Top Piotroski-Graham Long-Term Value Portfolio: New Mid-Year 2024 Selections

seekingalpha06-30 22:33

The Piotroski-Graham enhanced value model has beaten the S&P 500 every year since 2018 while also generating positive annual returns.January Piotroski-Graham Long-Term Value Portfolio for 2023 has ...

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The portfolios are now released 2 times per year, with the last 2 articles:  New Selections For 2024 Long-Term Portfolios And Their Performance Vs. The S&P 500 Since 2018 Top Piotroski-Graham Long Term Value Portfolio: 2023 Returns +32.6% YTD With New July Semi-Annual Selections  Annual Returns Each portfolio is measured for 2 years, consistent with the original scholars' measurement studies in the published financial literature. These value portfolios have not only beaten the S&P 500 every year since formation, but they have also generated positive returns every year since. The table below shows 1-year returns for annualization purposes, but every portfolio is measured for 2-years.  vmbreakouts.com Annual returns for the 2023 portfolio were +47.1% and +52.4% with dividend adjusted returns. Piotroski-Graham final 2-year and active portfolio returns These are the portfolios back to May 2019 of the prior 25 portfolios that used to be released every two months. More portfolio data are available on the member spreadsheets. Due to significant overlap I have scaled back to releasing portfolios every six months.  vmbreakouts.com The January 2023 Piotroski-Graham value portfolio has reached 18 of the 24-month period and is up +91.7%. The current January 2024 Piotroski value portfolio is up +14.34% not adjusted for dividends. The July 2022 portfolio is coming to a close up +35.9%. Compounded annual growth rates of the different types of my long-term portfolios compared with the S&P 500 over the same time periods are shown below.  vmbreakouts.com I offer different long-term portfolio models that have demonstrated strong returns in peer-reviewed financial literature. These buy/hold long-term returns can be further enhanced following the Momentum Gauges to avoid major downturns, as illustrated later in the article. Also, these published returns all have larger annual returns than shown and higher compounded growth rates if the portfolios were adjusted for large dividends. Methodology The benefits to financial statement analysis are concentrated in small and medium-sized firms, companies with low share turnover, and firms with no analyst following, yet this superior performance is not dependent on purchasing firms with low share prices. A positive relationship between the sign of the initial historical information and both future firm performance and subsequent quarterly earnings announcement reactions suggests that the market initially underreacts to the historical information. ~ Joseph Piotroski Retests of the Piotroski model continue to outperform all other top value algorithm models as recently shown in peer-reviewed financial literature according to Amor-Tapia, B. & Tascón, M.T. (2016). The selections offered here have been improved to include the Benjamin Graham enhancements and additional parameters described in the methods section below. public domain I am frequently asked, \"How long are these selections good to hold?\" Both Benjamin Graham and Joseph Piotroski developed their models for 2-year buy/hold periods. Numerous scholarly research studies, some referenced at the end of the article, have tested the algorithm results over 2-year periods with these models outperforming other peer reviewed value selection models. I track all portfolio results for more than 2 years and continue to see strong long term results for more than 3 years. January Returns vs. S&P 500 January 2023 Piotroski-Graham chart The current January 2023 2-year portfolio is up +103.9% when adjusted for dividends, compared to the S&P 500 +45.3% over the same period.  stockrover.com Following the Daily, Weekly, or Monthly Momentum Gauge signals shown below, you can further enhance the posted returns of the long-term portfolios. Moving to cash on the negative signals would greatly enhance returns, but you could also add profitable bear funds in downturns for additional gains.  vmbreakouts.com The signals above can also be viewed against the largest downturns in the market (SPY) (SPX) since the Momentum Gauge model began in 2018 shown below. Avoiding these downturns can increase your total returns versus only a buy/hold approach.  vmbreakouts.com July 2024: Piotroski/Graham Value Enhanced Selections These new portfolio selections include the highest Piotroski F-Scores of all the stocks screened across the US markets with a share price above $3 and average daily volume over 100k shares. In addition, the Benjamin Graham enhancements have been applied on the basis that these characteristics are well documented to deliver excess annual market returns. These stocks meet the qualifying price/Graham number values less than one and even better value score less than 0.50. According to historical long-term results, these stocks have very high investment value from oversold levels that should deliver strong long-term gains. Additionally, none of these stocks had any red-flags from the Beneish M-Score forensic algorithm that checks for earnings manipulation or financial irregularities: unclestock.com Hello Group Inc ADR (MOMO) FinViz.com  Data Report Card (stockrover.com) Commercial Vehicle Group Inc (CVGI) FinViz.com  Data Report Card (Stockrover.com) Review of January 2024: Piotroski/Graham Value Enhanced Selections I am frequently asked if stocks should be removed / replaced in every 6-month update, while the 2-year buy/hold measurement periods continue. This review provides an updated screen on valuations of the ten stocks from the 2024 January Piotroski-Graham selections with today's values. The full portfolio continues with strong valuations, but some Piotroski value scores have declined below the original cutoff value. 3 prior stocks from the January 2024 Portfolio Each portfolio consists of 10 stocks with current top selections from the prior portfolio re-examined below with the current valuation data:   (TNK) Teekay Tankers  (INSW) International Seeways  (ASC) Ardmore Shipping  Valuation Table unclestock.com Current returns for the top January 2024 Piotroski selections are shown below.  stockrover.com Introduction to Piotroski F-Score Methodology This article continues the series of testing the best value investment research over a one-year time horizon for well-documented and substantial value-investing returns. This study is testing the Piotroski F-score model to see how many of the different value portfolios formed each month can outperform the market over a year-long period. These Piotroski value selections are designed as a more stable, long-term investment approach to identify highly oversold stocks, in contrast to the Weekly Breakout Forecast based on highly volatile, short-term momentum stocks. The value selection formulas have been well-documented in the financial literature over the past 18 years to consistently outperform benchmark indexes. The Piotroski stock selections above build on the findings from the Amor-Tapia & Tascon (2016) research that evaluates top selection models in more detail in the initial August report that found the Piotroski model to be one of the best models tested for value investment selections. The American Association of Individual Investors also documents their own multi-year test results of the Piotroski F-score as one of the best-performing models, with 17-year annualized total returns of 14.4%. The V&M Breakout Enhanced Piotroski portfolios combining Graham parameters and my additional liquidity price/volume limits consistently outperform the AAII Benchmark Piotroski portfolios that delivered -24.2% in 2022, +20.3% in 2021, +0.3% in 2020, -19.1% in 2019, and -36.1% in 2018. The values and methodologies from Joseph Piotroski and Benjamin Graham were devised for long-term value approaches that differ significantly from growth or momentum strategies. Like many models, they can cycle in/out of favor as economic conditions and markets change. The benefit of the inclusion of the different types of models that I offer is to identify when these larger cycles begin to shift and readers can reap significant gains from changing models. Additionally, there has been no other value strategy yet tested in the financial literature that has beaten the Piotroski approach in all the peer-reviewed studies over competitive 1-year tests. Cycles can shift dramatically, and this is another important reason for following the Momentum Gauges closely. Background on Value Scoring Systems Calculating scores and assigning values to stocks based on fundamental data remain one of the most popular methods for value stock investing. Most of us are familiar with such scoring systems as the Value Line Rank (started in 1965), the CANSLIM composite ranking system (started in 1988), the Zacks Rank (started in 1982, first made public in 1992), and many other popular systems that have given us good results over the years. To this day, it is not uncommon to find substantial overlap among the best stocks identified by different value ranking methodologies. Most medium- to long-term investors are well served by taking these models into consideration. Less well-known are the academic composite value models based on fundamentals that continue to be rigorously tested in peer-reviewed financial literature. Some of these published models have their measurement scoring integrated into publicly available stock screens from various stock analysis websites. One of the best academic models retested recently by Amor-Tapia and Tascon (2016) is the Piotroski score model created by Joseph Piotroski in 2000: The Piotroski (2000) FSCORE: The Score consists of aggregating nine individual binary signals derived from accounting variables related to profitability. The most favorable value score is 9 and the least favorable is zero.  Amor-Tapia & Tascon 2016 The Graham Number: Benjamin Graham, often called \"the Father of Value Investing,\" first leveraged key financial ratios to identify undervalued companies with strong growth potential. The Graham Number value score results from a formula developed by Benjamin Graham that is based on his assessment that good value stocks should have a P/E ratio below 15 and a P/B ratio below 1.5: Benjamin Graham This Graham Number value equals the square root of 22.5 x EPS x P/B. Because it leaves out many other important characteristics, it is better applied as an enhancement to the highly successful Piotroski F-Score value selection model. Conclusion The Piotroski F-Score model has been well-documented in the financial literature and by practitioners to generate significant excess returns on an annual basis. In addition, the enhanced value model selections above also eliminate financial outliers and low-priced stocks that may jeopardize the best performance results possible. This value model remains one of the top selection models among dozens also tracked by the American Association of Individual Investors. The advantage of this model is described by Joseph Piotroski from his published research:  First, value stocks tend to be neglected. As a group, these companies are thinly followed by the analyst community and are plagued by low levels of investor interest. Given this lack of coverage, analyst forecasts and stock recommendations are unavailable for these firms. Second, these firms have limited access to most \"informal\" information dissemination channels and their voluntary disclosures may not be viewed as credible given their poor recent performance. Therefore, financial statements represent the most reliable and most accessible source of information about these firms. Third, high BM firms tend to be \"financially distressed\"; as a result, the valuation of these firms focuses on accounting fundamentals such as leverage, liquidity, profitability trends, and cash flow adequacy. These fundamental characteristics are most readily obtained from historical financial statements. ~ Joseph Piotroski  The majority of the portfolios I offer in my service are long-term value portfolios, even though much more attention is given to weekly MDA breakouts and ETF portfolios. You can learn more about my methods and portfolios in the recent Seeking Alpha webinar. As we see more rotation into value stocks again, I trust this will be a profitable contribution to your investment objectives in 2024! JD Henning, PhD, MBA, CFE, CAMS References Amor-Tapia, B. & Tascón, M.T. (2016). Separating winners from losers: Composite indicators based on fundamentals in the European context *. Finance a Uver,66(1), 70-94. Piotroski, J. D. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 38, 1-41.  Graham, B. (1949). 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