Hard Pressed For a Strategy? Try This.

One of the great features of Exodus (coming soon!), the second iteration of The PPT, is the ability to set parameters for a screen and see what sort of returns would’ve been had over a pre-determined time period. Without question, this market spits in the face of high growth money losers in favor for cash flow generating machines.

The following criteria led to a median return of 20.25% and average return of 25% last year, long 82 stocks.

Market cap over $5 billion

Free cash flow over $100 million

Forward PE under 45

Quarterly earnings growth over 15%

Quarterly revenue growth over 15%

Before I reveal the names, I want you to understand why this investment approach did so well, beating the SPY by 4% and 9.25% respectively. First of all, this basket of stocks is less than 1/5th as large as the SPY, which serves as both an advantage and disadvantage, depending on the market conditions. The fact that investments were limited to companies with market caps over $5 billion excluded most of the pump and dump scams, transient flavor of the month’s and such. The free cash flow prerequisite ensures that you’re invested in a real business, excluding many high flying biotechs in the process. Investing in names with forward PE’s less than 45 leaves out many over-priced stocks and possible blow ups, should earnings begin to turn down.

It’s worth noting that I tried every possible combination and this one resulted in the highest returns.

How do we narrow it down and pick some stocks that are actionable now? If building a portfolio, you’d simply choose the best names amongst the 8 principal sectors. Or, in this case, knowing the short term nature of you poker playing degenerates, we can simply cross-reference this screen against some technical factors, such as names in proximity to the 20 day moving average.

Here are names at the 20sma to +5%, easily screenable inside The PPT.

If you’ve become risk averse and have difficulty knowing from which reservoir of stocks to choose from, this is a good option for you. Of the 82 stocks, just 12 were down over the past 12 months, with the largest drawdown being -39%– long QIHU. The other down stocks were in the oil and gas space, which could’ve easily have been mitigated by exercising stop losses.