I’ve developed a series of ranking and criteria to automate my screening process when looking for candidates for my watchlist. As per my initial post on this topic, here is an update (which I plan to post at every 6 months) on how that initial list looks like for the second half of this year.
The mechanism to screen for these companies are factor based, which is driven from fundamentals. And it’s interesting that we’re seen a similar scenario like we had in 1999, where many of the quality and fairly valued companies kept going against the market, which means, many of these companies were getting overvalued. However, price follows earnings eventually (for the majority of sectors), and performance for many of these undervalued companies started to improve, while the overvalued companies crashed – not necessarily because they were poor quality companies, but because they were very overvalued.
I will continue to update the performance graph as I issue these updates about every 6 months. The current list is smaller than 6 months ago because many companies did not pass the valuation criteria, since it’s based on price to book, price to earnings and projected growth revision – companies that lowered their guidance or are not estimated to have an attractive growth potential for now didn’t make the list. However, this is a mechanical list with great potential candidates at this moment – it doesn’t mean that we can’t find other high quality undervalued companies.
Screener performance for Canadian companies:
Screener performance for US companies:
Here is the list with the Canadian and US stocks that meet the criteria above for quality and valuation.
Please let me know if you have any questions.
Happy Investing!
So you are saying the stocks in this list are fairly valued or undervalued – correct?
Correct – at that time, the described mechanical approach was used to do an initial screening regarding quality and valuation.
Have you made any purchases in November and December for your investment portfolio? I noticed last year you posted monthly purchases but not this year.
No, funds have been accumulating (from my automatic transfer and dividends), but I’ve been very busy with parallel projects and family events. I plan to post an update soon, showing how I will allocate these funds. That’s the beauty of dividend investing, there’s no rush. I will also add my 2 cents regarding the current market and how that doesn’t change any plans or justify any fears.
Rod
Hi
Just to understand, this is just a list of undervalued companies based on your screening.
What is not clear for me is how do you came up with the charts.
Do you buy all these stocks and every six months will update the portfolio (sell the under performing and buy the potential ones)?
Anyway, you are doing a great work.
Thanks
Hi Cris,
Correct, this example is based on the principles of a mechanical screening for quality and valuation, and keeping the same holdings after 6 months only if they meet the buy rules again. In other words, at every 6 months it would sell everything and buy only what met the buy rules. Some stocks remain for many years, others are replaced. This is just to demonstrate that quality and valuation offers a decent total return overtime – better than the index because the index is simply meant to buy and sell according to market cap, not quality or valuation.
Thanks for the kind words,
Rod