The sucker stock label has generated some controversy but I personally have no problem with it. I think it is good for novice investors to get a slap in the face when they are considering a speculative small cap they have seen at an investment show. You have to be pretty thin skinned to get insulted by the outcome of a computer algorithm, in my view.
I have also debated with Ed and Phil on Stockopedia whether it is worth looking at sucker stocks. I can understand their view that it isn't. However, I think the statistical methodology to demonstrate this is flawed.
It assumes that any sucker stocks that have changed to a different status are sold from a portfolio. I understand the reasoning for this - private investors hold for about a year - but I just don't agree with it.
The point of owning a sucker stock is that it eventually loses this description and after it does so you continue to own it. You don't say "oh dear my sucker stock is starting to do well and is no longer labelled as a sucker stock. I better sell it in exchange for a sucker stock."
A lot of the debate on this subject concerns perennial topics such as whether we can forecast the future etc. We can turn the issue around to this: if we can forecast sucker stocks that will change their status then it can be rational to invest in them.
I have used EU Supply (LON:EUSP) as an example given that it is fairly obvious it will move from a sucker stock status. It really isn't rocket science and doesn't require mystic meg. Incidentally Phil asked whether I am "mystic meg or septic peg!!!!" - we will find out I guess.
EU Supply (LON:EUSP) has a quality rating of 2 and is rated as a sucker stock. However, revenue has grown 23.8% a year since 2012. The group produced a marginal loss in 2017 and is forecast to produce a profit this year.
Some will say "how can I possibly forecast that it will produce a profit this year?" Well revenue has been growing and unless this stops the group will move into profitability. The quality ranking of…
