stra +12.96(37.88%)
Breakout watchlist:
stra, 7/3/14, 51.9
lojn, 6/3/14, 5.6
untd, 6/3/14, 15.7
vdsi, 4/3/14, 9.3
qbak, 28/2/14, 1.8
smt, 21/2/14, 3.4
Sunday, February 23, 2014
Tuesday, May 14, 2013
How I find small-cap value earnings breakouts
So at this point I think I'll describe how I find stocks I think are worth buying using a relatively recent example, IMH. I'm using IMH because to me at least it seemed like a particularly obvious buy, practically waving its hands and shouting 'buy me!'. Clearly a picture is worth a thousand words so that's where I'll start.
The facts of the situation are that IMH announced quarterly EPS of $0.51 after the market closed on 14 August 2012. The following day the stock rose 87% on ~185x (!!!) average volume.
So basically my first criteria is a big positive earnings surprise based on the post-earnings-announcement drift (Ball and Brown, 1968) factor. I define a big positive earnings surprise as a stock price increase > 10% on > 10x average volume following earnings, with either an implied earnings yield (i.e. qEPS * 4 / price) or quarterly revenue growth also > 10% (ideally both, but that very rarely happens). I used the word obvious earlier and I can't remember another stock that met these criteria so easily except maybe DDRX, as per the chart above.
Next I want a small-cap (Banz, 1981) value (Basu, 1977) stock, which I define as a market cap. < $5 bn. and a P/S < 1.5. It easily passed these filters too with a cap. of only $33 m. and P/S of 0.05.
Finally I want to see positive price momentum (Jegadeesh, 1990) in terms of a breakout above the earnings day and 52-week highs, confirming that the stock has begun to 'drift'. I've seen some traders who buy on earnings day which probably isn't necessarily bad, but it's quite common for earnings surprises not to follow through and I'd rather avoid those situations. In the case of IMH it wasn't necessary to wait long as it broke out two days later (08/17/12), meeting my final criteria.
At least in the blogosphere I only know of stockbee and Solitary Trader (links in my blog list) who use somewhat similar strategies so it'd be great to hear from others!
Open positions:
04/10/2013,XRM,7.4598,25.33%
04/19/2013,OSTK,18.589,43.23%
04/23/2013,POWR,13.882,2.56%
04/24/2013,ECTY,1.6599,27.26%
04/25/2013,LLEN,2.8799,28.48%
05/06/2013,REGI,12.0099,8.74%
05/09/2013,CSPI,8.299,0.01%
So basically my first criteria is a big positive earnings surprise based on the post-earnings-announcement drift (Ball and Brown, 1968) factor. I define a big positive earnings surprise as a stock price increase > 10% on > 10x average volume following earnings, with either an implied earnings yield (i.e. qEPS * 4 / price) or quarterly revenue growth also > 10% (ideally both, but that very rarely happens). I used the word obvious earlier and I can't remember another stock that met these criteria so easily except maybe DDRX, as per the chart above.
Next I want a small-cap (Banz, 1981) value (Basu, 1977) stock, which I define as a market cap. < $5 bn. and a P/S < 1.5. It easily passed these filters too with a cap. of only $33 m. and P/S of 0.05.
Finally I want to see positive price momentum (Jegadeesh, 1990) in terms of a breakout above the earnings day and 52-week highs, confirming that the stock has begun to 'drift'. I've seen some traders who buy on earnings day which probably isn't necessarily bad, but it's quite common for earnings surprises not to follow through and I'd rather avoid those situations. In the case of IMH it wasn't necessary to wait long as it broke out two days later (08/17/12), meeting my final criteria.
At least in the blogosphere I only know of stockbee and Solitary Trader (links in my blog list) who use somewhat similar strategies so it'd be great to hear from others!
Open positions:
04/10/2013,XRM,7.4598,25.33%
04/19/2013,OSTK,18.589,43.23%
04/23/2013,POWR,13.882,2.56%
04/24/2013,ECTY,1.6599,27.26%
04/25/2013,LLEN,2.8799,28.48%
05/06/2013,REGI,12.0099,8.74%
05/09/2013,CSPI,8.299,0.01%
Sunday, May 12, 2013
Back again with an update!
Well here I am again four years later! It's been a pretty good few years for small-cap value earnings breakouts too, I'll start with an update on my holdings as in my last post.
So basically DDRX and KIRK turned out to be rocketships (i.e. >100% annualised return), which is ultimately what I'm looking for. As below, I bought DDRX @ $3.93 and it was acquired @ $35 (+791%), and I held KIRK from $3.93 to $17 (+333%). AIPC did pretty well too and I held from $20.75 to $53 (+155%). Afaic the others were pretty mediocre and although I got a decent enough return (i.e. 10% < r < 100%) on almost all, they were nothing to get too excited about. On that note, if anyone knows how to distinguish rocketships from more mediocre performers, I'd love to hear! That's something I still haven't figured out ...
Even so, I've been lucky enough to have bought a few more in the meantime (e.g. LGL, PATK, IMH, CPSS) and I'm still following the same process but with a significantly bigger account. I'm hopeful there's a few among my current holdings too.
I'll probably update this for a while with more details on how I implement my strategy in the hope of getting some feedback on how I could improve it, and if there's no interest I'll likely forget about it again at some point for another four years!
Open positions:
04/10/2013,XRM,7.4598,25.94%
04/19/2013,OSTK,18.589,37.18%
04/23/2013,POWR,13.882,1.62%
04/24/2013,ECTY,1.6599,-3.20%
04/25/2013,LLEN,2.8799,45.84%
05/06/2013,REGI,12.0099,3.91%
05/09/2013,CSPI,8.299,1.70%
So basically DDRX and KIRK turned out to be rocketships (i.e. >100% annualised return), which is ultimately what I'm looking for. As below, I bought DDRX @ $3.93 and it was acquired @ $35 (+791%), and I held KIRK from $3.93 to $17 (+333%). AIPC did pretty well too and I held from $20.75 to $53 (+155%). Afaic the others were pretty mediocre and although I got a decent enough return (i.e. 10% < r < 100%) on almost all, they were nothing to get too excited about. On that note, if anyone knows how to distinguish rocketships from more mediocre performers, I'd love to hear! That's something I still haven't figured out ...
Even so, I've been lucky enough to have bought a few more in the meantime (e.g. LGL, PATK, IMH, CPSS) and I'm still following the same process but with a significantly bigger account. I'm hopeful there's a few among my current holdings too.
I'll probably update this for a while with more details on how I implement my strategy in the hope of getting some feedback on how I could improve it, and if there's no interest I'll likely forget about it again at some point for another four years!
Open positions:
04/10/2013,XRM,7.4598,25.94%
04/19/2013,OSTK,18.589,37.18%
04/23/2013,POWR,13.882,1.62%
04/24/2013,ECTY,1.6599,-3.20%
04/25/2013,LLEN,2.8799,45.84%
05/06/2013,REGI,12.0099,3.91%
05/09/2013,CSPI,8.299,1.70%
Friday, April 24, 2009
Busy week!
A busy week of buying! My open positions are:
12/11/2008, AIPC, 20.7494, +38.46%
02/19/2009, ORLY, 31.8294, +18.51%
03/20/2009, KIRK, 3.9299, +75.32%
04/07/2009, HGG, 15.734, +7.54%
04/21/2009, DDRX, 3.9299, +83.21%
04/22/2009, PFCB, 32.4, +3.43%
04/22/2009, AAI, 6.809, +8.53%
04/24/2009, SNS, 11.5399, -4.25%
12/11/2008, AIPC, 20.7494, +38.46%
02/19/2009, ORLY, 31.8294, +18.51%
03/20/2009, KIRK, 3.9299, +75.32%
04/07/2009, HGG, 15.734, +7.54%
04/21/2009, DDRX, 3.9299, +83.21%
04/22/2009, PFCB, 32.4, +3.43%
04/22/2009, AAI, 6.809, +8.53%
04/24/2009, SNS, 11.5399, -4.25%
Sunday, April 19, 2009
Update
My current open positions in terms of purchase date, purchase price and return to date are:
AIPC, 12/11/2008, $20.7494, +53.26%
ORLY, 02/19/2009, $31.8294, +21.62%
KIRK, 03/20/2009, $3.9299, +78.12%
HGG, 04/07/2009, $15.734, +14.08%
AIPC, 12/11/2008, $20.7494, +53.26%
ORLY, 02/19/2009, $31.8294, +21.62%
KIRK, 03/20/2009, $3.9299, +78.12%
HGG, 04/07/2009, $15.734, +14.08%
Thursday, February 19, 2009
Buy
Bought ORLY today @ $31.82. My other open positions are AIPC (+55%) and CUB (-3%). Looks to me like new leadership may be beginning to emerge.
Friday, February 6, 2009
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