Value Investing Portfolio Criteria

I am about to start a new portfolio for myself.  I want this to be a broad portfolio of stocks that I can hold on to for some time.  And, along with many of the other holdings I keep, I am going to use purely Value Investing techniques to find the stocks I am looking for.  Now, more than ever, it is going to be incredibly important to make the best stock picks you can.  Up until now, up until the past couple of years where the Federal Reserve has pumped the economy to maximum, picking stocks was a matter of merely going with the flow.  Those days are over.  And, working within a purely value investing criteria may very well be the absolute best strategy moving forward.

There is far too much inflation.  And, the Federal Reserve is shifting gears.  Whereas, up until just a couple of weeks ago, the Fed was air-dropping barrels of lighter fluid onto the economy, now they are showing up with water trucks in order to put out the flames.  For the record: I believe the Federal Reserve is behind the curve with where they should have been.  Easily, they could have started raising interest rates over a year ago.

The Economy & Value Investing

I have made it clear that I believe the US economy is about to slow down significantly.  The US consumer is being taxed too much from inflation.  And, the Fed just raised interest rates which will add to the payments that consumers will be making on their credit cards for purchases they have already made.  That will affect future economic growth.

And, higher interest rates will affect borrowing costs for auto loans & mortgages which, that will also have a dampening effect on economic activity as individuals will have to downsize their purchases for a new car or new home being built.  These little moves will have ripple effects throughout the economy.

Give that, I am not in a huge rush to make any stock picks.  Instead, I am looking to line up stocks.  And, I am also going to be focusing on economic indicators as to when to pull the trigger.  I will want to see the health of the US consumer start to pick up again.  And, I want to see expenditures increase as one of the most important variables in timing these acquisitions.

I will be continually updating my content with which stocks I am going to pick and when I feel the economy is on the mend enough to pick up and start moving.

Criteria for Value Investing stock picks

Along with the economy, there are criteria that I am going to be adhering to to pick my stocks.  The criteria is simple, really.  And, when you lay it out you see what it takes to pick winning stocks.

First, I will establish a baseline performance level for comparison.  And, I have about 20 different ratios that I like to look at when I evaluate any one stock.  These ratios will allow me the ability to measure up any stock to all others.  Here are baseline measurements I want to establish for comparison:

  • Increasing Revenue Quarter after quarter;
  • Revenue increase in top 1% versus all other in sector;
  • Gross Margins in top 1% versus all others within sector;
  • Operating Efficiencies in top 1% versus all others;
  • Revenue Per Share in top 1% versus all others;
  • Price/Earnings or Dividend Yield in Top 1% versus all others;
  • High Capital Turnover Rate; and,
  • High Return on Capital.

These are the things I will be looking at.  I am going to look at individual sectors first and try and find any one stock that fits into the top areas of these categories.  If you have a high performing company that is checking mostly all of the boxes above, is competitive against other companies, and has a market monopoly of sorts where pricing is not an issue, then likely you could have a stock that will perform well over time.

I will also be starting by looking at each sector within the S&P 500 and finding the baseline comparison for each metric above.  That is the starting point.  Then, I will be looking for any stocks that outperform these baseline metrics while also being undervalued; no short task.

The timing is ideal

Over the next several months there will be a lot more upheaval in the stock market.  Many will be getting out of positions and, that selling is very likely to push through with excellent companies finding their stock prices at reduced rates.

I will not be looking at “high-flying” stocks, or sorts.  I want stocks that are below market value, below the averages.  But, that is the art of picking stocks.  A value investor will need to sort through all of the various stocks to find a particular gem in the rough.

I am looking for more selling in the stock market all through the remaining part of this summer as the results from Q2 start showing up in company financials.  These results are very likely to show dismal returns from revenue growth; and, by extension, profitability, as the consumer will have heavily entrenched themself from 40-year high inflation rates.

Weekly Continuous Updates

Look for me to continually update this line of thinking as I move forward.  This is going to be a major part of what I do over the next several months, quarters, if not a few years.

I am going to start on the tech sector to begin with as that always has some higher-performing companies.  But, keep in mind that I am likely to shun the overly popular stocks simply because upside potential will be limited.

Also, I will absolutely be working on my cannabis stocks and updating that material.  I will be looking to do at least 4 companies per week along with 2 videos per week on my YouTube channel so, there will be plenty to work with.

And, I will especially be working on my Markets & Economic Indicators content continuously… now more than ever as we are seeing so much upheaval… and opportunity.

6 thoughts on “Value Investing Portfolio Criteria

  1. Hello DH That’s a great idea and I will be investing with you, as we will be more we’ll rounded in the investment world thanks enjoy your efforts to bring the members well researched investments. Larry 

  2. Hi D.H.
    In your more recent video’s, you mentioned that you foresee a huge decline in stock prices after the release of the GDP.  If that’s the case a broad selloff would also lead to lower cannabis stock prices as well.  That being said, wouldn’t it be prudent to hold off any additional purchases of cannabis stocks, until the market levels out?  Also, there is a good probability that we may reach new all-time lows, which may present an ideal time to average back in.  Your thoughts are appreciated.
    Gary Osborne

    1. I’m obviously not D.H. but I can’t help myself from chiming in. sorry.
      You make a good point, darn good question!!!! 
      Will POTUS whip out his pen and decriminalize marijuana and issue pardons, etc,etc(?) 
      He will if he listens to the Democrats trying to get him to do just that!!!
      I think that question there, makes your question difficult to answer right now.
      Your question is still a darn good question!!!!!
      POTUS ran on this issue, and its time for him to whip out his pen and honor that promise, decriminalize marijuana, issue pardons to try and make up for decades of un just incarceration of people who smoke marijuana, destroyed families, etc, etc.
      I am not a Democrat or Republican.
      Most cannabis stocks D.H recommends are already at or near 52 week lows or all time lows, over 80% or 90% undervalued, making profits, or close to it, and some will still be making profits even with the economy, and some stocks on D.H’s list, I think will grow quarter to quarter. Some will, many  revenues will drop.
      I think there will be opportunities to get some cannabis stocks cheaper, until something happens towards legalization but it can happen in an instant, not giving people time.
      If Potus decriminalized marijuana, IMHO many cannabis stocks could pop up 50%, 100%, 200%, 300%, in an instant just on short covering, not to mention people who follow cannabis jumping in. then people getting in on hopes of uplisting, quick trades, then sell. I think that will lead to a lot of positioning in cannabis stocks. some of it will be people getting completely in and out, and some rotating into different sectors of cannabis, etc,etc.
      If the democrats don’t convince POTUS to  remove marijuana from a schedule 1 drug and issue pardons, etc, they risk getting credit for when it does happen, or having to share credit with Republicans.
      Also if POTUS does not whip out his pen and honor his campaign promises, the Republicans can make political hay out of that this November.
      I think the Democrats have their last chance now to get POTUS to decriminalize marijuana, because if they don’t they lose control. The Republicans will have the power to hold off their votes if Democrats want to get a law passed this year!  The Democrats have a lot more to lose IMHO.

       

    2. @gosborne403outlook-com 

      Hi Gary… Great question.  And, it’s tough to gauge this. On the one hand, yes, stocks are very likely to sell more. We will actually get some solid information just this week as we go into Q2 earnings from Delta and others.  And, there are two key economic indicators about to be released that will tell us a lot more also, such as inflation and Retail Sales.  Many in the industry believe that stocks will weaken further because of what is likely to unfold.

      That being said, how much lower could cannabis stock actually go?  They are far below levels that one could call simply undervalued.  And, what if POTUS did whip out a one and de-schedule cannabis from level I?  That would send stocks much higher.  Fast.  You could be left behind.  

      The fact that Senators went to the President asking him to do something tells me they can’t get anything done.  My expectations were that a bill would hit the Senate at the end of this month.  But, I have little expectation beyond that and the fact that the key Senators did go in to the Oval Office to try and get something done tells me Congress is going to come up short.  That hurts.  But, it could all go away with one pen stroke.  

      Maybe what you could do is buy some calls on MSOS ETF and use them as a lottery ticket while at the same time wait for stocks to fall even further and then load up.  This way, you are playing both sides of the potential outcome.  

      1. @dhtaylor Why do we not talk about SAFE Banking ACT anymore isn’t that a Bi-partisan subject about safety, cash accounting, lower rate loans, lower security cost. possible up-listing etc.
        We don’t have to have Federal legalization now but we do need the Government to spend some time and money on the illicit market and make it a Safe Business Environment. IMHO
        Is that too much to Ask?
         

      2. We have been told that something will be coming out of the Senate prior to the August recess, which should hit about August 6th.  My thinking is that the Senate will drop its version of cannabis federal legalization.  And, if they do submit something it will be just prior to that recess date.  Until the Senate drops their version of cannabis legalization, there really is nothing that we as shareholders or consumers can do other than wait for the Senate to do its thing.  in the meantime, if Biden were to whip out a pen, the whole thing is moot.  

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