StockRanks - Upgrades And Downgrades - June 10th

10th Jun '14 by Alex Naamani

7 comments 24948 reads

A wealth of academic and guru literature advocates that stocks which rank well in terms of quality, value and momentum (QVM) tend to beat the market. Indeed, Stockopedia’s mantra is that good, cheap, improving stocks generally outperform expensive, deteriorating, junk. This stuff isn’t rocket science. Accordingly, our StockRanks grade companies on a scale of 0 to 100, with good, cheap, improving stocks scoring the highest.

In light of this, we are initiating a regular column to track stocks which have jumped, or dropped, in the StockRanks. This column should constitute a starting point for further DIY research and will help investors keep on top of changes to the StockRanks.

Telford Homes goes through the roof

On 28 May, Telford Homes (TEF) announced preliminary results for the year ending 31 March 2014. Since then, the company has climbed in the StockRanks by 19 points - from 80 (29 May) to 99 (5 June).

This is driven partly by growth in the operating margins, which have doubled from 7.4% (2013) to 15% (2014). Telford is indeed an improving, cyclical stock riding the wave of growth in the housing market. It is more profitable than last year, and the firm is improving its ability to pay both long and short term debt. The firm has therefore earned a Piotroski F-Score of 7 and a quality rank of 94.

In terms of momentum, Telford has a rank of 88, having beaten the market by 26.7% over the last year. The company also has a forward P/E ratio (10.8) in the lowest 23% of the market, coupled with a low PEG (0.6) - giving an overall Vaue Rank of 87.

DCC jumps 31 points

DCC is another company with a soaring StockRank. The firm is engaged in the businesses of sales, marketing, and distribution. In late May, it had a rank of 67. This has now climbed to 98. DDC’s momentum score (95) is an important underpinning of this trend. Since 21 May, the share price has climbed 9% after DCC released results for the year ending 31 March 2014. The company now has a 1yr relative strength of 31%.

This momentum is a likely response to the company’s improving quality. DCC has a Piotroski F-Score of 8,…

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PhilHofGrowYourDough

10th Jun '14

Hi Alex,

Interesting article. I'm wondering how you compiled the list of companies. I think a way to screen the delta in StockRank might be an interesting screening option, e.g. 3m Stock Rank change and 1m Stock Rank change. This might generate some interesting companies to watch.

Thanks
Phil

Edward Croft

Yep - the StockRanks changes page is going to be live within a week I hope. (Don't hold me to it though). It's built on the staging site, but we are thinking about the best way to publish it.

We are likely to add a new 'Ranks' navigation option at the top of the site.

shanklin100

Hi Ed

Will one also be able to look at how Q, V, M and SR have changed for a given stock over time? Having only subscribed on Sunday, it has already become obvious to me that after good or bad updates, particularly when they are not FY results, all these metrics will be playing catch up for days or weeks.

For example, PRES announced H1 results today and there have to be broker forecast increases in the pipeline. However, these are not yet reflected in any way in the Q, V and SR metrics and will not be until the upgrades come through. M may move quicker if guestimates of these increases start to be reflected in the share price.

It would be interesting to know how these metrics tend to react over time to an update which is out of line with existing market expectations.

Regards, Martin

Hi shanklin - we've been tracking the StockRanks for some time now in a data collection. The data was a bit patchy to begin with as we built out the systems but now we are archiving it daily. The goal is to start charting the StockRanks for all stocks. We aren't quite there yet, but I hope that we can at some point this year.

We are working on the fundamentals timeliness. I think within about 6 weeks we should have 'flash' announcement statements live for all stocks very shortly after results. These are semi-automated results post trading or earnings announcements. The timeliness has not been up to my standard in the last UK reports season but we are aiming for it to be next time round. Estimate upgrades obviously also have a lag, but my experience is that they have been updating much more quickly.

The good news is that the stock market doesn't price things as quickly as it ought to - so much for efficient markets! Fundamental anomalies can persist for a long time - up to a year - valuation anomalies even longer, while earnings upgrades can take weeks to months to have their full impact on stocks - so the data lags we've experienced (which have been anywhere from days to weeks in recent months) haven't meant there have been missed opportunities.

What tends to happen is that M (momentum rank) moves around a lot during the year as price and estimates change, V (value) may move counter to M (as its slightly uncorrelated and moves in the opposite direction) but you may find bigger moves on new quarterly, interim and annual statements. V is (currently) completely rear view mirror facing - we've not put any forecast data into the V Rank as really the Momentum Rank covers the trend (forecasts) very well. The Quality Rank should be a lot more stable, only updating on fundamental information changes (after results). Of course all these ranks will drift as they are relative to the rest of the market.

The Growth rank is highly correlated with both the Quality and Momentum ranks - there was a great post by Richard Beddard of interactive investor where he talks about being an 'Accidental Growth' investor. There are loads of growth stocks in amongst the QM and QVM lists. One doesn't have to explicitly screen for growth to find great growth companies - it's better to invest in the drivers of growth (Q) or the predictors of growth (M). That's my philosophy anyway. What we've found is that Growth in backtests really doesn't work as a method to rank the market - it's very well priced. This was discovered in many publications such as Richard Tortoriello's "Quant Strategies for Achieving Alpha" amongst others.

I'm rambling now so must cut off... but @PhilH - yes the screening rule is a good idea... we've put a little portal together to look at these changes and I'll let you know when it's out.

Mark Simpson

Looking forward to the historical ranking data. In an ideal world I'd like to be able to 'surf' the ranks. Paddle into buying good value, high quality stocks, holding them as I zoom down the face as earnings and price momentum build and value wanes before jumping off as momentum drops away before paddling back out for the next set. I'm sure it won't be quite that easy but the historical figures add real value IMO.

Re: excluding growth rank, I think this is a good decision. The others have strong academic evidence for positive payoff whereas growth is usually overpriced by the market. I've not read Tortoriello's book but it looks more like smart beta than alpha to me ;-)

ps. any any further thoughts on using the mind map to show how the stock ranks are created...I found that a useful visualisation. And also we talked about a couple of potential improvements from the research in Quantative Value e.g having some sub ranks or using CHS instead of altmann. Did you decide that these would be too confusing for most users?

Hi Ed,

Thanks for that info.
Given the increased focus on StockRank I think it would really useful to hyperlink the StockRank on a StockReport to the popup breakdown that is available in tables. I'm guessing that this should be a trivial interface change.

It might also be useful on the Stock pop up summary when you over a stock in a portfolio.

I hope that helps
Phil

Rusty2

11th Dec '15

Just looking at Telford Homes (LON:TEF), the share price has fallen back quite a bit and is now looking good value to me. The figures last week looked good but the share price did not go up much, of the builders this is looking the best value to me.

StockRanks - upgrades and downgrades - June 10th

Telford Homes goes through the roof

DCC jumps 31 points

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Alex Naamani

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