As has been said previously, the main focus of our trading strategy is to achieve financial gains by buying undervalued stocks and selling them with profit during the current quarterly earnings cycle.
The most relevant steps of our trading strategy are indicated in the description below by numbers (1) to (5).
Our goal is to achieve a minimum profit of 5% in the quarter without considering leverage. Using the recommended leverage (2:1) our profit can reach 10% and using the maximum leverage (5:1) our profit can reach 25%.
Analyzing Stocks
Following our trading strategy, and considering the first phase of discovering stocks with growth potential in the current quarter, we obtained all the companies identified in the table below that have all favorable fundamental indicators and metrics.
STOCKS WITH ALL FAVORABLE FUNDAMENTAL INDICATORS AND METRICS
TICKER | COMPANY | LAST EARN. DATE | LAST EARN. CLOSE PRICE | NEXT EARNINGS DATE |
|---|---|---|---|---|
AIT | Applied Industrial Technologies, Inc. | April 25, 2024 | $178.94 | August 8, 2024 |
CVE | Cenovus Energy Inc. | May 1, 2024 | $20.34 | August 1, 2024 |
ITRI | Itron, Inc. | May 2, 2024 | $99.82 | August 1, 2024 |
LRN | Stride, Inc. | April 23, 2024 | $63.23 | August 13, 2024 |
OLLI | Ollie's Bargain Outlet Holdings, Inc. | June 5, 2024 | $89.83 | August 29, 2024 |
SKX | Skechers U.S.A., Inc. | April 25, 2024 | $65.41 | July 25, 2024 |
STRA | Strategic Education, Inc. | April 25, 2024 | $117.04 | July 31, 2024 |
UTHR | United Therapeutics Corporation | May 1, 2024 | $255.14 | July 31, 2024 |
WWD | Woodward, Inc. | April 29, 2024 | $162.36 | July 29, 2024 |
(1). Check daily all the Company's fundamental indicators and metrics. Confirm that the values of all fundamental indicators and metrics are within the ranges considered positive.
(2). Check daily if there are new 'RECOMMENDATIONS' from 'RESEARCH ANALYSTS' (released after the latest earnings announcement) that are more favorable than the previous ones. Only consider eligible for trading the stocks that have a 'POTENTIAL GROWTH' value equal or greater than 15%. The 'POTENTIAL GROWTH' gives us the appreciation that a stock could eventually achieve in the current quarter. Its value is calculated by the formula: ((‘PRICE TARGET’ - ‘LAST EARN. CLOSE PRICE') / 'LAST EARN. CLOSE PRICE') * 100, where 'LAST EARN. CLOSE PRICE' is the close price on the day of the latest earnings announcement. If the results are released after the market closes, we should consider ‘LAST EARN. CLOSE PRICE' as the closing price on the day following the day of the last earnings announcement.
The table below identifies for each stock the best ‘RECOMMENDATION’ given by a ‘RESEARCH ANALYST’, with the indication of a ‘PRICE TARGET’ value that is above the ‘LAST EARN. CLOSE PRICE' value and the corresponding ‘POTENTIAL GROWTH’ value.
RESEARCH ANALYSTS RECOMMENDATIONS
TICKER | COMPANY | DATE | RESEARCH ANALYST | RECOMMENDATION | PRICE TARGET | POTENTIAL GROWTH |
|---|---|---|---|---|---|---|
AIT | Applied Industrial Technologies, Inc. | - | - | - | - | - |
CVE | Cenovus Energy Inc. | - | - | - | - | - |
ITRI | Itron, Inc. | June 20, 2024 | Canaccord Genuity | Buy | $115 -> $120 | 20% |
LRN | Stride, Inc. | April 24, 2024 | BMO Capital | Outperform | $72 -> $73 | 15% |
OLLI | Ollie's Bargain Outlet Holdings, Inc. | July 12, 2024 | Truist Securities | Buy | $102 -> $109 | 21% |
SKX | Skechers U.S.A., Inc | June 12, 2024 | Wells Fargo | Overweight | $83 | 26% |
STRA | Strategic Education, Inc. | April 26, 2024 | Truist Securities | Buy | $125 -> $145 | 23% |
UTHR | United Therapeutics Corporation | June 12, 2024 | UBS | Buy | $300 -> $370 | 45% |
WWD | Woodward, Inc. | May 28, 2024 | Deutsche Bank | Buy | $210 | 29% |
Buying and Selling Stocks
(3). When purchasing, keep an eye on the the stock price daily to check if its price drops below the 'LAST EARN. CLOSE PRICE'. We consider the 'LAST EARN. CLOSE PRICE' as the fair value for the stock. Buy the stock only when its price is below its fair value. Any stock that was acquired under these conditions has the potential to increase in value in the current quarter by the same value as 'POTENTIAL GROWTH'.
(4). The purchase of a stock, through Stock Trading, should be carried out up to 4 weeks before the next earnings announcement (avoiding the first week), when the stock price falls below its fair value and also if it falls more than 5% or a multiple of 5% below that value. If conditions remain favorable, we should also invest after this period, that is, until the day of the next earnings announcement. We should buy a stock through CFD Trading, during the 4 weeks before the next earnings announcement (avoiding the last week), when the stock price falls below its fair value and also if it falls more than 5% or a multiple of 5% below that value. With CFD Trading we should use a leverage of 2:1 or, if higher, a maximum leverage of 5:1. These phased purchases will significantly reduce the average purchase price.
(5). To improve decision-making about the best time to buy or sell a stock always take into account six technical indicators: RSI; Stochastic Oscillator; MACD; 9 EMA; OBV and Bollinger Bands. We will use a daily chart to analyze the stock's price movement.
Profits and Losses
From the book "THE INTELLIGENT INVESTOR" written by Benjamin Graham: "The only thing you can be confident of while forecasting future stock returns is that you will probably turn out to be wrong. The only indisputable truth that the past teaches us is that the future will always surprise us—always! And the corollary to that law of financial history is that the markets will most brutally surprise the very people who are most certain that their views about the future are right. Staying humble about your forecasting powers, as Graham did, will keep you from risking too much on a view of the future that may well turn out to be wrong. So, by all means, you should lower your expectations—but take care not to depress your spirit. For the intelligent investor, hope always springs eternal, because it should. In the financial markets, the worse the future looks, the better it usually turns out to be. A cynic once told G. K. Chesterton, the British novelist and essayist, “Blessed is he who expecteth nothing, for he shall not be disappointed.”.
The most relevant conditions that we must take into consideration when selling our stocks are indicated in the description below by the letters (A) to (E).
(A). Our goal is to achieve a minimum profit of 5% in the quarter without considering leverage. To achieve our goal, we will try to make a minimum profit of 5% for each stock traded.
(B). As a rule, if a stock has a 5% gain and its price is above its fair value, we should sell it immediately! We should aspire to “adequate” not extraordinary, performance.
(C). In a scenario where a stock depreciates to a price much lower than its fair value and we buy the stock at that price, there is always the expectation that we will be able to obtain a profit much higher than the minimum profit of 5% that is expected for each stock that is negotiated. However, in these cases, if we have already obtained the minimum expected gain of 5%, we must always bear in mind that we must sell the stock as soon as its price adjusts and reaches or exceeds its fair value.
(D). If we have purchased a stock that has not achieved a minimum gain of 5% during the current quarterly earnings cycle, we will have to sell it before the next earnings announcement day, assuming the financial loss that could result from selling it.
(E). One of the moments in which stocks can be subject to large fluctuations in their prices are the days before the earnings announcement (official declaration of a company's profitability), which are often full of speculation among investors and can give us the possibility to obtain considerable profits.
Risk Management
DIVERSIFYING THE PORTFOLIO
To mitigate risks we must diversify our portfolio. We will distribute the invested capital equally among all the stocks that are eligible for trading and in this way we will stipulate a maximum amount to invest in each of the stocks.
Considering that on average there are at least 10 stocks per quarter eligible for trading, we stipulate that the maximum amount to invest in each stock will be the total available capital to invest divided by 10, that is, we have a maximum of 10% of the total available capital to invest in each of the stocks that are eligible for trading.
USING MULTIPLE TRANCHES FOR INVESTMENT
Taking into account the existence of 4 investment sub-phases for each of the stocks eligible for trading (with Stock Trading: <0%, <-5% and with CFD Trading: <0%, <-5%), we have to reserve at least 10×4 = 40 tranches for investment. Assume that each tranche corresponds to a purchase order. Therefore, the maximum capital invested in each tranche will be the total available capital to invest divided by 40. Each of these tranches may be used in other investment sub-phases of the same stock or even in investment sub-phases of other stocks that are eligible for trading. This flexibility allows us, for example, to carry over one of the available tranches that by default is associated with the 2nd trading phase (CFD Trading) so that we can use it during the 1st trading phase (Stock Trading) in case the stock price falls by more than 10% below the closing price on the day of the last earnings announcement. However, we must always ensure that the maximum investment amount stipulated for each stock is never exceeded.
We must always take into account that changing the investment tranches that were predefined for the trading sub-phases of a stock, especially when they are used in investment sub-phases where leverage will be present, can considerably change the exposure of our invested capital in this stock in relation to other stocks or even in relation to the total capital available for trading if we use too much leverage. Therefore, we must always be aware of the leverage we use with the investment tranches and also ensure that the exposure of the capital invested in a stock is the same as that existing in other stocks already traded, as only in this way can we guarantee that our capital will be distributed appropriately equally for all stocks eligible for trading.
Our Trades
The stocks traded to date are identified in the table below. As you can confirm, the 'BUY PRICE (AVG.)' of each stock is always lower than its 'LAST EARN. CLOSE PRICE'.
STOCK AND CFD TRADINGS (ONLY ASSOCIATED PURCHASES AND SALES)
TICKER | COMPANY | BUY DATE(S) | BUY PRICE (AVG) | SELL DATE(S) | SELL PRICE (AVG) | PROFIT INCL. LEVERAGE (AVG) |
|---|---|---|---|---|---|---|
AIT | Applied Industrial Technologies, Inc. | - | - | - | - | - |
CVE | Cenovus Energy Inc. | - | - | - | - | - |
ITRI | Itron, Inc. | June 24, 2024 ; July 2, 2024 | $99.20 | July 16, 2024 | $107.35 | 12% |
LRN | Stride, Inc. | - | - | - | - | - |
OLLI | Ollie's Bargain Outlet Holdings, Inc. | - | - | - | - | - |
SKX | Skechers U.S.A., Inc. | - | - | - | - | - |
STRA | Strategic Education, Inc. | May 22, 2024; June 24, 2024; July 10, 2024 | $110.20 | July 16, 2024 | $118.20 | 12% |
UTHR | United Therapeutics Corporation | - | - | - | - | - |
WWD | Woodward, Inc. | - | - | - | - | - |
HISTORICAL EVENTS
DATE | COMPANY | EVENT DESCRIPTION |
|---|---|---|
May 13, 2024 | Cenovus Energy Inc. (CVE) | It´s priced at less than $20.34. To date, it has no favorable analyst recommendations. |
May 22, 2024 | Strategic Education, Inc. (STRA) | It´s priced at less than $117.04. It was purchased (Stock Trading) on this date for the amount of $115.57. |
June 6, 2024 | Ollie's Bargain Outlet Holdings, Inc. (OLLI) | It´s priced at less than $89.93. To date, it has no favorable analyst recommendations. |
June 17, 2024 | Itron, Inc. (ITRI) | It´s priced at less than $99.82. To date, it has no favorable analyst recommendations. |
June 24, 2024 | Strategic Education, Inc. (STRA) | It was repurchased (Stock Trading) on this date for $108.80. The average purchase value is now $112.19. |
June 24, 2024 | Itron, Inc. (ITRI) | It´s priced at less than $99.82. It was purchased (Stock Trading) on this date for the amount of $99.25. |
July 2, 2024 | Itron, Inc. (ITRI) | It was repurchased (CFD Trading with a leverage 2:1) on this date for $99.15. The average purchase value is now $99.20. |
July 10, 2024 | Strategic Education, Inc. (STRA) | It was repurchased (CFD Trading with a leverage 2:1) on this date for $108.20. The average purchase value is now $110.20. |
July 16, 2024 | Itron, Inc. (ITRI) | It was sold on this date for $107.35. The profit obtained from this sale was 12% (including leverage). |
July 16, 2024 | Strategic Education, Inc. (STRA) | It was sold on this date for $118.20. The profit obtained from this sale was 12% (including leverage). |
July 18, 2024 | Skechers U.S.A., Inc. (SKX) | Its price is less than $65.41. It was not purchased because the next earnings results will be presented in less than a week. |
Source: Benjamin Graham, THE INTELLIGENT INVESTOR, Fourth Revised Edition, accessed 23 June 2024
Comentarios