Porter's Journal

The Modified Munger Screen

Posted onAuthorPorter & Co.

Sharing The Filters That Help Us Find The Winners

Welcome to Porter & Co.’s Saturday Stock Screen… a new service in which we’ll pull back the curtains to show you some of the tools we use to find the best investment opportunities in the market.

This includes stock screens, which apply a list of criteria – relating to different financial, accounting, and performance parameters – to comb through the more than 3,000 publicly traded stocks on U.S. markets. Our screening criteria will typically narrow this initial list to a tiny fraction of less than 1% of the available universe, to highlight the most compelling opportunities.

We often use the results from these screens as a starting point for more in-depth analysis for possible inclusion in the The Big Secret on Wall Street portfolio. This week, we’re applying a modification of a screen inspired by Warren Buffett’s late partner Charlie Munger. And we’re also including the names of significant stocks hitting 52-week highs and lows – a helpful list that we also use to guide our analysis.

For Partner Pass members, we’ll sometimes highlight an opportunity from the screen, or elsewhere, that appears particularly compelling (see below) – 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 screen is inspired by the late Charlie Munger, Warren Buffett’s 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 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 25 stocks: 

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 new 52-week highs last week: 

  • Amphenol (APH) 
  • Boston Scientific (BSX) 
  • Cheniere Energy Partners (CQP)
  • Cloudflare (NET) 
  • Corning (GLW) 
  • Deckers Outdoor (DECK)
  • LandBridge (LB) 
  • On Holding (ONON)
  • Reddit (RDDT)
  • Vertiv (VRT)
  • Vistra (VST)
  • Shift4 Payments (FOUR)

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 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: 

  • Boston Beer (SAM) 
  • Brown-Forman (BF) 
  • Hershey (HSY) 

Finally, we also monitor the recent and upcoming IPO listings to identify any promising businesses that have recently (or will soon) become available on the public markets. We will periodically flag recent or upcoming IPOs that raise our interest. 

A recent IPO could become one of the single biggest winners under the new Trump administration. For Partner Pass members, we put together a preliminary investigation into the company’s latest financials and its promising future growth prospects below. (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].)

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