A List Of Businesses Designed For 3x Outperformance
We are always on the lookout for great businesses that outperform the competition, that regularly spit out huge levels of cash, and that consistently repurchase large amounts of their own valuable stock.
Stock-screening tools are an important way to help find these businesses – they help investors sift through the thousands of publicly traded stocks in search of value. In today’s Saturday Stock Screen, we uncover a long list of high-margin, capital efficient stocks trading at discounted prices.
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 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. See below.
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:
Return on assets (“ROA”) of at least 15% over the previous five years
Return on equity (“ROE”) of at least 20% over the previous five years
Free cash flow (“FCF”) margins of at least 10% over the previous five years
Sales growth of at least 5% over the previous five years
Price-to-earnings (“P/E”) ratio of 25 or below
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 36 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.
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:
Chewy (CHWY)
CoreCard (CCRD)
GE Vernova (GEV)
Paycom Software (PAYC)
Johnson Controls International (JCI)
Snowflake (SNOW)
CoreWeave (CRWV)
Zscaler (ZS)
MercadoLibre (MELI)
Rubrik (RBRK)
Avis Budget (CAR)
The “Buffett Indicator” Predicts Gold Set To Dominate For Next Decade
Each time the Buffett Indicator has hit extremes, it’s spelled doom for stocks — and soaring gains for gold. Today, the Indicator is flashing a historic all-time high. Meanwhile, Buffett is quietly hoarding $325 billion in cash – and insiders believe he’s about to make a gold move big enough to shock Wall Street. Garrett Goggin has the names of four companies likely to benefit — if you move fast.
Click here to see why gold could dominate for the next 10 years – and how to get ahead of Buffett’s next big move.
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:
Marcus & Millichap (MMI)
Bally’s (BALY)
General Mills (GIS)
Conagra Brands (CAG)
Arbor Realty Trust (ABR)
Evolent Health (EVH)
Walker & Dunlap (WD)
The Campbell’s Company (CPB)
Enphase Energy (ENPH)
Flower Foods (FLO)
IQVIA Holdings (IQV)
Kraft Heinz (KHC)
Jack In The Box (JACK)
LGI Homes (LGIH)
FOR PARTNERS ONLY
A Wealth Creation Machine At A 20% Discount
Two weeks ago, Porter revealed some surprising research showing that despite Warren Buffett’s legendary reputation, Berkshire Hathaway’s private investments – including Berkshire Hathaway Energy, Kraft Heinz, and Precision Castparts – have actually been net money losers over the past 25 years. His takeaway? You don’t need complex conglomerates to build wealth – just own great businesses that consistently repurchase large amounts of their own valuable stock.
When these businesses go on sale, they don’t stay cheap for long – but we identified one opportunity that we’ll highlight below exclusively for Partner Pass members. Today’s featured stock is one that’s one of the 15 featured in Porter & Co.’s “Wealth Creation Machines” and it trades at a 20% discount to its intrinsic value.
As of Thursday’s close, this screen produced the 36 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.
