I Made 96.9% Returns with 25 TRENDING VALUE Stock Picks! Here’s My List for This Year 📝

about 11 months ago I released a video discussing What's called the trending value strategy I'll take you through the specifics but just to set the context the 25 stocks I listed in that video as a portfolio have delivered an analized gain of 96.9% to put that into perspective the nifty 50 gained about 30% during the same period the midcap 150 index saw a 52% increase Factor funds like momentum and Alpha did a lot better the nifty 50 delivered a solid 82% and while some sectoral indices especially the Nifty psse index did cross the 90% Mark none of these indices could surpass the 96.9% return that the trending value strategy generated I'll get into the specifics in just a minute but first let's squash the bull market 97% argument now in simple numbers this particular strategy has been outperforming the broader market index by a good 10% in not 1 not 2 not three not 10 but remarkably the trending value strategy has outperformed the market index for over 45 years I'll come to India specific numbers as well but between 1964 and 2009 the strategy delivered analized returns of 21.1% while the S&P 500 delivered a set 99.5% in actual money $10,000 invested at the beginning of 1964 would have turned into just over $69 million illust ating the power of the strategy I personally hold the trending value strategy in high regard much like some of the other strategies on my channel as it brings with it a unique perspective to investing and a structured way to significantly outperform the market so grab a pen and paper give me your undivided attention and by the end of this video we should have built an updated and promising trending value portfolio for ourselves let's begin the concept of trending value was first put forth by James oesi in his book what works on Wall Street and as you might have guessed there are two key elements to the strategy trending and value trending refers to momentum a word you've heard me say dozens of time in the last couple of years which simply denotes those stocks that are already showing an upward price movement that is catching the Market's attention you can quickly extract this list by tapping on BAS basic and pro filters then under price and volume click on six-month returns then do a descending order sort and that's it you'll have a long list of stocks that have performed well in the past 6 months indicating builtin price momentum the second part of a puzzle is value and our objective here is to identify fundamentally strong yet undervalued companies that the market hasn't fully recognized yet there's a methodology for this as well but if one looks at the bigger picture what we are essentially doing with the Strate stry is to maximize the potential of both momentum investing and value investing in fact oasi explained it well in his book when he back tested data over 45 years to find that if one had invested in the S&P index annual returns would have been about 11.2% a momentum only strategy would have yielded an yearly return of 14.5% buying only undervalued stocks using Ocean's value composite 2 indicator which we learn in just a minute would have resulted in an annualized return of 17.3% however a combination of value and momentum that is the trending value strategy would have achieved an average yearly return of 21.2% over that 45-year period if all this sounds impressive to you let's dive into the details of constructing a trending value strategy for this I'll be using ticker tape the sponsors of today's video and a comprehensive stock analysis platform with a variety of useful tools including a powerful screener to help you create custom screens or explore pre-built ones like dividend gems cashr small caps and even one featuring momentum monsters picker tape also offers a comprehensive portfolio tracker that updates your stock mutual fund and gold Investments automatically giving decisive insights like your diversification score xir analysis forast red flag alerts and much more for every company there's an impressive scorecard offering valuable information across key parameters such as the stocks performance valuation growth potential profitability and optimal entry point another standout is ticker tape's Market mover feature that helps you track the week's largest deals see what popular investors are buying and selling and even spot what promoters are doing with their shareholding there's so much more to explore on ticket tape and while some of these Advanced tools are a part of the Pro Plan here's the good news as a special bonus for my viewers ticker tape is offering an exclusive 40% discount on the Pro Plan for a limited time period while signing up just use the code in this videoos description and get ready to unlock a host of powerful tools that will make your investing a lot smarter right now it all starts with the calculation of a value score which is the combination of six different metrics the B ratio which is simply the current market price per share divided by the earnings per share and understandably the lower this is the better then there's the price to book ratio which is very useful for Capital intensive businesses again Lower is better the third metric is price to cash flow from operations and here too a low number makes the business a lot more attractive next is price to sales which is Ocean's favorite metric and once again Lower is better number five is my favorite metric the ev2 ABA ratio where the Enterprise Value is simply the market cap plus the net debt which is then divided by the eitaa earnings before interest taxes depreciation and amortization and here again a lower number is always preferable and the sixth and final variable when calculating the value score is the dividend yield and in this case a higher number is more favorable okay now that we understand the theory of it here's how we calculate the value composite score step one is to define the universe and because we need a large yet relevant base I've selected only those companies with at least 500 crores in market cap which on ticker tape yielded me some 1,860 OD companies but after removing some ETF entries the final list came to exactly 1,840 companies please note this five red coros criteria is just a judgment call from my end so if you want to try out a different number feel free to do so step two is to extract the six metrics we just discussed and all six can be found under the valuation filter making this part super easy step three is to download this information on a worksheet so simply click on the export button convert the CSV into an Excel sheet but if you're feeling lazy doing this then you can also use the worksheet I've already prepared that's attached in the videos description okay step four is the most important part so listen up closely now this is where we have to allocate a desile for every company across all six metrics like in the case of the p ratio and since we have 1,840 entries this comes to 184 entries for desile which means the lowest 184 entries in terms of its Fe is allocated desile 1 the next 184 entry so rank number 185 to 368 is desile to 36 69 until 552 is desile 3 and so on on a stock basis and as an example Hindustan petroleum hbcl with a p multiple of 5.8 is ranked 26th in my list and because it lies between 1 and 184 hpcl is assigned the first asile and is therefore awarded a single point in our value composite score calculations similarly infosis with a p multiple of 30 is assigned the four desile while Dixon Technologies with a p ratio of 228 currently receives nine points per our competition table in fact I should mention this Raymond lifestyle limited which was spun-off and got listed just last month is a company I had covered in issue 12 of my newsletter I bring this up because while it says here a p of 6.6 for my calculations the multiple is much higher and the correct picture is likely to emerge only when the company declares its Q2 Financial results either this month or in November nevertheless because every screener is essentially a system there are likely to be some cracks which is why doing sanity checks is important as I did in this case by allocating all negative ptio companies a desile of 10 so 10 points each the next step step five is to replicate the desile allocating exercise that are did with the p ratio across the remaining five variables and if one does it right then you too should have an Excel sheet just like this one here please note irrespective of the screening platform you use not every data point will be available so in the 2 3% cas cases where there was a blank or if the ratio was negative I chose to assign the 10th desile to such companies so that it doesn't skew our analysis you can understand this better from my worksheet but my point is some cleanup will be required but I'm sure you've guessed it by now a score of one means that the company is undervalued on that particular parameter and as the score goes higher 7 8 9 10 it means the company is getting more expensive from a valuation perspective as an example look at Indian Oil Corporation which is placed in the top desile for all six metrics making it super undervalued as per our trending value methodology while at the Other Extreme is a company like Vari Technologies which for all six parameters is on the 10th desite and this brings us to the last step step six which is to add up desile scores across all six metrics which gives us a cumulative value score for every company so in the case of Indian Oil Corporation along with omgc and Karma Holdings wherein it was the first asile for all parameters this comes to a total of six which is the lowest one can go AP poo tires is packed with a lot of two and three desile scores which gives it a cumulative score of 13 while Apollo hospitals finds itself at the higher end of the value score Spectrum indicating that this company is a bit overvalued currently but you know what's not overvalued in these times it's definitely by weekly investing newsletter in fact I'll say it's grossly undervalued as I feature some exciting and potentially profitable investing stories including Sami hotel's remarkable turnaround post their IPO BLS International's Revenue surge following their acquisition in Turkey zaggle impressive growth and international Ambitions Sky Gold's continued rise fueled by lower gold prices and increasing consumer demand and of course there's the story on Raymond lifestyle and how its recent Dem merger has created a potential mispricing opportunity for contan investors all this is a lot of research a lot of reading but it's all worth it when we see these ideas translate into real profits if you haven't subscribed to my newsletter then kindly do so now and also tell your friends about it part two in our implementation of the trending value strategy is to arrive at the momentum score and very simply we're looking for companies whose stock price has performed well in the recent past so again I'll go back to the ticket tape screener at filter under price and volume I tap on six-month return and there we go the stock price Return of the past 6 months is made available to us which I'll export in a CSV and map it to a revised Excel sheet please note there's no specific rule in Ocean's book that only 6 months of momentum has to be use and if you are comfortable with a little bit of volatility and a bit more work you can even try a three or a four month cycle anyways I'll be using six months here that is stocks for Price have risen the most in the past 6 months but before extracting that data it's important to reduce our universe to only those companies that are in the top desile as per their combined value scores so in our case the top tessile is 1,840 companies divid by 10 so say the top 180 190 companies which essentially means a value score ranging from 6 until 18 we then sought this truncated list in descending order based on with stocks gave the best price return in the past 6 months and from here the top 25 stocks are chosen and these 25 stocks is what comprises our trending value portfolio from the top there is Nava limited which is into Ferro Alloys Nandan Den I've never heard of this company vidanta everyone knows vidanta ran Holdings which is into autop Parts padam paper products ratan India power limited Etc and this ladies and gentlemen is my October 2024 version of the trending value strategy now notice the scores here there are a lot of 14 15 16 and 18s in our 25 stock list which tells us that even if a stock displays amazing value like what iocl OMC and Kama Holdings were showing for the value composite score momentum is also an important variable and some of the more middling companies in this 14 to 18 range are the ones that have done very well lately all said and done each of these stocks do display value characteristics in terms of a low p ratio a low PB ratio attractive price to sales Etc but there are some additional points one needs to consider when implementing the strategy so let's examine those as well okay let's start with the number of stocks and while we have taken it at 25 this number could have been 50 as as well to address this how many stocks quandry oasi did a lot of back testing and one of the results of those experiments is a 25 stock portfolio generally gives the highest risk adjusted portfolio returns so we'll stick to 25 in this case a second point that often comes up is on when to sell actually when to sell is not the right question it's more like when should one rebalance one's portfolio and idly this activity should be taken up on a semiannual basis however if you're going in for a more aggressive approach approach then quarterly rebalancing can also be effective in terms of how to rebalance we do the same exercise I walked you through earlier in this video that is pull out a list of companies with a market cap of over 500 crores from a service like ticket tape extract the values around our six metrics the p ratio PB ratio price to cash flow from operations price to sales EV to AA and the dividend eeld compute the combined value score extract a subset of the first desiles number five combine this with momentum metrics finalize a list of 25 stocks sell the underperformers from the older list that is stocks that have fallen out of the top desile and replace them with new top racking stocks and remember this should all be done with equal waiting so if you're investing 25,000 rupees then that's 1,000 rupees per stock another key aspect to understand is the type of companies this trending value strategy typically identifies now we already know most of these stocks are at the lower end of the valuation metrics which is good but I was pleasantly surprised to find that most of these stocks had an Roc a return on Capital employed of over 18 which indicates that these companies are efficiently using the capital to generate profits in other words our value stocks are now a bit more valuable and this gives me that slight assurance that these stocks are not likely to fall into a value trap in fact I did another check and just to get some external validation I even used some of ticker tapes special filters for instance there's this value momentum score which seems very close to what we have done here today and for most of our stock picks this was in the' 70s ' 80s or '90s higher this number the better it is and something similar was seen when I populated the fundamental score another of ticket tapes proprietary filters with many of our trending value stocks coming out with a respectable number there of course we don't want to complicate Matters by stuffing in too many variables but if you're keen on getting that slight Edge then do explore subscribing to Ticker tapes Pro membership plan that comes at some 200 rupees a month and if you want it cheaper of course you want it cheaper then do apply my code that's available in the description below Point Blank trending value works and I'm not just saying this because I achieved 96% Returns on last year's fix but that's also what the team at Capital mind derived when they back tested the trending value strategy on Indian stocks over a 16year time frame that is from 2007 until 2023 very quickly their study showed that trending value tends to be more of a small cap strategy which is in line with our own list where almost 90% of the stocks are either small or micro in terms of market cap secondly and in terms of numbers the capital mind study showed a kager of 20.6% over a 16-year period while the nifty50 delivered only 9.9% during that same period giving us a 10% Alpha that's similar to what oasi found in his own study the team also looked at rolling returns over a 10 year period and the data consistently showed outperformance compared to the nifty50 but yes one negative of the strategy which even I observed when studying my stocks from last year is the higher level of portfolio volatility which is understandable given the high exposure to small cap and micro cap companies so there will always be some good and bad in every strategy but as it stands the trending value strategy has done well in many markets all around the world and it's certainly something you should understand and keep as a part of your investing toolkit I sincerely hope you found this video informative do press the like button share this video with your friends do subscribe to my newsletter and I'll see you very soon until then [Music]