Porter's Journal

Porter’s 3x Stock Screen

Posted onAuthorPorter & Co.

Hunting For Value On The 52-Week-Low And High Lists

Welcome to Porter & Co.’s Saturday Stock Screen… a service in which we let readers see some of the tools we use to find the best investment opportunities in the market. (See last week’s issue here.)

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 filtering criteria will typically narrow this initial list to a tiny fraction of the universe of U.S. listed stocks.

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 showing the results from what we call “The 3x Screen.” As the name implies, buying the basket of stocks generated from this screen over the last 25 years has tripled the return over the overall stock market (i.e., the S&P 500). And we’re also including the names of significant stocks hitting 52-week highs and lows – a helpful list that we regularly use to guide our analysis.

For Partner Pass members, in the Saturday Stock Screen we’ll sometimes 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 or feedback about our Saturday Stock Screen?… drop us an email at [email protected].

“The 3x Screen” was inspired by Porter himself, who tasked the Big Secret on Wall Street analyst team to create a 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, on average, 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. Price-to-earnings (“P/E”) ratio of 25 or below 
  6. Market capitalization of at least $300 million 

We performed a historical backtest of these criteria on a hypothetical portfolio that bought an equal amount of each stock on this list, and rebalanced the portfolio each quarter (adding new stocks that met the criteria, and selling any existing stocks that no longer met the criteria). 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 over the same period, or a total outperformance of 3.3x.  

As of Thursday’s close, this screen produced the 33 stocks shown in the table below. We have displayed each of the criteria noted above along with each stock, 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 a new 52-week high. 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: 

  • AutoZone (AZO) 
  • Becton Dickinson (BDX)
  • British American Tobacco (BTI) 
  • Darden Restaurants (DRI) 
  • Embraer (ERJ) 
  • Franco-Nevada (FNV) 
  • Hims & Hers Health (HIMS) 
  • Johnson Controls International (JCI) 
  • Kingsoft Cloud (KC) 
  • Moody’s (MCO)
  • Palantir Technologies (PLTR) 
  • Reddit (RDDT) 
  • Shopify (SHOP)
  • Spotify Technology (SPOT) 
  • Tempur Sealy International (TPX) 
  • Triumph (TGI) 
  • Welltower (WELL) 

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 a new 52-week low last week: 

  • Archer-Daniels-Midland (ADM)
  • Beazer Homes USA (BZH) 
  • Boston Beer (SAM) 
  • Brown-Forman (BF) 
  • Celsius (CELH) 
  • Constellation Brands (STZ) 
  • Diageo (DEO) 
  • e.l.f. Beauty (ELF) 
  • Mondelēz International (MDLZ) 
  • National Beverage (FIZZ) 
  • The Hershey Company (HSY) 
  • United Parcel Service (UPS) 

Occasionally, we’ll take a closer look at one of the stocks that showed up on the 52-week-low or 52-week-high lists. When we do, we will provide our analysis of the potential opportunity with Partner Pass members 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].)

Good investing,

Porter Stansberry
Stevenson, MD