"Speculative, Super Stocks" - love them or hate them, you can't beat them

In last week’s newsletter, I mentioned Frontier Development’s stunning recovery over the last eighteen months. Back in 2024 Frontier’s share price had slumped more than 90% from its peak but was still classified as a Falling Star with a Value Rank in the 30s. But by early 2025, after strong interims showed its new strategy was working, its StockRank jumped from 54 to 95. That marked the bottom, setting the scene for an eventual tripling of the share price.

What’s more - the ranks and style classifications at the top of the StockReport began changing several months before the share price moved. The Value Rank rose from 24 in November to 89 in January (indicating the shares had become cheap), while the StockRank Style shifted from Falling Star to Neutral to Contrarian to Super Stock.

I’m always asked about the value of these StockRank Styles - and which are the most powerful.  So in this article, and next month’s webinar - I hope to answer these questions.

What the classifications mean

In the header of every StockReport we publish several classifications.

• A Risk Rating (Conservative, Balanced, Adventurous, Speculative, Highly Speculative)
• A Size Group (Large, Mid, Small, Micro Cap)
• A StockRank Style (9 classifications from Super Stocks to Sucker Stocks)

If you put them together, they make a phrase. It’s often far more understandable than a page of data - “Highly Speculative, Small Cap, Super Stock” tells you a lot. That’s what Frontier is classified as today.

I won’t do a full explainer here - (you can learn more in the Academy) - but there are nine Styles, built from the share’s unique combination of Quality, Value and Momentum. The four winning styles are exposed to at least two of the three QVM factors. The four losing styles are exposed to at most one. Neutral is everything in between, and it makes up about a third of the market.

Frontier went on a journey from being a High Flyer (high quality and momentum, expensive valuation), to a Falling Star (profitable, still expensive but negative momentum), to a Contrarian (now cheap, but still no momentum) to a Super Stock (regaining its full mojo). The odds improved through this journey.

How the StockRank Styles have performed

We’ve been bringing the performance of our StockRank Style charts up to date using a new backtesting engine over our archive data. We’ve modelled the performance of each Style by creating equal weight portfolio, rebalanced once a year, with and without dividends, from April 2013 to September 2026.

The solid bars are the price return. The hatched bands on top add the average dividend yield over the backtest periods. Super Stocks compounded at over 15% a year. Turnarounds at 14%. Sucker Stocks lost 9% a year.

The dividend layer is insightful. Super Stocks paid 4.0% a year and Turnarounds 3.9% - both styles contain cheaper shares, and generally in the UK cheaper shares pay dividends with higher yields. High Flyers paid only 1.6% in dividends - a lower yield from premium growthier names. Sucker Stocks paid only 0.2% - junk stocks do not pay dividends!

What if we cross the Styles with the Risk Ratings?

We publish five Risk Ratings based on each share’s price volatility - if we cross them with the 9 Styles - we can make 45 squares, every a unique portfolio. You may want to open the image below in a new tab (right click) so you can zoom in.

The columns read from Highly Speculative (on the left) to Conservative (on the right). The rows are Styles - you can see that Super Stocks beat High Flyers beat Neutral beat Sucker Stocks in almost every single risk band.

If you read across a row - you can see that risk is not always a reward. Yes it can be a multiplier on stocks that have good fundamentals. Among Super Stocks the riskier bands paid more, 17.8% a year for the Speculative ones against 13.1% for the Conservative. But Highly Speculative shares are generally a very bad bet - Neutral Highly Speculative stocks lost 12% a year, and Highly Speculative Sucker Stocks -15%. Taking risk when the fundamentals are against you is the most expensive thing you can do in investing.

Of course, my eyes only see one cell - Speculative Super Stocks returning 17.8% a year. That’s 15.2% of price return plus 2.6% of income, across an average portfolio size of 28 shares. In a cost-less world, that would turn £100 into £676 over the study period. Realistically, there’s a couple of percent of annual cost - so the return moderates - but it’s eye-opening.

How does a portfolio of Speculative Super Stocks perform?

For fun I ran a little ladder - how does a portfolio perform of the top 30, top 20 and top 10 Speculative Super Stocks by StockRank?

The record is a bit messy, but instructive. Till the pandemic the more concentrated portfolios (10 stock, 20 stock) outperformed. By September 2019 the top 10 was 51% clear of the full bucket. Then they gave all that outperformance back. The broader 30 stock portfolios eventually outperformed - and they did it with less volatility. The 10 stock portfolio had a 47% maximum drawdown versus 36% for 30 stocks.

I’ve outlined this point before in the StockRanks Ebook, but whether a share ranks 99 or 90 doesn’t really make much difference - there’s no need to overweight a ranks precision. If a share is a Speculative Super Stock - it’s a good bucket - owning the bucket often pays better than picking from it!

Which are the highest ranked, Speculative Super Stocks today?

If you screen the UK market for Super Stocks rated Speculative you find 33 shares with a median Market Cap of £143m. Speculative doesn’t mean small - Ithaca Energy is £4.9bn and JD Sports is £3.5bn - both are rated Speculative because their shares have been volatile. There are 23 dividend payers, and currently there’s an average yield of about 2.7%.

Here are the 20 highest-ranked of the set:

What the 33 have in common

Here are a few themes I’ve spotted across the broader set:

The North Sea trade. There are five oil and gas names on the list, and they are giving good dividends - Ithaca on 7.7%, Harbour Energy on 4.3%, EnQuest on 3.0%, plus Kistos and Capricorn (currently bid for). Many of these are naming the oil price as real tailwind this year. Roland noted that EnQuest’s Malaysian acquisition in June (an independent buying mature production from a major), has been a model that’s been very cash-generative for smaller operators - its shares are up 129% over twelve months.

The UK consumer may well recover? There are nine consumer exposed names in the screen: JD Sports, Currys, Watches of Switzerland, Dr. Martens, Shoe Zone, The Works, Ultimate Products, Churchill China and Warpaint London. Many of these stocks have been saying that UK consumer confidence and spending has been a headwind this year. But this is investing - and it makes the deal on offer here. The reason these profitable,decent-quality retailers are cheap is because everyone can see the environment isn’t great. JD Sports shows the risk - it profit warned in August and fell 14% on the day.

People businesses looking for a turn? Robert Walters, Gattaca, Knights, Christie and Next 15. Cyclical consultants, recruiters and advisers after a tough few years - some are showing positives. Gattaca is in the NAPS and raised guidance by a third in May and a small beat in August.

Engineers and specialists with a tailwind. Macro tailwinds always help - Severfield has been mentioning data-centre build-out, MTI Wireless Edge has benefited from defence spending, RWS at enterprise adoption of AI.

And there’s always an idiosyncratic tail where unique companies are up to something interesting, and the fundamentals are turning. If you own any of these shares of have insights for others - please do say so below.

Anyway always remember the averages…

The last time I checked, over 2 year holding periods, 63% of 90+ ranked shares had been winners against one in four of the lowest ranked - and that means 37% of 90+ names fall in any typical year. That makes a strong argument for thinking about your portfolio as a group rather than as a set of individual picks.

Speculative Super Stocks have been the best square on the “Style” board over the last thirteen years. But just picking from the list has often been a crapshoot. I know picking the shares is where the fun lies - but always remember your odds.

Anyway - I’ll dig more into this in next months webinar - we’ll share the date and details soon.  Please do comment below!