In our LIVE Trading Room Friday, I had the pleasure of engaging with a client who is a Value Investor – a pretty seasoned one. Hans (who prefers to remain anonymous) is a Fund Manager out of Switzerland – a Deep Value/Fundamental type who happens to like my Macro and Tech Analysis. He shared with me his trading style – both technical analysis and value investing philosophy – at a Web sharing meeting a few months back. I was quite impressed with his macro views in general since he is more than patient and connected, but it was his proprietary analysis tool in particular that delivered him a synopsis of company fundamentals that seemed his secret sauce to help him make Big Picture investment decisions.
None of this exercise is meant to replace momentum, news or larger market moves that can influence stock selection. My point was to ask him to evaluate what I consider Value with what he considers Value, and what I learned was illuminating.
I Got Schooled
I gave him my list of “Value Plays” – what I refer to as my Bottom Fishing Plays or stocks I see as relatively weak to their peers and fundamentally likely to play catch up. My list is only 50 names as I find it is hard to find Value in this overvalued market! He doesn’t disagree. Nonetheless, he ran them through his analytics and ripped all but 5 apart. At least he left me 5 – and one of them he really liked for himself – UCTT.
All five had what he deemed Value, Profitability and ‘a Moat’. Here’s what made his cut and why I still like them:
- GPS – oversold retail that hasn’t run like the rest
- HIBB – oversold retail that hasn’t run like the rest
- NVS – suggested/played this back in early 70s now 80s but likely more an investment timeframe than momentum; Hans is long.
- UCTT* – my current personal fave and one he really liked/hadn’t spied prior.
- VEEV – has run so so much since I recommended in the mid-50s now $105 but he still says “Value”.
Of interest but needs another quarter or two for him to feel comfortable upgrading his rating from Neutral to Buy would be: HOG OLED TWTR.
Deep Value Scanning
I asked how he evaluates stocks fundamentally and he gave me his ‘current list’ of value stocks that hit his scanner for last week:
Some of these names are well-known and stock trajectory strong. They are not Buy recommendations from Hans. He still has to do more qualitative and technical work. Without going into the nuances of fundamental value investing – or how his scanner works or even how to interpret his scan – I found his Value insights helpful.
From Hans:
Deep value begins with high profitability, I usually don’t look below a ROIC that is not above seven times average cost of capital to get that ROIC. Then come other factors regarding the structure of the balance sheet. A ROIC above 50 always has my attention, so we need profitability and enormous earnings power, then we want to know what they do with it – that’s all in the numbers, then I look at quality of intangibles and management, industry and competition etc… – perhaps a catalyst and whether it fits my general view and then it might make my list. Last stop will finally be some technical analysis.
Further, I wanted to share my reaction to his list. I was excited to get the list and quickly ran the charts to see technically if I deemed them “Value”. My response for most was, “I can’t buy those! They’re in nosebleed territory”. His reply kinda shocked me.
“There is no such thing as “expensive”. There is either shit hot and recognized, or shit hot and neglected – the latter may be UCTT, the former may be VEEV – the one category missing here is PoS which is the only true expensive one.“
Now I apologize if the swearing offends, but it’s a direct quote and it’s emphatic that Value can keep going up – just like the stock market…
Value means different things to different people
And to hit home the point, here is my technical read on that very popular stock – Boeing – when I spied a high probability trade long back in 2013! Below is BA in Quarterly terms – in consolidation mode then and again now.
Note my Note from Jan 2013 when $75 expecting breakout of 2yr sideways pattern. Now $375 … Too bad I had no idea then how long this “Value Play” would be deemed a “Value”:
Cheat Sheet Courtesy of Hans
Thanks for reading and please consider joining me in the LIVE Trading Room where we work through Value and Momentum trade ideas and set ups every trading day.
At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, we offer real-time Trade Alerts via SMS/email that frame the Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.
More Macro: @SamanthaLaDuc Macro-to-Micro: @LaDucTrading
