Testing
My New Contrarian Strategy
I’ve found that analyst’s “buy” rated stocks don’t
necessarily outperform stocks they’re advising selling.
With that in mind, today I’m going to describe a
contrarian stock picking strategy I’m testing that involves buying
stocks that analysts are telling you to sell.
So far, I’ve only done only limited testing of it, so
track the results, but don’t put real money on the stocks listed. Here
are the details.
Use
Finviz Screener
As usual, I’ll use the free and user friendly Finviz
stock screening program to build the combined portfolio.
Start from the Finviz homepage (finviz.com) by selecting
Screener. Finviz uses “filters” to search for stocks meeting your
selection criteria. Select “All” on the Filters bar to see all available
screening choices. We’ll start by defining our candidate universe.
Define
Candidate Universe
Start by using the Country filter and specifying “USA.”
to limit your list to U.S.-based stocks.
Market capitalization (Market Cap) is the value of a
firm’s outstanding shares. Market caps range from a few million up to
one or two trillion dollars for the likes of Apple or Microsoft. In my
experience, the smallest stocks are riskier bets than their larger
cousins. So use the Market Capitalization filter and specify “+ Small”
to limit your list to stocks with $300 million or larger market-caps.
Along those same lines, use the Price filter and specify
“Over $2” rule out the cheapest players by that measure.
Next, we’ll limit our list to companies with successful
long-term track records.
Steady Growers
Specify “Positive” for both EPS Growth Past Five Years
and Sales Growth Past Five Years to limit your list to firms with strong
historical growth.
Next, we’ll look for stocks that analysts recommend
selling.
Analysts Say Sell
Analysts use a variety of terms to describe their
buy/sell opinions, but Finviz boils them down to “strong buy,” “buy,”
“hold,” “sell” and “strong sell”. Except for “hold,” the meanings are
self-explanatory. However, because company executives often get annoyed
by “sell” ratings, many analysts rate stocks at “hold” when they really
mean “sell.” Thus, consider “hold,” “sell” and “strong sell” as all
meaning sell. Specify “hold or worse” using the Analyst Recommendation
filter.
Most analysts set target prices along with their buy/sell
ratings. Using the Target Price filter, specify “10% Below Price” to
limit your list to stocks that analyst really expect to head down.
Finally, pinpoint the stocks that the smart money owns.
Checking Smart Money
In stock market parlance, institutions are mutual funds,
pension fund, insurance companies and other large players. Institutions
typically do their own research rather than following stock analysts’
advice.
Finviz’s Institutional ownership parameter gauges
the percentage of each firm’s outstanding shares held by institutional
players. Specify “Over 90%” for Institutional Ownership to limit your
list to stocks that these ‘in the know’ players like.
Four Contrarian Plays
I ended up with only four surviving stocks when I ran
this screen on Wednesday.
• Warrior Met Coal (HCC),
• Robert Half International (RHI),
• Range
Resources (RRC), and
• Watts Water Technologies (WTS)
As said earlier, I’ve done only limited testing of this
concept. So track the results, but don’t put real money there yet.
Published
10/11/21 |
