Porter's Journal

Porter’s 3x Stock Screen

Posted onAuthorPorter & Co.

Cashing Out Of The MAG-7

Welcome to Porter & Co.’s Saturday Stock Screen… a service that lets readers see 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 revisiting the same screen from last Saturday, which we call “The 3x Screen.” As the name implies, over the last 25 years, the basket of stocks generated from this screen has tripled the return over the overall stock market ( the S&P 500). Two new names came onto the list since we ran this screen last week, increasing the number from 33 to 35 stocks. And, as we will regularly do in Saturday Stock Screen, we’re including 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’ll sometimes highlight an opportunity that we found 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. In this issue, we’ll analyze the latest buys and sells from one of the world’s top fund managers, which provides another avenue for us to uncover potential investment ideas. You may be surprised to learn why this legendary investor is not only betting the ranch on one foreign stock, but why he’s also selling the shares in its U.S.-based equivalent. 

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 held 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 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, a total outperformance of 3.3x.  

As of Thursday’s close, this screen produced the 35 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 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: 

  • Agnico Eagle Mines (AEM) 
  • Alamos Gold (AGI) 
  • BlackBerry (BB) 
  • British American Tobacco (BTI) 
  • Carvana (CVNA) 
  • CloudFlare (NET)
  • Dillard’s (DDS) 
  • DoorDash (DASH) 
  • Dutch Bros (BROS)
  • Franco-Nevada (FNV)
  • Grindr (GRND)
  • Hims & Hers Health (HIMS)
  • HubSpot (HUBS) 
  • Kinross Gold (KGC) 
  • Reddit (RDDT) 
  • Sable Offshore (SOC)
  • SharkNinja (SN) 
  • Shopify (SHOP) 
  • Similar Web (SMWB) 
  • Spotify (SPOT)
  • Turning Point Brands (TPB) 
  • Yum Brands (YUM) 

(One of the stocks on the list above is also in the portfolio of The Big Secret On Wall Street… to learn more – and find out which stock that is, and why we think it has a lot further to go – see Porter’s presentation here.)

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: 

  • Abercrombie & Fitch (ANF) 
  • American Eagle Outfitters (AEO) 
  • Ball (BALL) 
  • Biogen (BIIB) 
  • Conagra Brands (CAG)
  • Constellation Brands (STZ) 
  • Crocs (CROX) 
  • Danaher (DHR) 
  • D.R. Horton (DHI)
  • Merck (MRK)  
  • PBF Energy (PBF) 
  • Venture Global (VG) 
  • Virtus Investment Partners (VRTS) 

Peeking At Top Money Managers’ SEC Filings

Another rich source of ideas comes from paying close attention to the moves of the world’s top money managers. Each quarter, these investors must report their fund’s latest portfolio holdings in what’s known as a 13F filing with the Securities and Exchange Commission. 

One move in the latest 13F filings for Q4 2024 that caught our attention came from a Wall Street legend putting over 30% of his portfolio into a hated, beaten-down foreign market, while also selling down his stake in America’s Magnificent 7 (“MAG-7”) technology stocks – Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Alphabet (GOOG), Tesla (TSLA), Nvidia (NVDA), and Meta (META). Below, we analyze this fund manager’s top holding, making up over 15% of his portfolio, and explain why it could significantly outperform its MAG-7 U.S. equivalent. Despite a 40% gain year to date, this stock still trades at a dirt-cheap valuation, and we make the case for more upside ahead.  

(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].)

A “Buy Everything” Moment In This Beaten-Down Foreign Market