Porter's Journal

Finding Value On The Munger Screen

Posted onAuthorPorter & Co.

Discovering Discounts In A Red-Hot Market

The major market indexes remain near record highs despite recent declines related to President Donald Trump’s trade-war activity. Meanwhile, the economy has softened, according to the Federal Reserve’s Beige Book, the eight-time-a-year report that compiles data from the 12 Fed districts, signaling slower business activity and weakening labor conditions – reinforcing the likelihood of rate cuts at its next meeting. Tariff tensions and the threat of a government shutdown have added a layer of uncertainty, but investors remain largely focused on the prospect of easier monetary policy.

Safe-haven assets continue to rally as well – the price of gold climbs higher as inflation remains above the Fed’s 2% target. Overall, the combination of slowing growth, Fed easing expectations, and AI-driven enthusiasm has kept investors piling into stocks despite mounting macro risks.

Yet even as broad markets rally, there are opportunities in shares of many high-quality businesses that are trading at attractive discounts.

In today’s Saturday Stock Screen, we’re taking a look at the latest list of potential opportunities popping up on our radar. 

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 back the curtain 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-plus publicly traded stocks on U.S. markets. That’s how we’re 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 or any of our other portfolios.

For Partner Pass members, we’ll often highlight an opportunity from the screen, or elsewhere, that appears particularly compelling – not as an official recommendation, but as a stock that’s on our radar.

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

This week’s screen is inspired by the late Charlie Munger, Warren Buffett’s business partner, who once described a dead-simple strategy for beating the market:

If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is, few human beings have that kind of discipline.” 

Our Modified Munger Screen applies the following criteria, based on this original idea: 

  1. Return on equity (“ROE”) exceeding 20% as a filter for high-quality businesses
  2. Insider purchases within the last three months, to screen for businesses where insiders see enough value in their own shares to make an open-market purchase
  3. Market capitalization over $1 billion to exclude micro-cap, low-liquidity stocks
  4. Stocks trading below the 200-week moving average, as well as those trading up to 5% above the 200-week moving average (this extra 5% lets us capture an additional set of stocks that are within 5% of trading below their 200-week moving average – a trend line that shows that average price of a stock over the last 200 weeks) 

We also display each stock’s price-to-earnings (P/E) ratio, as well as its beta (a measure of volatility versus the overall market). These are not used in the screening criteria, but rather to provide a reference point for noting the valuation and volatility of the stocks on the list.

As of Thursday’s close, this screen produced the following 18 stocks: 

Highs And Lows 

Each week, we also monitor any stocks in the market making 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 52-week highs along the way. Thus the 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 new 52-week highs last week: 

  • Advanced Micro Devices (AMD)
  • BWX Technologies (BWXT)
  • Caterpillar (CAT)
  • Coeur Mining (CDE)
  • Celsius Holdings (CELH)
  • DoorDash (DASH)
  • DLocal Limited (DLO)
  • Duke Energy (DUK)
  • Estée Lauder (EL)
  • Equinox Gold (EQX)
  • Evergy (EVRG)
  • FirstEnergy (FE)
  • Flex (FLEX)
  • Alphabet (GOOGL)
  • Grail (GRAL)
  • Alliant Energy (LNT)
  • McKesson (MCK)

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We also monitor stocks on the 52-week-low list. In many cases, the names on this list are there for good reason – the market is often correctly pricing in their 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 new 52-week lows last week: 

  • Adobe (ADBE)
  • AptarGroup (ATR)
  • Brown & Brown (BRO)
  • Choice Hotels International (CHH)
  • Chime Financial (CHYM)
  • Comcast (CMCSA)
  • Copart (CPRT)
  • Coterra Energy (CTRA)
  • Casella Waste Systems (CWST)
  • Fiserv (FI)
  • GoDaddy (GDDY)
  • Goosehead Insurance (GSHD)
  • Hubspot (HUBS)
  • Kenvue (KVUE)
  • March & McLennan (MMC)
  • Morningstar (MORN)
  • Monday.com (MON)
  • Paylocity (PCTY)

FOR PARTNERS ONLY

The AI-Powered Work-Execution System

Today’s Saturday Selection comes from the most recent 52-week low list – a software platform whose shares have fallen nearly 40% over the past three months. Investors have grown concerned that artificial intelligence (“AI”) could disrupt its core business, while a shift in its go-to-market strategy has fueled fears of sluggish future growth, leading to what we see as a market overreaction. In reality, this company has been a first mover in embedding AI across its platform, enabling customers to automate, optimize, and execute work faster than ever. Rather than being displaced by AI, the company is positioned to be one of its biggest beneficiaries – empowering companies with no coding expertise to build and deploy AI-driven applications.

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