Economy and Markets

The market is plugging along as it digests escalating threats from North Korea and ongoing clean-up and humanitarian costs associated with Hurricane Harvey. Congress is back in session, although there isn't much confidence in its ability to push through tax reform legislation, nor has the market priced in any such expectations.

Revised second quarter GDP shows 3.0% growth compared to the expected 2.7%. Year-to-date, the S&P 500 has risen by 10.62% to 2,465, with the biggest gains coming from the technology (+25.22%), healthcare (+17.64%), utilities (+12.0%) and materials (+11.11%) sectors. Losers continue to be led by energy (-16.08%) and telecommunications (-11.15%). The Nasdaq has climbed by 18.7% year-to-date to its current level of 6,393, and the Dow is up 10.31% over the same period to 21,819.

The increase in non-farm payrolls far outpaced expectations, with an increase of 244,000 in August vs. 180,000 expected. This week, however, jobless claims were reported at 298,000, well above the expected 241,000. Personal income rose by 0.4% in July versus 0.3% expected and consumer spending was up by 0.3%. Inflation, however, was up only 0.1%, which could hold the Fed back from its planned December rate hike. Dovish Fedspeak will continue to bolster large-cap and growth shares in line with the market's skepticism on any bolstering of small-caps through tax reform.

July new home sales fell more than expected to 571,000, as did existing home sales, which dipped by 1.3% to 5.4 million. Home prices were up in August by 0.7%. Construction spending was down 0.6% in July.

Durable goods orders came in with a hefty aircraft-related decline (-6.8%), against solid gains for ex-transportation (0.5%) and core capital goods (0.4%). There was a healthy uptick in shipments of core capital goods of 1.0% in July. ISM's manufacturing composite exceeded expectations, reaching 58.8 in August versus consensus for 56.6.

The market P/E is 23.86, down slightly from 24.71 one year ago.

Recommended Reading

Many subscribers are familiar with Validea's Guru Investor blog (launched in 2008), in which we offer highlights of interesting articles and investment commentary that is helpful to investors and that we believe stands out from the daily market noise. In case you missed our recent posts, here's a short list:

  • Arnott Says U.S. Stocks are "Dead Money": Barron's reports that the Research Affiliates' founder believes that investors should load up on emerging market stocks and sell off overpriced U.S. equities. Read full post
  • BlackRock's Ang on Factor Investing: Forbes article on BlackRock's head of factor investing and his belief that it remains "the language of investment excellence." Read full post
  • The Best Investing Podcasts: As part of our new Practical Quant blog series, Jack Forehand shares a list of his favorite investing podcasts. Read full post
  • The Dangers of Index Investing:The Atlantic reports growing concerns regarding passive investing and its effects on the economy. Read full post
  • Quant Funds Showing Weaker Returns: Bloomberg article discusses weakening returns from quant funds. Read full post
  • Hulbert: High Valuations Could Trigger a Bear Market: MarketWatch article in which Hulbert discusses ramifications of the overvalued market. Read full post
  • Ritholtz on the Challenges of Active Investing: Bloomberg columnist Barry Ritholtz outlines some of the benefits and challenges inherent in active investing. Read full post
  • David Tepper Says the Market is Not Overheated: CNBC reports on Tepper's argument against notion that market is overvalued. Read full post
News on Hot List Stocks

Magna International Inc. (USA) (MGA)

Magna International Inc. (Magna) is a global automotive supplier. Last month, the company announced that it had expanded its strategic investment in Innoviz Technologies Ltd. (which developed the solid-state LiDAR technology for autonomous driving applications). On August 31st, the company unveiled its MAX4 autonomous driving platform, a sensory and compute platform that can enable driving capabilities in both urban and highway environments.

Essent Group Ltd. (ESNT)

Essent Group Ltd. is a private mortgage insurance company offering insurance and reinsurance for mortgages secured by residential properties located in the United States. On August 7th, the company announced a common stock offering of 5 million shares.

Performance Update

Since our last newsletter, the S&P 500 returned 0.8%, while the Hot List returned 2.9%. So far in 2016, the portfolio has returned 12.4% vs. 9.8% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 248.0% vs. the S&P's 145.7% gain.

Go "Back to School" on your Investment Portfolio

It's the time of year when notebooks and pencils (okay, iPads and styluses) are replacing flip-flops and swimsuits. Go into any store and you'll see all the trappings; every food item imaginable in snack-size packaging, backpacks, dorm-room accoutrements, and a sea of organizational shelves, bags, and boxes.

Maybe it's also a good time to evaluate how organized you are with respect to your investment portfolio. Do you have a solid, go-to approach that is aligned with your risk profile and future goals? Are you sticking to that approach no matter what you hear on television or from friends and family? If not, these are questions that deserve your attention.

At Validea, our investment strategies are built on the philosophies of some of the most successful investors of all time, including Benjamin Graham, Warren Buffett, and Peter Lynch, among others. These market gurus are not Wall Street superheroes that were blessed with the ability to enter the market at just the right time and cash out just before things went south. They are savvy and disciplined, and have succeeded over the long term not by playing the game better than the average investor, but by finding a way to assess a stock's long-term value other than by looking at recent shifts in market price.

A stock's price can shift in the short-term because of a variety of factors that have nothing whatsoever to do with the company's quality. But the above-mentioned stock market greats valued stocks by focusing on the underlying fundamentals-true indicators of how well a business is performing. They understood that companies with strong earnings, sales, cash flow, etc. tended to boast more successful businesses, and that their long-term success typically correlated with long-term gains in their share prices.

The late Benjamin Graham, who earned the nickname Father of Value Investing, argued that an "investor" wasn't someone who bought and traded stocks in the hopes that the they were about to go up. He viewed such people as speculators, and the investment style a recipe for disaster. Warren Buffett, known and revered the world over for his investing prowess and home-grown demeaner, shies away from "hot" stocks and market noise. Instead, he spends his time educating himself on what makes businesses tick and where he can find value. Peter Lynch, the renowned Magellan Fund manager (from1977 to 1990) and best-selling author of One Up on Wall Street (1989), offered down-to-earth advice that resonated with the investment community as well as to the "everyday" investor with little to no finance know-how.

The stock screening models I created for Validea are built on a solid foundation of financial data that allows us to simulate the approaches of these market gurus and identify stocks that pass muster under the various methodologies. Our screens focus on factors such as value, growth, profit and price and include the following:

Value:

  • Price-Earnings-One of the metrics most-referenced when discussing a stock's appeal or lack thereof, the P/E ratio is an important measure in many of our guru-based strategies. It compares share price to a stock's earnings-per-share. The late Benjamin Graham, for example, used this ratio to assess how a company's real value compared to the value assigned to it by Wall Street. He considered stocks with high P/E ratios to be more speculative in nature, and targeted those companies with ratios of no higher than 15.
  • Price-Book-- By comparing share price to a company's book value you can get an idea of whether a stock is undervalued. While our various guru models might define book value slightly differently from each other, the basic idea is always to determine the true value of a business. Our David Dreman-based model, for example, defines book value as common stock less all liabilities and preferred shares and looks for those stocks in the bottom 20% of the overall market. Joseph Piotroski, another market guru, created a series of balance sheet tests to identify the strongest of the low PB stocks.
  • Price-Sales-Guru Ken Fisher was a pioneer in using this metric, which divided the total market value of a company (stock price multiplied by the total number of shares outstanding) by the prior 12 months' corporate sales. Fisher believes that, since earnings can be volatile, sales rarely decline for high-quality businesses-and if a company has a low PSR, even a slight improvement in profit margins can produce a big gain in earnings, which will then drive the stock price up, since most investors react to earnings.

Growth:

  • P/E/G-The brainchild of Peter Lynch, this metric and forms a central part of our corresponding stock screening model. Lynch found that looking at the P/E by itself was less useful than looking at it in comparison to a company's growth. The rationale: Higher P/E ratios are acceptable provided that a company is growing at an appropriate pace. He preferred a P/E/G of less than 1.0, with anything less than 0.5 being a best-case scenario.
  • EPS growth-While many computer screening models use an earnings-per-share growth rate for a single period (eg. for the prior year), this can be misleading because there could be one-time events that skew numbers in the shorter term. The strategies we run at Validea, however, look at a company's EPS over several different periods to arrive at a broader interpretation of how the company has been growing earnings. Our Martin Zweig-based model, for example, focuses on quarter-over-quarter as well as long-term EPS growth. Zweig also wanted to ensure that he was investing in a company on the upswing, so he required EPS growth to be accelerating, as does our model.

Profit:

  • Yield-James O'Shaughnessy found that high dividend yields were an excellent predictor of success for large, well-known stocks. Large market leaders with high dividends, he found, tended to outperform during bull markets and didn't fall as far as other stocks during bear markets. Our O'Shaughnessy-based model passes the 50 stocks with the highest dividend yields. David Dreman, a contrarian investor, believed that above-average and growing dividend yield improved performance when targeting contrarian stocks. Our Dreman-based model, therefore, requires a stock to exhibit a yield of at least 1 percentage point higher than that of the Dow.
  • Return-on-equity- While there is no single, sure-fire way to ascertain whether a company has what Warren Buffett calls "durable competitive advantage," companies that have this distinction share a fundamental strength in return-on-equity. For Buffett, an ROE of greater than 15% indicates that management is doing a good job allocating retained earnings and is providing a solid, above-average return for investors. David Dreman viewed ROE as an important measure of a firm's profitability and a way to uncover structural flaws in the business.
  • Return-on-total capital-This is the same calculation as return-on-equity with the exception that debt is included in the denominator (equity + debt = total capital). This is an important metric, since high leverage can put a strain on cash flow and make earnings figures misleading. That is, those companies that are financed with debt well above their equity can show a consistently high ROE but a much less attractive ROTC. Joel Greenblatt used return-on-total capital and earnings yield as the components of what he called his "Magic Formula" for beating the market, and our Greenblatt-based model evaluates stocks according to these criteria and passes those with the highest combined ranking.
  • EPS persistence- The consistency in a stock's earnings-per-share is a focus, particularly in our Buffett-based stock screening model, which checks to see if a business shows negative EPS in any year over the past 10. This model will pass a company, however, if a dip occurs in the most recent year-the idea being that if EPS has been steady over the past decade, a temporary hiccup might present an investment opportunity. Our Zweig-based model requires a company to demonstrate an increase in EPS for each year for the past five-year period.
  • Free cash flow-Our Buffett-, Lynch- and Fool-based models also look for positive free cash flow to ensure that a company is generating more cash than it is using.

Price:

  • Relative strength-This evaluates the price performance of a stock against the market as a whole (scale of 0 to 100). The higher the relative strength, the better the stock price is tracking the market. Our James O'Shaughnessy investment model, for example, looks for a stock's relative strength to be among the top 50 stocks that pass the model's benchmarks. Our Motley-Fool based model requires a company's stock to outperform the market by at least 90% over the past year (relative strength of 90) based on the belief that shares whose price has been rising much quicker than the market tend to keep rising.
  • Industry relative strength-Some of our models look at the number of companies within an industry that have a weighted relative strength above 80, and choose only the top 30% of those industries from which to select stocks. Alternatively, it may look for industries with the most stocks making new 52-week highs.

Portfolio Holdings
Ticker Date Added Return
SAFM 11/18/2016 84.8%
BMA 7/1/2016 43.1%
ESNT 8/25/2017 -5.8%
MGA 6/2/2017 4.6%
AGX 5/5/2017 -9.5%
LMAT 7/28/2017 10.7%
SNC 8/25/2017 -1.2%
LGIH 8/25/2017 0.4%
IPGP 8/25/2017 3.6%
GGAL 8/25/2017 5.3%


Guru Analysis
Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer

SAFM   |   BMA   |   ESNT   |   MGA   |   AGX   |   LMAT   |   SNC   |   LGIH   |   IPGP   |   GGAL   |  

SANDERSON FARMS, INC.

Strategy: Contrarian Investor
Based on: David Dreman

Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business.

MARKET CAP: PASS

Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. SAFM has a market cap of $3,407 million, therefore passing the test.


EARNINGS TREND: PASS

A company should show a rising trend in the reported earnings for the most recent quarters. SAFM's EPS for the past 2 quarters, (from earliest to most recent quarter) 2.98, 5.09 have been increasing, and therefore the company passes this test.


EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS

This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. SAFM passes this test as its EPS growth rate over the past 6 months (399.01%) has beaten that of the S&P (19.60%). SAFM's estimated EPS growth for the current year is (52.93%), which indicates the company is expected to experience positive earnings growth. As a result, SAFM passes this test.


This methodology would utilize four separate criteria to determine if SAFM is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".


P/E RATIO: PASS

The P/E of a company should be in the bottom 20% of the overall market. SAFM's P/E of 12.02, based on trailing 12 month earnings, meets the bottom 20% criterion (below 13.08), and therefore passes this test.


PRICE/CASH FLOW (P/CF) RATIO: FAIL

The P/CF of a company should be in the bottom 20% of the overall market. SAFM's P/CF of 9.01 does not meet the bottom 20% criterion (below 7.19), and therefore fails this test.


PRICE/BOOK (P/B) VALUE: FAIL

The P/B value of a company should be in the bottom 20% of the overall market. SAFM's P/B is currently 2.44, which does not meet the bottom 20% criterion (below 1.06), and it therefore fails this test.


PRICE/DIVIDEND (P/D) RATIO: FAIL

The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). SAFM's P/D of 156.25 does not meet the bottom 20% criterion (below 20.49), and it therefore fails this test.


This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.


CURRENT RATIO: PASS

A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.15] or greater than 2). This is one identifier of financially strong companies, according to this methodology. SAFM's current ratio of 3.91 passes the test.


PAYOUT RATIO: FAIL

A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for SAFM is 15.94%, while its historical payout ratio has been 13.62%. Therefore, it fails the payout criterion.


RETURN ON EQUITY: PASS

The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.04%, and would consider anything over 27% to be staggering. The ROE for SAFM of 21.96% is high enough to pass this criterion.


PRE-TAX PROFIT MARGINS: PASS

This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. SAFM's pre-tax profit margin is 13.42%, thus passing this criterion.


YIELD: FAIL

The company in question should have a yield that is high and that can be maintained or increased. SAFM's current yield is 0.64%, while the market yield is 2.64%. SAFM fails this test.


LOOK AT THE TOTAL DEBT/EQUITY: PASS

The company must have a low debt to equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should be less than 20% or less than the industry average. SAFM's Total Debt/Equity of 0.00% is considered exceptional.


BANCO MACRO SA (ADR)

Strategy: Contrarian Investor
Based on: David Dreman

Banco Macro SA is an Argnetina-based financial institution (the Bank) that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Ltd, Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCI SA. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services.

MARKET CAP: PASS

Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. BMA has a market cap of $7,147 million, therefore passing the test.


EARNINGS TREND: PASS

A company should show a rising trend in the reported earnings for the most recent quarters. BMA's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.16, 1.60 have been increasing, and therefore the company passes this test.


EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS

This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. BMA passes this test as its EPS growth rate over the past 6 months (841.17%) has beaten that of the S&P (19.60%). BMA's estimated EPS growth for the current year is (1,257.14%), which indicates the company is expected to experience positive earnings growth. As a result, BMA passes this test.


This methodology would utilize four separate criteria to determine if BMA is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".


P/E RATIO: FAIL

The P/E of a company should be in the bottom 20% of the overall market. BMA's P/E of 15.90, based on trailing 12 month earnings, is higher than the bottom 20% criterion (below 13.08), and therefore fails this test.


PRICE/CASH FLOW (P/CF) RATIO: FAIL

The P/CF of a company should be in the bottom 20% of the overall market. BMA's P/CF of 16.21 does not meet the bottom 20% criterion (below 7.19), and therefore fails this test.


PRICE/BOOK (P/B) VALUE: FAIL

The P/B value of a company should be in the bottom 20% of the overall market. BMA's P/B is currently 3.35, which does not meet the bottom 20% criterion (below 1.06), and it therefore fails this test.


PRICE/DIVIDEND (P/D) RATIO: FAIL

The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). BMA's P/D of 70.92 does not meet the bottom 20% criterion (below 20.49), and it therefore fails this test.


This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.


PAYOUT RATIO: PASS

A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for BMA is 8.39%, while its historical payout ratio has been 10.61%. Therefore, it passes the payout criterion.


RETURN ON EQUITY: PASS

The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.04%, and would consider anything over 27% to be staggering. The ROE for BMA of 26.03% is high enough to pass this criterion.


PRE-TAX PROFIT MARGINS: PASS

This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. BMA's pre-tax profit margin is 40.42%, thus passing this criterion.


YIELD: FAIL

The company in question should have a yield that is high and that can be maintained or increased. BMA's current yield is 1.41%, while the market yield is 2.64%. BMA fails this test.


ESSENT GROUP LTD

Strategy: P/E/Growth Investor
Based on: Peter Lynch

Essent Group Ltd. is a private mortgage insurance company. The Company is engaged in offering private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. Its products and services include mortgage insurance, contract underwriting, and Bermuda-based insurance and reinsurance. The Company's primary mortgage insurance is offered to customers on individual loans at the time of origination on a flow basis, but can also be written in bulk transactions. Its pool insurance provides additional credit enhancement for certain secondary market and other mortgage transactions. The primary mortgage insurance operations were conducted through Essent Guaranty, Inc. which is a mortgage insurer licensed to write mortgage insurance in all 50 states and the District of Columbia, as of December 31, 2016. It offers primary mortgage insurance, pool insurance and master policy. It provides contract underwriting services through CUW Solutions, LLC.


DETERMINE THE CLASSIFICATION:

ESNT is considered a "Stalwart", according to this methodology, for its earnings growth of 19.81%. This is based on based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which lies within a moderate 10%-19% range. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. However, ESNT is not considered a "True Stalwart" for its sales of $513 million are less than the multi-billion dollar level.


YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: PASS

The Yield-adjusted P/E/G ratio for ESNT (0.65), based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, is O.K.


EARNINGS PER SHARE: PASS

The EPS for a stalwart company must be positive. ESNT's EPS ($2.81) would satisfy this criterion.


TOTAL DEBT/EQUITY RATIO: NEUTRAL

ESNT is a financial company so debt to equity rules are not applied to determine the company's financial soundness.


EQUITY/ASSETS RATIO: PASS

This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. ESNT's Equity/Assets ratio (70.00%) is extremely healthy and above the minimum 5% this methodology looks for, thus passing the criterion.


RETURN ON ASSETS: PASS

This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. ESNT's ROA (13.70%) is above the minimum 1% that this methodology looks for, thus passing the criterion.


FREE CASH FLOW: NEUTRAL

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for ESNT (8.10%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.


NET CASH POSITION: NEUTRAL

Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for ESNT (-4.33%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.


MAGNA INTERNATIONAL INC. (USA)

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Magna International Inc. (Magna) is a global automotive supplier. The Company's segments are North America, Europe, Asia, Rest of World, and Corporate and Other. The Company's product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure, and roof systems and modules, as well as vehicle engineering and contract manufacturing. The Company has over 320 manufacturing operations and approximately 100 product development, engineering and sales centers in over 30 countries. It provides a range of body, chassis and engineering solutions to its original equipment manufacturer (OEM) customers. It has capabilities in powertrain design, development, testing and manufacturing. It offers bumper fascia systems, exterior trim and modular systems. It offers exterior and interior mirror systems. It offers sealing, trim, engineered glass and module systems. It offers softtops, retractable hardtops, modular tops and hardtops.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. MGA's P/S of 0.48 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. MGA's Debt/Equity of 31.96% is acceptable, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. MGA is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in MGA At this Point

Is MGA a "Super Stock"? NO


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.MGA's P/S ratio of 0.48 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.


LONG-TERM EPS GROWTH RATE: FAIL

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. MGA's inflation adjusted EPS growth rate of 8.77% fails the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. MGA's free cash per share of 3.04 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: PASS

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. MGA, whose three year net profit margin averages 5.77%, passes this evaluation.



ARGAN, INC.

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Argan, Inc. is a holding company. The Company conducts operations through its subsidiaries, Gemma Power Systems, LLC and affiliates (GPS), Atlantic Projects Company Limited (APC), Southern Maryland Cable, Inc. (SMC) and The Roberts Company (Roberts). Through GPS and APC, the Company's power industry services segment provides engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets. Through SMC, the telecommunications infrastructure services segment of the Company provides project management, construction, installation and maintenance services to commercial, local government and federal government customers. Through Roberts, the Company's industrial fabrication and field services segment produces, delivers and installs fabricated steel components specializing in pressure vessels and heat exchangers for industrial plants.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. AGX's P/S ratio of 1.25 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. AGX's Debt/Equity of 0.00% is exceptional, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. AGX is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in AGX At this Point

Is AGX a "Super Stock"? NO


PRICE/SALES RATIO: FAIL

The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, AGX, who has a P/S of 1.25, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion.


LONG-TERM EPS GROWTH RATE: PASS

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AGX's inflation adjusted EPS growth rate of 30.16% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. AGX's free cash per share of 15.42 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: PASS

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. AGX, whose three year net profit margin averages 9.05%, passes this evaluation.



LEMAITRE VASCULAR INC

Strategy: Growth Investor
Based on: Martin Zweig

LeMaitre Vascular, Inc. is a provider of medical devices for the treatment of peripheral vascular disease. The Company develops, manufactures and markets medical devices and implants used primarily in the field of vascular surgery. It is engaged in the design, marketing, sales and technical support of medical devices and implants for the treatment of peripheral vascular disease industry segment. The Company's product lines include valvulotomes, balloon catheters, carotid shunts, biologic vascular patches, radiopaque marking tape, anastomotic clips, remote endarterectomy devices, laparoscopic cholecystectomy devices, prosthetic vascular grafts, biologic vascular grafts and powered phlebectomy devices. Its portfolio of peripheral vascular devices consists of brand name products that are used in arteries and veins outside of the heart, including the Expandable LeMaitre Valvulotome, the Pruitt F3 Carotid Shunt, VascuTape Radiopaque Tape and the XenoSure biologic patch.


P/E RATIO: FAIL

The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. LMAT's P/E is 54.05, based on trailing 12 month earnings, while the current market P/E is 20.00. Therefore, it fails the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. LMAT's revenue growth is 10.77%, while it's earnings growth rate is 36.41%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, LMAT fails this criterion.


SALES GROWTH RATE: FAIL

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (15%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (19.2%) of the current year. Sales growth for the prior must be greater than the latter. For LMAT this criterion has not been met and fails this test.


The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


CURRENT QUARTER EARNINGS: PASS

The first of these criteria is that the current EPS be positive. LMAT's EPS ($0.23) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. LMAT's EPS for this quarter last year ($0.14) pass this test.


POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS

The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. LMAT's growth rate of 64.29% passes this test.


EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL

Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for LMAT is 18.20%. This should be less than the growth rates for the 3 previous quarters which are 54.55%, 0.00% and 33.33%. LMAT does not pass this test, which means that it does not have good, reasonably steady earnings.


This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.


EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS

If the growth rate of the prior three quarter's earnings, 27.78%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 64.29%, (versus the same quarter one year ago) then the stock passes.


EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS

The EPS growth rate for the current quarter, 64.29% must be greater than or equal to the historical growth which is 36.41%. LMAT would therefore pass this test.


EARNINGS PERSISTENCE: PASS

Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. LMAT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.16, 0.20, 0.23, 0.42 and 0.55, passes this test.


LONG-TERM EPS GROWTH: PASS

One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. LMAT's long-term growth rate of 36.41%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.


TOTAL DEBT/EQUITY RATIO: PASS

A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. LMAT's Debt/Equity (0.00%) is not considered high relative to its industry (63.25%) and passes this test.


INSIDER TRANSACTIONS: PASS

A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For LMAT, this criterion has not been met (insider sell transactions are 508, while insiders buying number 186). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.


STATE NATIONAL COMPANIES INC

Strategy: P/E/Growth Investor
Based on: Peter Lynch

State National Companies, Inc. is a specialty provider of property and casualty insurance. The Company's segments include Program Services, Lender Services and Corporate. In the Program Services segment, the Company operates an issuing carrier (fronting) business to provide insurance capacity access to the United States property and casualty insurance markets. In the Lender Services segment, the Company specializes in providing collateral protection insurance, which insures automobiles held as collateral for loans made by financial institutions. The Company writes its insurance business through its insurance company subsidiaries, which include State National Insurance Company, Inc. (SNIC), National Specialty Insurance Company (NSIC) and United Specialty Insurance Company (USIC). As of December 31, 2016, SNIC and NSIC were admitted carriers licensed to write property and casualty business in all 50 states and the District of Columbia. USIC is an admitted carrier in Delaware.


DETERMINE THE CLASSIFICATION:

This methodology would consider SNC a "fast-grower".


P/E/GROWTH RATIO: PASS

The investor should examine the P/E (16.08) relative to the growth rate (26.04%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for SNC (0.62) makes it favorable.


SALES AND P/E RATIO: NEUTRAL

For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. SNC, whose sales are $235.6 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.


EPS GROWTH RATE: PASS

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for SNC is 26.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.


TOTAL DEBT/EQUITY RATIO: NEUTRAL

SNC is a financial company so debt to equity rules are not applied to determine the company's financial soundness.


EQUITY/ASSETS RATIO: PASS

This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. SNC's Equity/Assets ratio (10.00%) is healthy and above the minimum 5% this methodology looks for, thus passing the criterion.


RETURN ON ASSETS: PASS

This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. SNC's ROA (1.87%) is above the minimum 1% that this methodology looks for, thus passing the criterion.


FREE CASH FLOW: NEUTRAL

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for SNC (4.89%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.


NET CASH POSITION: NEUTRAL

Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for SNC (5.39%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.


LGI HOMES INC

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

LGI Homes, Inc. is a homebuilder and land developer. The Company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The Company operates through five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. The Texas division includes homebuilding operations in Houston, Dallas/Fort Worth, San Antonio and Austin locations. The Southwest division includes homebuilding operations in Phoenix, Tucson, Albuquerque, Denver and Colorado Springs locations. The Southeast division includes homebuilding operations in Atlanta, Charlotte and Nashville locations. The Florida division includes homebuilding operations in Tampa, Orlando, Fort Myers and Jacksonville locations. The Northwest division includes homebuilding operations in Seattle location.


MARKET CAP: PASS

The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. LGIH, with a market cap of $951 million, passes this criterion.


EARNINGS PER SHARE PERSISTENCE: PASS

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. LGIH, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.50, 1.07, 1.33, 2.44 and 3.41, passes this test.


PRICE/SALES RATIO: PASS

The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. LGIH's Price/Sales ratio of 1.01, based on trailing 12 month sales, passes this criterion.


RELATIVE STRENGTH: PASS

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. LGIH, whose relative strength is 58, is in the top 50 and would pass this last criterion.


IPG PHOTONICS CORPORATION

Strategy: Contrarian Investor
Based on: David Dreman

IPG Photonics Corporation is a developer and manufacturer of a line of fiber lasers, fiber amplifiers, diode lasers, laser systems and optical accessories that are used for various applications. The Company offers a line of lasers and amplifiers, which are used in materials processing, communications and medical applications. The Company sells its products globally to original equipment manufacturers (OEMs), system integrators and end users. The Company's manufacturing facilities are located in the United States, Germany and Russia. The Company offers laser-based systems for certain markets and applications. Its products are designed to be used as general-purpose energy or light sources. Its product line includes High-Power Ytterbium CW (1,000-100,000 Watts), Mid-Power Ytterbium CW (100-999 Watts), Pulsed Ytterbium (0.1 to 200 Watts), Pulsed and CW, Quasi-CW Ytterbium (100-4,500 Watts), Erbium Amplifiers and Transceivers.

MARKET CAP: PASS

Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. IPGP has a market cap of $9,334 million, therefore passing the test.


EARNINGS TREND: PASS

A company should show a rising trend in the reported earnings for the most recent quarters. IPGP's EPS for the past 2 quarters, (from earliest to most recent quarter) 1.38, 1.91 have been increasing, and therefore the company passes this test.


EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS

This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. IPGP passes this test as its EPS growth rate over the past 6 months (37.41%) has beaten that of the S&P (19.60%). IPGP's estimated EPS growth for the current year is (36.49%), which indicates the company is expected to experience positive earnings growth. As a result, IPGP passes this test.


This methodology would utilize four separate criteria to determine if IPGP is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".


P/E RATIO: FAIL

The P/E of a company should be in the bottom 20% of the overall market. IPGP's P/E of 29.04, based on trailing 12 month earnings, is higher than the bottom 20% criterion (below 13.08), and therefore fails this test.


PRICE/CASH FLOW (P/CF) RATIO: FAIL

The P/CF of a company should be in the bottom 20% of the overall market. IPGP's P/CF of 24.50 does not meet the bottom 20% criterion (below 7.19), and therefore fails this test.


PRICE/BOOK (P/B) VALUE: FAIL

The P/B value of a company should be in the bottom 20% of the overall market. IPGP's P/B is currently 5.14, which does not meet the bottom 20% criterion (below 1.06), and it therefore fails this test.


PRICE/DIVIDEND (P/D) RATIO: FAIL

The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). IPGP's P/D is not available, and hence an opinion cannot be rendered at this time.


This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.


CURRENT RATIO: PASS

A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [3.15] or greater than 2). This is one identifier of financially strong companies, according to this methodology. IPGP's current ratio of 9.64 passes the test.


PAYOUT RATIO: PASS

A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for IPGP is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout.


RETURN ON EQUITY: PASS

The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.04%, and would consider anything over 27% to be staggering. The ROE for IPGP of 20.04% is high enough to pass this criterion.


PRE-TAX PROFIT MARGINS: PASS

This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. IPGP's pre-tax profit margin is 36.94%, thus passing this criterion.


YIELD: FAIL

The company in question should have a yield that is high and that can be maintained or increased. IPGP's current yield is not available (or one is not paid) at the present time, while the market yield is 2.64%. Hence, this criterion cannot be evaluated.


LOOK AT THE TOTAL DEBT/EQUITY: PASS

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 49.83%. IPGP's Total Debt/Equity of 1.25% is considered acceptable.


GRUPO FINANCIERO GALICIA S.A. (ADR)

Strategy: Small-Cap Growth Investor
Based on: Motley Fool

Grupo Financiero Galicia S.A. (Grupo Financiero Galicia) is a financial services holding company. The Company's segments include Banking, Regional Credit Cards, CFA, Insurance and Other Grupo Galicia Businesses. Banco de Galicia y Buenos Aires S.A. (Banco Galicia) is a subsidiary of the Company. Its banking business segment represents Banco Galicia consolidated line by line with Banco Galicia Uruguay S.A. (Galicia Uruguay). It operates the regional credit cards segment through Tarjetas Regionales S.A. and its subsidiaries. Its CFA business segment extends unsecured personal loans to low and middle-income segments of the Argentine population. The Company operates the insurance segment through Sudamericana Holding S.A. and its subsidiaries. Its Other Grupo Galicia Businesses segment includes the results of Galicia Warrants S.A., Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion and Net Investment S.A.


PROFIT MARGIN: PASS

This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. GGAL's profit margin of 15.08% passes this test.


RELATIVE STRENGTH: FAIL

The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. Although GGAL's relative strength of 87 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range.


COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: FAIL

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for GGAL (1,071.43% for EPS, and 23.05% for Sales) are not good enough to pass.


INSIDER HOLDINGS: FAIL

GGAL's insiders ownership is not available at the current time. Insiders of a company should own at least 15% of the outstanding shares. A high percentage typically indicates that the insiders are confident that the company will do well.


CASH FLOW FROM OPERATIONS: PASS

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. GGAL's free cash flow of $10.70 per share passes this test.


PROFIT MARGIN CONSISTENCY: FAIL

The profit margin in the past must be consistently increasing. The profit margin of GGAL has been inconsistent in the past three years (Current year: 19.93%, Last year: 21.35%, Two years ago: 20.46%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.


R&D AS A PERCENTAGE OF SALES: NEUTRAL

This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in GGAL's case.


CASH AND CASH EQUIVALENTS: FAIL

GGAL does not have a sufficiently large amount of cash, $210.04 million, on hand relative to its size. Although this criteria does not apply to companies of this size, we defined anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. GGAL will have more of a difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criterion.


"THE FOOL RATIO" (P/E TO GROWTH): PASS

The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (GGAL's is 0.35), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. GGAL passes this test.

The following criteria for GGAL are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: PASS

GGAL has not been significantly increasing the number of shares outstanding within recent years which is a good sign. GGAL currently has 130.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.


SALES: FAIL

Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. GGAL's sales of $1,932.7 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.


DAILY DOLLAR VOLUME: PASS

GGAL passes the Daily Dollar Volume (DDV of $20.1 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf."


PRICE: PASS

This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. GGAL with a price of $47.60 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.


INCOME TAX PERCENTAGE: PASS

GGAL's income tax paid expressed as a percentage of pretax income this year was (34.30%) and last year (37.33%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.



Watch List

The top scoring stocks not currently in the Hot List portfolio.

Ticker Company Name Current
Score
MNST MONSTER BEVERAGE CORP 65%
MAN MANPOWERGROUP INC. 58%
HDSN HUDSON TECHNOLOGIES, INC. 56%
SKX SKECHERS USA INC 53%
FOXF FOX FACTORY HOLDING CORP 50%
AEIS ADVANCED ENERGY INDUSTRIES, INC. 46%
CTB COOPER TIRE & RUBBER CO 45%
SLF SUN LIFE FINANCIAL INC 45%
CPB CAMPBELL SOUP COMPANY 44%
CORT CORCEPT THERAPEUTICS INCORPORATED 43%



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