Half The Price, But With The Same Brand Equity
Editor’s note: We have steadily expanded the number of stock screens that we are using in our Saturday Daily Journal to help filter through the thousands of publicly traded stocks available – the 3x Screen, the Modified Munger Screen, Marty Fridson’s Stock Screen, and the Emerging Lindy Screen. To help readers navigate these screens, we have added a “Screeners” page to the Porter’s Daily Journal section of the Porter & Co. website. Separated out by a tab for each screen along the top of the page, each Saturday issue is archived for easy access.
Each week, here at Porter & Co., we apply our financial brainpower to uncover the most compelling, highest-upside investment ideas. And with this complimentary issue of the Daily Journal, we open up our spreadsheets to show you how we do it.
An important tool in our analytical toolbox is our stock screens, where 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 identify the tiny fraction of U.S.-listed stocks that offer the best opportunities for creating huge returns.
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 Stock 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 52-week lows – a helpful list that we use to guide our analysis.
For Partner Pass members, in the Saturday Stock Screen, we’ll occasionally 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:
- 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
- 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 31 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:
- American Electric Power (AEP)
- AerCap (AER)
- Applied Materials (AMAT)
- AMETEK (AME)
- Arista Networks (ANET)
- American Express (AXP)
- Bank Of America (BAC)
- Boot Barn (BOOT)
- BWX Technologies (BWXT)
- Cardinal Health (CAH)
- Ciena (CIEN)
- Cencora (COR)
- Cummins (CMI)
- Carpenter Technology (CRS)
- Curtiss-Wright (CW)
- Comfort Systems USA (FIX)
- Fox (FOX)
- TechnipFMC (FTI)
- Guardant Health (GH)
- Alphabet (GOOG)
- HCA Healthcare (HCA)
- Hubbell (HUBB)
- Howmet Aerospace (HWM)
- InterDigital (IDCC)
- Incyte (INCY)
- Johnson Controls International (JCI)
- Kodiak Sciences (KOD)
- Lam Research (LAM)
- Nvidia (NVDA)
The Mystery FedEx Package that Shocked Chris Hurt
Presented By Eagle Financial Publications
It wasn’t an email.
It wasn’t a phone call.
George Gilder sent Chris Hurt a FedEx package marked URGENT. Inside – a handwritten note, a map and a golden slip of paper with one date: November 7.
What was so explosive it couldn’t be sent digitally?
George’s answer: a company sitting on technology too vital to be discussed over email.
Chris saw it. Now you can too… before the sixth “Golden Hour” moment arrives.
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:
- Automatic Data Processing (ADP)
- Allison Transmission (ALSN)
- Accelerant (ARX)
- Booz Allen Hamilton (BAH)
- Baxter International (BAX)
- Beacon Financial (BBT)
- Bath & Body Works (BBWI)
- ConAgra Brands (CAG)
- Cava (CAVA)
- Chipotle Mexican Grill (CMG)
- Cracker Barrel Old Country Store (CBRL)
- Church & Dwight (CHD)
- Charter Communications (CHTR)
- Corpay (CPAY)
- Copart (CPRT)
- Deckers Outdoor (DECK)
- DevvStream (DEVS)
- Dream Finders Homes (DFH)
- Factset Research (FDS)
FOR PARTNERS ONLY
A Luxury Brand That’s Battered But Not Out
Today’s Saturday Selection comes from our 3x Screen – a brand with a cult-like following that once executed with precision, but slipped on discipline through overexpansion and from losing focus of its core innovation engine. The result: stalled growth and sluggish revenue momentum.
Yet beneath the recent missteps lies a cash-generating business with low debt and a core franchise that’s beaten down, but not broken. The brand equity remains intact. What’s needed is a focused turnaround to restore its original playbook.
Over the past five years, the company has delivered a return on assets (“ROA”) above 15%, return on equity (“ROE”) above 25%, and a free cash flow margin above 10% – all markers of a capital efficient retail juggernaut, making it an ideal turnaround candidate, especially with shares down over 50% this year.
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