticks many of the boxes for me.

The Alternative Activist has a post about the reasons Privet Fund, an activist, has recently taken a position in NSAT (NII as it trades in Canada):

As micro-caps can be considerably riskier, it appears the activist finds a margin of safety in clean balance sheets with net cash positions, free-cash-flow positive (or near break-even) and beaten down valuations, which brings us to Norsat…

  1. I dig Norsat’s clean balance sheet, minimal debt and low capex investments
  2. Its gross margins are decent for a comms equipment provider, though it admirably manages its opex for strong net income margins.  Also like the positive free-cash-flow margins as well as the respectable return on invested capital.
  3. Valuation metrics are beaten down.  Look at that P/E ratio of 5.7x!
  4. Though this is only Privet’s 5th largest investment made, given the smaller market cap of NII, Privet owns 15.0% of the shares outstanding.
  5. Technology-focused activist targets, and more specifically the comms equipment subset of tech, are acquired at a higher rate than the rest of the field (38% vs. the 27% for the whole activist database).

Read more at: Privet Fund – Norsat (TSX:NII) – Activist Investing | The Alternative Activist

Into INTT: inTEST Corporation (NYSEMKT:INTT)

Tobias CarlisleStocksLeave a Comment

One of my favorite stocks in the Small and Micro Cap Screener is InTEST Corporation (NYSEMKT:INTT). It’s a ~$50 million market cap with a $27 million enterprise value generating 19 percent yield in operating earnings and cash flow.

Nick Bodnar, a new contributor to the site, likes the stock too. Here’s why:

InTEST Corporation (INTT) is a designer, manufacturer and marketer of thermal, mechanical and electrical products that are used by semiconductor manufacturers in conjunction with ATE, in the testing of ICs. INTT is the 6th cheapest stock on theSmall and Micro Cap Screener with an acquirer’s multiple of 5.25. The current price of the company is around ~$4.71 with a market cap of <$50 million.

INTT’s balance sheet is top notch. It has zero long-term debt, with a cash position that is 45% of the market cap. FCF is positive and it has increased YOY at a 28% rate. GAAP earnings have increased at a 10% rate YOY, but on a CAGR basis they have increased at a 16% rate in the past three years.

Free Cash Flow Statement 2014 2013 2012
Revenues 41,796 39,426 43,376
Cash Operating Costs 36,411 35,207 38,845
Operating Cash Flow 5,385 4,219 4,531
Change in Working Capital 256 449 (2,114)
CAPEX 831 424 431
Free Cash Flow 4,298 3,346 6,214
Weighted Avg. Shares Diluted 10,466 10,419 10,347
Free Cash Flow Per Share (FCFPS) 0.41 0.32 0.60

What I like about INTT is the high amount of cash on the balance sheet. There are three key things that management can do with the cash on the balance sheet. Issue a dividend (the last dividend issued was a special dividend in 2012), buy back shares, or complete a strategic acquisition. Management (who owns 29.9% of shares outstanding), has been looking for an acquisition target for the past year. They do have one in mind but they need to wait for the end of the second quarter to make the final decision. Their plan is to branch off out of the ATE market to stabilize earnings due to the volatility of the ATE market.

INTT is also an undervalued unnoticed company. What I mean by unnoticed is that the average volume in the past three months has only been ~21,563. With an EV/EBITDA of 4.07 and zero debt on the balance sheet they are the perfect acquisition target due to the undervaluation. Even if INTT does not get bought out they are a very well-run company with gross margins of >48% and FCF margins of 10%.

I expect FCF, EPS and revenues to continue growing in the future. My rational for this is the historical growth of these former three items plus a great management team who has intent to acquire the perfect target for their business model. A cash position of $22.49 million will soon get deployed, either in the form of a dividend, share buyback or acquisition. In my opinion I feel like investors should expect an acquisition in the near future over the former two options.

In summary: INTT is a zero long-term debt company with a huge cash position that makes up 45% of the current market cap of $50 million. FCF has grown at a 28% YOY and EPS has grown at a 10% rate. The company is the 6th cheapest stock on the Acquirer’s Multiple’s Small and Micro Cap Screener with an acquirer’s multiple of 5.25. In theory this company should outperform the market in the short term. Investors are advised to do their due diligence before making any investing decision.

Argan, Inc. (NYSE:AGX) can’t get no respect

Tobias CarlisleStocks2 Comments

I’ve been pitching Argan, Inc. (NYSE:AGX) every chance I’ve had over the last 6 months. I pitched it on Bloomberg radio in October last year, and then again in December when Carol Massar reminded me it was down 15 percent. It’s back to where it was in October. It’s one of those Rodney Dangerfield stocks that just can’t get no respect. It’s an energy related stock. You can’t count its cash because it’s all pre-payment. It’s got one big customer. And so on and so on. All true. It’s also very, very cheap. It’s the second cheapest stock in the All Investable Screener (and it’s been first or second for 6 months or more).

Hedgie  likes it, and I like guys who like it too. Here’s why

Summary

  • Argan is significantly undervalued relative to its peers and the market.
  • Argan’s cash hoard results in an enterprise value <33% of its backlog.
  • Argan’s cash position allowed special dividends in each of the last four years and provides a buffer against any downturn in business.

Overview

Argan, Inc. (NYSE:AGX) is primarily an engineering and construction firm that specializes in energy-related projects and has shown up in value investor Joel Greenblatt’s “Magic Formula” stock screener for several years now. AGX is one of those great stocks that stays cheap, or even gets cheaper, despite significant price appreciation. Closing at $32.57 on 5/8/2015, AGX sported a market cap of approximately $480mm and a P/E under 16. While that P/E seems reasonable, it’s not incredibly cheap. In the case of AGX, and most profitable companies, I think enterprise value/trailing 12-month EBIT is a more insightful measure. EV/EBIT provides a truer sense of a firm’s real value, relative to its recent operating results. This is especially true for AGX, which is sitting on a mountain of cash and cash equivalents: $334mm or 70% of its market cap. With a corresponding EV/EBIT ratio of just 1.6, AGX begins to look incredibly cheap. And by my own calculations, AGX’s current EV/EBIT ratio is almost 30% cheaper than it was at the start of 2014 (when I started tracking the stock) and 13% cheaper than the average ratio over that time period. So, even though the stock is up nearly 21% since the beginning of 2014, buying today is relatively less expensive than it was 16 months ago. That’s the kind of stock I love to own.

Me too.

So, how does AGX compare to its competitors? The highlighted column in the screenshot below shows AGX’s EV/EBIT is significantly cheaper than other construction and engineering firms:

As you can see, AGX is the cheapest by far.

Why is AGX so cheap?

I think AGX’s current cheapness is due to a combination of being obscure (it has a small market cap and is only covered by 2 analysts) and being dragged down with many other energy-related firms, since it peaked around $41 in September, as oil prices cratered.

So what are the risks associated with AGX?

AGX’s results are driven by a relatively small number of projects, one of which (Panda Liberty) is expected to be completed in spring 2016. Additionally, as can be seen in the screen above, AGX’s competitors are often far larger and AGX may remain obscure amid these larger firms. And, if volatility once again grips the oil market, AGX’s correlation with oil may strengthen, to the detriment of the equity, regardless of financial results. Additionally, there is a line item on AGX’s balance sheet called “Billings in excess of costs and estimated earnings.” While I’m not an accountant, my understanding is, this number reflects cash AGX has already received, which may be deployed to pay for completion of its projects. While it is a large number, at $162mm on January 31st, even adjusting AGX’s EV to treat this line item like debt, still results in an EV/EBIT of just 3.4.

Still, stupid cheap.

Valuation:

Given AGX’s TTM EBIT, I think fair market value for the equity today is ~$55. At that price, AGX would begin to approach, but still offer a discount, to the EV/EBIT of Fluor (NYSE:FLR), a large competitor which I also think is cheap and own. [Ed: I agree. It’s one of the cheapest stocks in the Large Cap 1000 Screener] Under a best case scenario, AGX’s results would broaden its visibility among investors, and it would start to approach a valuation closer to that of the overall market (the S&P 500 trades closer to 12x TTM EBIT). Under that scenario, the equity could double if EBIT does not deteriorate. While that scenario is unlikely, even approaching the valuations of its competitors gives AGX tremendous upside. The cash position creates a buffer to the downside and has allowed AGX to pay investors, via special dividends, to patiently wait for a more appropriate valuation.

Read the rest of the post here: Argan: A Moat Full Of Cash – Argan, Inc. (NYSE:AGX) | Seeking Alpha

Nevsun Resources Ltd. (NYSEMKT:NSU) is a dirt-cheap dirt miner

Tobias CarlisleStocks4 Comments

Nevsun Resources Limited (NSU), an African gold, copper, zinc, and silver miner, trades on a sub-2 acquirer’s multiple and is the cheapest stock the All Investable Screen.  It’s got an $820 million market cap with a $530 million enterprise value and trailing twelve-month operating earnings of $269 million (AM = 1.98), which is cheap, cheap. There are a lot of reasons to like it.  likes it too. Here’s his reasoning in summary:

A clean balance sheet:

[T]he company has a top notch balance sheet. With current assets of $677 million and current liabilities of $73 million, the firm has a working capital of $604 million. Likewise, it has a huge current ratio of 9. It is also extremely interesting to calculate the net current asset value of the firm. This metric is calculated by subtracting total liabilities from current assets.

Trades at ~3x NCAV:

With total liabilities of $360 million, Nevsun has a net current asset value of $317 million. Based on a market capitalization of $900 million, it is possible to conclude that the firm is truly undervalued. I want to mention that the current assets are mainly composed of cash and cash equivalents. In fact, the corporation has $514 million in cash.

Cheap on a enterprise multiple basis:

On the other hand, the most interesting part of the company is its enterprise value to EBITDA ratio. With an enterprise value of $716 million and a trailing twelve months’ EBITDA of $355 million, Nevsun resources has a EV/EBITDA ratio of only 2.01. This is the lowest in the entire industry. Every serious investor should be interested in this great opportunity.

Acquirers are interested:

Few months ago, the firm revealed that it recently received inquiries from various parties about a potential takeover transaction. At the same time, Bloomberg reported that a Qatar equity fund called QKR Corp. was eying a US$1 billion bid. With more than $500 million in cash, the potential takeover would largely pay for itself. Due to the downtrend in the commodity prices, the industry is clearly in a consolidation process. On the other hand, absolutely no official offer came along.

And it’s about to start mining some minerals in near-term deficit.

Finally, the company has a huge upside potential with the zinc expansion project. In 2016, the flotation capacity will be expanded to produce zinc concentrates. A supply deficit in the zinc market is expected as soon as 2016. It is mainly due to the closure of large zinc mines. This factor will reduce the supply by approximately 10%.

Read more at: Why I Bought Nevsun Resources – Nevsun Resources Ltd. (NYSEMKT:NSU) | Seeking Alpha

Finding The Cheapest Stocks On The Planet Podcast: 3 Small and Micro Cap Stock Picks

Tobias CarlisleMedia, Stocks, StudyLeave a Comment

Yesterday I recorded a podcast with Fred Rockwell of The Bulldog Investor.

We discuss:

  • How to find the cheapest stocks on the planet
  • The Acquirer’s Multiple Small and Micro Cap Screener
  • Emerson Radio (MSN) and 2 other stupid cheap Small and Micro Cap Stocks

Click here to listen to Finding The Cheapest Stocks On The Planet with The Bulldog Investor

How To Maximize Shareholder Value In Natural Alternatives International, Inc. (NASDAQ:NAII)

Tobias CarlisleStocksLeave a Comment

Micro cap special situations investor  has an interesting take on Natural Alternatives International, Inc. (NASDAQ:NAII), #5 in the Small and Micro Cap Screener. It closed at $5.65 today, but it’s worth $10+.

Highlights

  • Financial strength ($17 million in cash or ~ 56% of market cap and no debt)
  • Low valuation (P/TBV of 0.81x, EV $13.4 million, EV/EBITDA of 2.09x)
  • High cash flow (EBITDA of $6.4 million, FCF yield of 22%) expected to increase due to lower capex spending on manufacturing equipment ($2.3 million FY12 and $1.7 million FY11) and lower patent litigation expense (~$1.8 million in FY12 vs ~ $1 – $1.5 million in FY13)
  • Undervalued assets (owns corporate headquarters in San Marcos, CA valued at depreciated cost on balance sheet)
  • Shareholder friendly management completed more than 75% of $2 million buyback plan from 2011
  • Strong history of margin improvement (gross margin 21.22% in FY12 vs. 12.72% in FY09, operating margin 8.51% in FY12 vs. 0.54% in FY09, EBIT 6.2% in FY12 vs. 0.96% in FY09)

Interesting catalysts:

The sale of the company via MBO, LBO or to a strategic buyer is the best way to maximize shareholder value due to the premium received, significantly higher IRR compared to alternative shareholder friendly measures (e.g. starting a dividend, increasing buyback or leveraged recap) and elimination of high and increasing compliance and regulatory costs (mentioned below). The sale should ideally take place after the sale of the branded products and patent estate.

Source: How To Maximize Shareholder Value In Natural Alternatives International – Natural Alternatives International, Inc. (NASDAQ:NAII) | Seeking Alpha

Emerson Radio A Good Buy – Emerson Radio Corp (NYSEMKT:MSN)

Tobias CarlisleStocksLeave a Comment

A nice note from contrarian investor  on Emerson Radio (MSN), the cheapest stock in the Small and Micro Cap Screener.

The stock’s at $1.35 with cash backing of $1.45. It’s a rare stock that trades at a discount to NCAV, and cash, which, even with a terrible business, makes it a free hit.

Summary

  • Zero debt company trading below NCAV.2014’s free cash flow per share is $0.22 yet earnings per share are $0.05.
  • This suggest an undervaluation at current prices.
  • Earnings, revenue and FCF have dropped significantly due to loss of business from a huge customer.
  • I expect the company to stay profitable in the future due to the simplicity of running the business.

NCAV Valuation

Assets: 63,625,000

Liabilities: 3,766,000

Preferred Stock: 3,310,000

Common Shares Outstanding As of June 25th, 2014: 27,129,832

NCAV: (63,625,000-3,766,000-3,310,000)/27,129,832=$2.08

The current price of MSN is $1.37 and the cash per share of MSN is $1.45. Buying MSN for the price it is at now is a steal based on NCAV investing.

Read why he likes the stock here: Emerson Radio Could Be A Good Buy If Downward Pressure Continues – Emerson Radio Corp (NYSEMKT:MSN)

 

The Acquirer’s Multiple 2015 Q1 Performance and Portfolio Holdings

Tobias CarlisleStudyLeave a Comment

Chart 1. Large Cap Returns 2015 Q1

TAM Large Cap Returns 2015Q1

The Acquirer’s Multiple screeners had a mixed start to the first quarter of 2015. The Large Cap and All Investable screeners massively outperformed– the Large Cap screener was up 9.1 percent vs 1.6 percent for the Russell 1000 TR benchmark, and the All Investable up 6.9 percent vs 1.9 percent for the Russell 3000 TR benchmark–while the Small and Micro Cap Screener underperformed, down -4 percent versus up 4 percent for the Russell 2000 TR benchmark.

Chart 2. All Investable Returns 2015 Q1

TAM All Investable Returns 2015Q1

Chart 3. Small and Micro Cap Returns 2015 Q1

TAM Small and Micro Cap Returns 2015Q1

The big gainers for the Large Cap portfolio were Exelis Inc. (XLS) +40.9 percent, LyondellBasell Industries NV (LYB) +31.1 percent, and Anthem Inc. (ANTM) +29.4 percent. The big losers for the Large Cap portfolio were Alliance Resource Partners LP (ARLP) -22.4 percent, National Oilwell Varco Inc (NOV) -21.5 percent, and Copa Holdings SA (CPA) -10.2 percent.

Table 1. Large Cap Individual Portfolio Holding Returns 2015 Q1

Ticker Name Starting Price Ending Price Return
VLO Valero Energy Corp $49.07 $59.91 22.1%
ANTM Anthem Inc $125.53 $162.43 29.4%
TEO Telecom Argentina Stet-France SA, Buenos Aires $18.73 $20.88 11.5%
CNCO Cencosud SA $7.30 $8.04 10.2%
YPF Ypf Sociedad Anonima Yacimientos Petroliferos Fiscales $26.22 $29.60 12.9%
WNR Western Refining Inc $37.47 $45.82 22.3%
TOT Total $50.26 $52.66 4.8%
FLR Fluor Corp $60.27 $58.78 -2.5%
MAN ManpowerGroup $67.76 $86.46 27.6%
ARLP Alliance Resource Partners LP $41.59 $32.26 -22.4%
BWC Babcock & Wilcox Co (The) $29.87 $33.40 11.8%
NOV National Oilwell Varco Inc $64.74 $50.81 -21.5%
LYB LyondellBasell Industries NV $79.32 $104.00 31.1%
WLK Westlake Chemical Corp $61.43 $69.87 13.7%
XLS Exelis Inc $17.45 $24.58 40.9%
HUM Humana Inc. $143.72 $176.28 22.7%
HFC HollyFrontier Corp $37.65 $43.09 14.5%
MEOH Methanex Corp $45.56 $58.40 28.2%
CPA Copa Holdings SA $102.71 $92.22 -10.2%
AET Aetna Inc. $88.55 $113.02 27.6%
T AT&T Inc $32.88 $34.64 5.3%
MPC Marathon Petroleum Corp $89.83 $103.46 15.2%
LEA Lear Corp $97.62 $115.08 17.9%
EMN Eastman Chemical Co $75.72 $77.89 2.9%
KOS Kosmos Energy Ltd $8.42 $9.23 9.6%
CI Cigna Corp $103.28 $132.72 28.5%
TSO Tesoro Corp $74.45 $91.76 23.3%
ALK Alaska Air Group Inc. $59.97 $67.06 11.8%
GT Goodyear Tire & Rubber Co $28.15 $31.23 11.0%
OSK Oshkosh Corp $47.98 $54.25 13.1%

The big gainers for the All Investable portfolio were Alon USA Partners LP (ALDW) +73.0 percent, Petrobras Argentina SA (PZE) +50.2 percent, and Delek US Holdings Inc. (DK) +37.5 percent. The big losers for the All Investable portfolio were MagnaChip Semiconductor Corp (MX) -51.3 percent, Hugoton Royalty Trust (HGT) -39.2 percent, and Alliance Resource Partners LP (ARLP) -22.4 percent.

Subscribe to see the portfolio holdings of the All Investable and Small and Micro Cap Screener.

Click here to see the individual backtests for each of the Large Cap 1000, the All Investable, and Small and Micro Cap screeners.

Click here to see the underlying backtest data for each screen.

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Disclaimer: Hypothetical performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the hypothetical portfolios. Hypothetical performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Hypothetical performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.

All Investable Stock Screen Backtest

Tobias CarlisleStudy11 Comments

Updated November 29, 2017

Since the last update in July 26, 2016, the screen had a strong finish to end the 2016 year up 29.1 percent, handily beating out the Russell 3000’s 12.2 percent by 16.9 percent.

2017 to date has been less pleasant. For the year, the All investable Screen has gone backwards, down -6.6 percent, and underperforming the Russell 3000’s strong 16.3 percent by a shocking -22.4 percent. This is the worst relative performance the screen has seen in almost 20 years.

Chart 1. Returns from January 2, 1999 to Date (Log.)

We backtested the returns to a theoretical portfolio of stocks selected by The Acquirer’s Multiple® from the All Investable stock screen. The backtest assumed the screen bought and held for a year 30 stocks selected from the All Investable universe (the largest half of stocks by market capitalization). The portfolios were rebalanced on the first day of the year using the most recent fundamental data. The backtest ran from January 2, 1999 to date.

Over the full period, the screen generated a total return of 6,765 percent, or a compound growth rate (CAGR) of 25.0 percent per year. This compared favorably with the Russell 3000 TR, which returned a cumulative total of 321 percent, or 6.4 percent compound.

Chart 2. Yearly Returns from January 2, 1999 to Date

On an yearly basis, the model portfolios selected by The Acquirer’s Multiple® have generally outperformed, although underperformed in 1999 (-1.6 percent), 2012 (-5.5 percent), 2014 (-11.1 percent), 2015 (-19.2 percent), and 2017 to date (-22.4 percent).

Chart 3. Rolling Yearly Returns from January 2, 1999 to Date

The average twelve-month return for any stock selected by The Acquirer’s Multiple® All Investable screen was 22.6 percent, beating out the Russell 3000 TR’s average stock at 7.4 percent by 15.2 percent. Through The Acquirer’s Multiple® portfolios underperformed from mid-2011 through to mid-2012, then mid-2013 through to early 2016, and again since early 2017, they still slightly outperformed over the full period.

Chart 4. Drawdowns from January 2, 1999 to Date

The worst drawdown for The Acquirer’s Multiple® All Investable screen was -45 percent, which occurred between July 2007 and March 2009. Over the same period, the Russell 3000 TR drew down -56 percent.

The 30-stock portfolios selected by The Acquirer’s Multiple® from the All Investable universe consistently outperformed the broader Russell 3000 TR. The trade off is periodic underperformance–approximately one in four years–and deeper and more frequent drawdowns.

Disclaimer: Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the backtested portfolios. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.

Large Cap 1000 Stock Screen Backtest

Tobias CarlisleStudy16 Comments

Updated November 29, 2017

Since the last update in July 26, 2016, the screen had a strong finish to end the 2016 year up 27.4 percent, handily beating out the Russell 1000’s 15.1 percent by 12.3 percent.

2017 to date has seen continued large cap strength. For the year, the Large Cap Screen’s 18.8 percent has outperformed the Russell 1000’s 16.9 percent by 1.9 percent.

Chart 1. Returns from January 2, 1999 to Date (Log.)

We backtested the returns to a theoretical portfolio of stocks selected by The Acquirer’s Multiple® from the Large Cap 1000 screen. The backtest assumed the screen bought and held for a year 30 stocks selected from the large cap universe (the largest 1,000 stocks by market capitalization). The screens were rebalanced on the first day of the year using the most recent fundamental data. The backtest ran from January 2, 1999 to date.

Over the full period, the screen generated a total return of 2,797 percent, or a compound growth rate (CAGR) of 19.3 percent per year. This compared favorably with the Russell 1000 Total Return, which returned a cumulative total of 320 percent, or 6.3 percent compound, over the full period.

Chart 2. Yearly Returns from January 2, 1999 to Date

On an yearly basis, the portfolios selected by The Acquirer’s Multiple® have generally outperformed, although underperformed in 1999 (-6 percent), 2008 (-10 percent), 2014 (-3.6 percent), and 2015 (-12.8 percent).

Chart 3. Rolling Yearly Returns from January 2, 1999 to Date

The average rolling twelve-month return for any stock selected by The Acquirer’s Multiple® during any week in any year was 20.1 percent, beating out the Russell 1000 TR’s average stock at 7.4 percent by 12.7 percent.

Chart 4. Drawdowns from January 2, 1999 to Date

The worst drawdown for The Acquirer’s Multiple® screen was -66 percent, which occurred between July 2007 and March 2009. Over the same period the Russell 1000 TR drew down -55 percent.

The 30-stock screen selected by The Acquirer’s Multiple® from the Large Cap 1000 universe consistently outperformed the broader Russell 1000 TR. The trade off is periodic underperformance–approximately one in four years–and deeper and more frequent drawdowns.

Disclaimer: Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the backtested portfolios. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.

Small and Micro Cap Stock Screen Backtest

Tobias CarlisleStudy10 Comments

Updated November 29, 2017

Since the last update in July 26, 2016, the screen had a strong finish to end the 2016 year up 35.5 percent, handily beating out the Russell 3000’s 12.2 percent by 20.4 percent.

2017 to date has been weaker. For the year, the Small and Micro Screen gained 12.0 percent, underperforming the Russell 3000’s strong 16.9 percent by a -4.9 percent.

Chart 1. Returns from January 2, 1999 to Date (Log.)

We backtested the returns to a theoretical portfolio of stocks selected by The Acquirer’s Multiple® from the Small and Micro Cap screen. The backtest assumed the portfolio bought and held for a year 30 stocks selected from the small and micro cap universe (the smallest half of stocks by market capitalization). The model portfolios were rebalanced on the first day of the year using the most recent fundamental data. The screen excluded stocks traded over-the-counter (OTC). The backtest ran from January 2, 1999 to date.

Over the full period, the screens generated a total return of 3,948 percent, or a compound growth rate (CAGR) of 21.5 percent per year. This compared favorably with the Russell 3000 TR, which returned a cumulative total of 321 percent, or 6.4 percent compound.

Chart 2. Yearly Returns from January 2, 1999 to Date

On an yearly basis, the model portfolios selected by The Acquirer’s Multiple® generally outperformed, although underperformed in 2008 (-6.5 percent), 2012 (-0.3 percent), 2014 (-1.0 percent), 2015 (-12.3 percent) and 2017 to date (-4.9 percent).

Chart 3. Rolling Yearly Returns from January 2, 1999 to Date

The average twelve-month return for any stock selected by The Acquirer’s Multiple® Small and Micro Cap screen was 25.8 percent, beating out the Russell 3000’s average stock at 7.6 percent by 19.2 percent.

Chart 4. Drawdowns from January 2, 1999 to Date

The worst drawdown for The Acquirer’s Multiple® screens was -64 percent, which occurred between July 2007 and March 2009. Over the same period, the Russell 3000 TR drew down -56 percent.

The 30-stock model portfolios selected by The Acquirer’s Multiple® from the Small and Micro Cap universe consistently outperformed the broader, and larger capitalization Russell 3000 TR. The trade off is periodic underperformance–approximately one in five years–and deeper drawdowns.

Disclaimer: Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the backtested portfolios. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.