Story stocks drive Kirkpatrick's growth strategy to new heights
Major indices marched ahead in February and some of the biggest beneficiaries of that optimism (although not all) were the stocks in our Charles Kirkpatrick growth investing strategy.
Kirkpatrick’s focus on a simple mix of technical and fundamental indicators have made his growth, value and momentum strategies popular in the United States. It’s a combination that is reminiscent of the better known CAN-SLIM growth strategy devised by Bill O’Neill (see the screen here). Last year, it was Stockopedia’s version of Kirkpatrick’s value screen that made all the running but things have changed in 2014. The current batch of 12 stocks in the growth portfolio has returned 18.7% since the turn of the year, eclipsing the 6.3% produced by the FTSE 250 (see the screen here).
Kirkpatrick looks for companies with 130-day moving averages in the top 20% of the market and operating profit growth in the top 10%. In other words, the strategy hunts down explosive profit potential in stocks that may have already caught the imagination of investors. They’ve also got to be valued at more than £200 million.
With those ambitious criteria it’s no surprise that the current market-trouncing portfolio holds some of the biggest ‘story stock’ names around. Topping the list is online fashion retailer ASOS (LON:ASC), which has now clawed back most of the ground lost during a sharp fall in price during late January. Investors appear to have recovered their nerve after being spooked by a couple of cautious analyst notes. Since rebalancing of the Kirkpatrick portfolio in mid-December, Asos has risen by just over 14% (to 6,873p).
Analyst notes have been the focus of attention at online video search business Blinkx (LON:BLNX) recently. The portfolio’s Blinkx position is nursing a near 50% loss since a Harvard professor wrote disparagingly about the company in February. Fast growth stocks like Blinkx appear to be increasingly vulnerable to hedge fund short sellers who believe their valuations are over overstretched. Short interest in Blinkx saw an unprecedented leap from 2% to 10% when the its price hit 200p last autumn (as the charts below show). Investors who were able to spot this massive short move early may have had an edge in realising problems were afoot. In the coming weeks, Stockopedia’s new Ownership functionality will be launched to help to solve that problem. Sign up here if you’d like to be among the first to try it.
The overall portfolio winner in recent months, by a huge margin, is insurance services group Quindell (LON:QPP) - another stock that divides opinion. Quindell has risen by 123% (to 37.6p) since rebalancing, aided by news that its financials will hit the upper range of market expectations when it reports its full year results in the coming weeks.
Interestingly, Asos, Blinkx and Quindell have all ceased to qualify for Kirkpatrick’s growth strategy rules (and if that continues they will drop out of the portfolio when it’s rebalanced later this month). In fact, of the 12 companies in the portfolio, only two - stockbroker Numis (LON:NUM) and self storage business Safestore Holdings (LON:SAFE) - continue to qualify.
On current numbers, electronic payments processor Optimal Payments (LON:OPAY) will be leading the list heading into the second quarter. It’s a company that doesn’t attract the same divisive opinions as the current crop of Kirkpatrick stocks, but certainly has the price chart of one of the market’s fastest growers. Other interesting upcoming shares that could well make it into the new portfolio are IT assurance business NCC (LON:NCC) and housebuilder and land trader M J Gleeson (LON:GLE).
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11 comments
Trading statement out this morning
Guys - I can't find an answer to a seemingly simple question. I am drowning in details. What proportion of Quindell's revenues and profits are derived from personal injury claims? The total revenue in their last interim results was £163m and PBT £53m. Even an educated guess would be useful. Thanks.
In my experience, intelligent investors listen very carefully to the bear case.
Concisely put Paul.
Hi EE,
Bravo, very well put!
I do indeed remember Accident Exchange well - because I lost about £250k on that share, and it taught me a very important set of lessons, learned the hard way.
The Quindell model is different, in that they co-operate with the insurers (as opposed to the confrontational approach adopted by ACE), who apparently are happy to pay Quindell reduced amounts for fake whiplash claims. HelpHire also changed their business model to co-operation with insurance companies, and as a result their debtor book rapidly shrank, it turned cash positive, and hence for a while HelpHire looked a good investment, indeed I almost doubled my money on it last year & early this year. However their core work in providing hire cars to no-fault accident victims, is drying up somewhat, and margins are tight, so they are now changing their business model.
So when HelpHire raised more money recently & decided to copy Quindell's business model, that's when I thought it's time to get out, so I sold at 6.8p. HelpHire is now building the business around "personal injury" claims, which as we know are overwhelmingly fake whiplash claims.
We don't punish white collar crime properly in this country, that's why it is becoming so widespread now. A radically harder approach is needed, with zero tolerance from wrong-doing in any sector, be it insurance, banking, etc.
The modus operandi of these companies seems to be to use call centres staffed with spivs, to encourage people who have not been injured in accidents, to submit false claims for whiplash. These are not disputed, nor subjected to any scrutiny, and the insurers just pay up. That needs to stop. The insurers must start grilling every claimant, face to face. I bet that would stop the vast majority of claims overnight, and kill off the companies milking this area. Many people will lie on forms submitted to insurers, if they think they will get away with it, and there will be no punishment. But very few people will lie face to face, to an independent Doctor who examines them. Most will get cold feet & withdraw their claims.
The insurers know exactly what they need to do, but they've been making money on this whole scam too, and passing on the cost to you & I through inflated premiums. It's not good enough.
Regards, Paul.
All well said again, Paul.
I notice that there have been a lot of e-petitions to the Government on the general topic of car insurance, none of which seems to have gained any traction. Why not pick the bones out of them, set up a new e-petition and promote it? I'd be happy to help - but I'm sure you know more about the murky bits than I do, so would be happy to sign (and promote) any e-petition you come up with on the topic.
cheers
ee
Exaggerated claims?
You can listen to an example here: http://www.youtube.com/watch?v=XnkaczvZkEo
Hi shipoffrogs,
Wow. That is a seriously damning video - of whichever claims firm it was.
A friend of mine told me that within about an hour of having a car crash, someone from Quindell called them and said something along the lines of, "you do realise that there's a cheque for £3,500 with your name on it, don't you?"
This whole area of fraudulent whiplash claims is a disgrace, and has been for years - it seems ingrained in British culture, that defrauding insurance companies over false whiplash claims is absolutely fine. We, the hapless motorist, pay something like £80 each in extra premiums for this fraud, and a whole sector of support companies has grown up around it.
Investors who choose to ignore the evidence and buy into companies that profit from this area, are greedy, and unscrupulous, or foolish, in my opinion. Or any combination of the three.
I hope that the authorities shut down this sector, and start sending people to Prison, who make false whiplash claims. It's not acceptable, and has to be stopped.
Quindell hit on the idea first that you can circumvent the new rules on referral fees, by vertically integrating the companies in the chain. Now HelpHire are copying them, hence why I decided to sell my HelpHire shares. This is not a sustainable business model. By their own admission (see the Cannacord note again), Quindell deliberately obscured what their business model actually is, to avoid telegraphing the big profits to competitors. That's why their results statements are so deliberately muddled in trying to explain what it is they actually do - technology-enabled this & that, it's gibberish! The truth is, a large part of the profit comes from personal injury claims - which means fake whiplash claims.
You will also note that they had to raise something like £200m in fresh cash recently, as for all the profit, it doesn't make any cashflow, as the legal cases take about a year to pay out. They'll be back for more cash later this year I reckon, for the same reason.
The one thing I've learned in the last year or two, is that you can argue until you're blue in the face with bulls, that the business they are investing in is going to end in tears, but they just try to shout you down. And get personally very nasty & abusive in the process. With me, it's like water off a duck's back, because I know I'll be proven right in the long run, and there is a long list of people who will be needing to create new aliases on advfn again, once their existing ones are totally discredited in due course.
All just in my opinion.
Regards, Paul.
Hi Steamy,
No, Paul's views are his own. He's a hunter of shares and reaches opinions from his own research.
With strategies like Kirkpatrick's it's really all about trusting the rules. Quindell ticked all the boxes for that screen last September and has since done fantastically well. That's precisely what an investing strategy like this is aiming to do. But Quindell doesn't qualify now so will probably be out of the portfolio later this month. That's not really a judgement on Quindell, just that other companies are doing better on specific rules.
That said, Quindell does qualify for one of the most successful of Stockopedia's tracked strategies last year - Earnings Upgrades Momentum (where analysts are revising their forecasts). But there are also red flags regarding its earnings and accounting (http://www.stockopedia.com/apps/montier/?ticker=QPP). These are warnings that everyone will interpret differently.
I hope that helps. At Stockopedia we advocate rules-based investing, and on that basis Quindell has been a big winner recently but it also comes with things to watch out for.
Don't forget we've got a whole load of support regarding Bulletin Board concerns (starting here: http://help.stockopedia.com/knowledgebase/articles/329757)
Cheers, Ben
Ben,
It good to see the results of this screen, I have also made significant gains on $qpp, your collegue Paul Scott has written "My view, is that Quindell is a thinly disguised fraud. It's all about fake whiplash claims, that's where a lot of their profit comes from. Even Cannacord admit that in their research. If you want to invest in something so weak, then go ahead, but accept the consequences. This will not end well, in my view. The profits are not real, and they will need continuous injections of cash until the Instis realise they've been sold a pup"
See more at: http://www.stockopedia.com/content/insititutional-interest-in-quindell-is-gathering-pace-81521/#sthash.9EWeVWVC.dpuf
Ben I am interested to hear your comment on the serious allegations made by Paul Scott, Ed Croft do these allegations represent the views of Stockopedia management / company?
Regards
Steamy
Steamy,
Even Cannacord admit in their research on Quindell that about 90% of whiplash claims in the UK are either totally fictitious, or exaggerated. That's what I was referring to - "personal injury" is where Quindell makes a very large part of their book profits, and it's essentially based on fraudulent whiplash claims, as flagged up by Cannacord.
Therefore in my personal opinion, this is a very dubious business model to base an investment on. Also, the cash collection at Quindell is horrendous, but they refer to cash collection only on trade debtors. Whereas if you look at other debtors, they are growing so fast that last time I looked they had equalled or even exceeded trade debtors - that again is because of the long cashflow cycles for personal injury (i.e. fake whiplash claims).
Most worrying of all, it now looks as if the regulators are on the case, see this article from the Telegraph. This lays bare the truth that intermediaries such as Quindell are pushing up the overall cost of motor insurance claims, by putting in an additional and unnecessary layer of costs. Quindell have prospered in the short term (in profit, if not cashflow terms anyway) by lowering the inflated costs for insurers. However, the insurers are themselves in on the game, and it's the likes of you & I who pick up the tab through higher insurance premiums.
Sooner or later the party will be regulated out of existence, and unless they can find a new way or morphing around the rules, then shares in companies like Quindell will be toast, in my opinion. No idea when that will happen, but it's my view of the long term outcome.
Worries along these lines led to me ditching my shares in Helphire (LON:HHR) recently, as they are now trying to copy Quindell's business model of cashing in on bogus whiplash claims, by buying a personal injury firm of lawyers apparently cheaply (for a reason, of course).
In my experience, intelligent investors listen very carefully to the bear case. You seem intent on trying to shut down the bear case, which isn't going to happen.
There are a lot of people in the City who don't buy the Quindell story either, it often comes up in conversations (unprompted by me) in City lunches I have.
Anyway, bulls and bears are what make a market, let's just agree to disagree.
Regards, Paul.