Finding winning stocks that will outperform the market is a nice skill to have, but that’s not the real value of what I offer to my clients. In fact, I discourage my clients from trying to beat the market by picking individual stocks. I believe in building diversified portfolios that cover many different asset classes, and then rebalancing periodically. So why do I go on record with a list of stock picks?
One reason is because my clients want me to. I think it’s just part of human nature to speculate about which stocks will go up and which will go down. Even though I discourage people from participating in this kind of gambling, I recognize that it’s part of our culture.
So a few years ago I devised a stock picking methodology that remains true to my philosophy of using critical thinking and statistical analysis. I came up with a 3-factor screening model that utilizes very different approaches to the task of price forecasting. The three screens are:
- Zacks earnings estimates, revisions, and surprises
- VectorVest estimate of fair value
- Thomson Reuters consensus analyst opinions
By looking at these three very different valuation and prediction methods, I can feel confident that I’m not just falling in line with mainstream thinking. It’s very Bayesian. Start with earnings estimates, surprises, and revisions from Zacks. Then take the best names from that screen and look for price momentum and fair value estimates, and finally take a poll of the entire analyst community to see which names have the best professional sponsorship with institutional investors.
What you end up with is a short list of stocks that have a higher-than-average probability of performing well over the next 12 months. Accordingly, here’s my list of stock picks for 2009.
Ticker Company Name Current Price
- PPO Polypore Intl. 7.56
- CAT Caterpillar Inc. 38.81
- NFLX Netflix Inc. 29.89
- QCOR Questcor Pharma 8.95
- HAIN Hain Celestial 19.09
- HRL Hormel Foods 14.01
- BWA Borg Warner Auto 10.74
- SLW Silver Wheaton 6.25
- HOG Harley Davidson 15.62
- DECK Deckers Outdoor 26.62
Keep in mind that these picks are the result of a mechanical process of screening, not fundamental analysis. If you plan to use this information in your own stock selection process, make sure that you do your own due diligence before pulling the trigger.