Putting The Odds In Your Favor

Our Stock Screen Finds A Cash Flow King

Each week, here at Porter & Co., we apply our brainpower to uncover the most compelling, highest-upside investment ideas. And with this complimentary issue of the Daily Journal, we draw the curtain back to show you how we do it.

An important tool in our analytical toolbox is our stock screens, in which we apply a list of criteria – relating to different financial, accounting, and performance parameters – to sift through the 3,000+ publicly traded stocks on U.S. markets. That’s how we are able to identify the tiny fraction of the universe of U.S.-listed stocks that offer the best opportunities for making money.

We often use the results from these screens as a starting point for more in-depth analysis for possible inclusion in The Big Secret On Wall Street portfolio.

This week, we’re revisiting a stock filtering tool we call The 3x Screen. Over the last 25 years, buying an equally-weighted basket of stocks generated from this screen has tripled the return over the overall stock market (the S&P 500). Below we also show the names of significant stocks hitting 52-week highs and lows – a helpful list that we use to guide our analysis. 

For Partner Pass members, in the Saturday Stock Screen, we’ll sometimes highlight an opportunity that we found from the screen that appears particularly compelling – not as an official recommendation, but as a stock that’s on our radar. 

Questions or feedback about our Saturday Stock Screen?… drop us an email at [email protected].

Porter’s 3x Stock Screen 

The 3x Screen was inspired by Porter himself, who challenged the Big Secret On Wall Street analyst team to create a filtering tool to find companies with high capital efficiency, steady revenue growth, and that trade at reasonable valuations… and to backtest the results to ensure the screening criteria selected stocks that generated market-beating gains over time. 

One of the best screens we found in this search applies the following criteria:

1. Return on assets (“ROA”) of at least 15% over the previous five years 
2. Return on equity (“ROE”) of at least 20% over the previous five years
3. Free cash flow (“FCF”) margins of at least 10% over the previous five years
4. Sales growth of at least 5% over the previous five years
5. P/E ratio of 25 or below 
6. Market capitalization of at least $300 million 

We performed a backtest of these criteria on a hypothetical portfolio that held an equal dollar amount of each stock on this list, and rebalanced the portfolio each quarter – to add new stocks that met the criteria, and sell stocks that no longer did. The chart below shows that the stocks selected by this screen delivered a total return of 1,783% over the last 25 years versus a 537% return in the S&P 500, for outperformance of 3.3x. 

As of Thursday’s close, this screen produced the 37 stocks shown in the table below. We have displayed each of the criteria noted above along with each company and ticker symbol, as well as each stock’s beta (a measure of volatility versus the overall market). Note that beta is not used in the screening criteria, but rather to provide a reference point for noting the volatility of the stocks on the list.

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Highs And Lows 

Each week, we also monitor any stocks in the market making new 52-week highs. We do this because any stock on its way to generating 2x, 3x, or 10x returns will spend a lot of time making new 52-week highs along the way. Thus, the new 52-week-high list provides an opportunity to flag these potential high performers before they really break out, with a particular emphasis on lower-profile, less widely-followed stocks that might have otherwise gone unnoticed.

Notable stocks making a new 52-week high this week: 

• Amphenol (APH)
• ANSYS (ANSS)
• Broadcom (AVGO)
• Boeing (BA)
• Coinbase Global (COIN)
• Coupang (CPNG)
• CoStar Group (CSGP)
• Fastenal (FAST)
• GE Vernova (GEV)
• Houlihan Lokey (HLI)
• Robinhood Markets (HOOD)
• Hilton Worldwide (HLT)
• Interactive Brokers (IBKR)
• Johnson Controls International (JCI)
• Joby Aviation (JOBY)
• Microsoft (MSFT)
• LAM Research (LRCX)
• Newmont (NEM)
• Nvidia (NVDA)
• Palantir (PLTR)
• Planet Fitness (PLNT)
• QuantumScape (QS)
• Quanta Services (PWR)
• Royal Caribbean Cruises (RCL)
• Rocket Lab (RKLB)
• Unity Software (U)

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President Trump’s “Pure Genius” Crypto Plan

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We also monitor stocks on the new 52-week-low list. In many cases, the names on this list are there for good reason – the market is often correctly pricing in weak fundamentals. However, once in a while, a great business with excellent long-term prospects finds itself on this list due to a temporary setback. This can create the rare opportunity to buy top-shelf merchandise at bargain-basement prices. 

Notable stocks making a new 52-week low last week: 

• Centene (CNC)
• CNA Financial (CNA)
• Copart (CPRT)
• Exponent (EXPO)
• General Mills (GIS)
• Lineage (LINE)
• Molina Healthcare (MOH)
• PG&E (PCG)
• Procter & Gamble (PG)
• Progress Software (PRGS)
• Six Flags (FUN)
• Waters (WAT)
• Western Union (WU)

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FOR PARTNERS ONLY

High Growth, High Margins, And A Digital Moat…

In A Rapidly Expanding Online Consumer Space

For Partner Pass members, we’re highlighting a company that consistently appears on our 3X Screen – and for good reason. This is a capital efficient business, with exceptional 90% gross margins and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins in the mid-30% range. It serves as a “picks and shovels” provider to a rapidly expanding industry.

Since its 2021 IPO, the company has compounded both revenue and earnings at an impressive rate of more than 30% annually while generating 25% returns on invested capital. Yet despite these fundamentals, the stock has flown under Wall Street’s radar – with a market cap below $500 million and currently trading at just 11x earnings.

(To become a Partner Pass member, contact Lance James, our Director of Customer Care, at 888-610-8895, internationally at +1 443-815-4447 , or via email at [email protected].)